You've probably heard of it. So what exactly is it?
PayFac is shorthand for a payment facilitator. PayFac acts as an intermediary between businesses accepting payments and the entities that enable electronic transactions, such as payment processors and acquiring banks. PayFacs often provide these services through their own software, bringing payment processing responsibilities closer to the software vendors providing the solution. This enables merchants to access advanced payment features through the tools they use daily.
PayFacs leverage merchant account functionality under their own primary merchant account, which is registered with the card brands as a Payment Facilitator account, assigning the responsibility of an acquirer to the PayFac. This structure allows PayFacs to handle branding, underwriting, onboarding, payment processing, and dispute management on behalf of their merchants. Businesses that use a PayFac’s services don’t need to set up their own merchant accounts; instead, they benefit from the PayFac’s infrastructure.
PayFacs do a lot of other heavy lifting.
PayFacs takes on many of the responsibilities involved in processing payment transactions. For example, they handle the underwriting and risk assessment necessary before a payment can be processed.
PayFacs can customize the onboarding experience to match its brand and ensure compliance with industry regulations. This includes supporting Anti-Money Laundering (AML) and the Bank Secrecy Act (BSA) when an account is set up, followed by persistent monitoring of the account for AML/BSA and monitoring of transactions to uncover unusual patterns indicating fraud or other compliance problems.
PayFac is also responsible for the flow of funds. It collects transaction funds, deducts fees, and transfers the net amount to the sub-merchants' accounts. Services are open to PayFac to reduce their Money Transmission License requirements and compliance with state requirements.
PayFac is also responsible for chargeback management. Being closer to the data required to respond to disputes helps the merchant and PayFac work quickly through responses.
In addition, PacFac maintains and updates the technology infrastructure, ensuring that payment processing remains secure and efficient. PayFacs also provides customer support for both sub-merchants and their customers.
As an Independent Software Vendor (ISV), PayFac provides numerous advantages, including greater control over pricing and the flexibility to offer competitive rates for merchants across various industries and risk levels. It can also help you generate new revenue streams.
If you are a merchant, you may not even know whether you use a PayFac or a traditional merchant account. Only when you want to use this account on another sales channel will you find yourself looking for another merchant account vendor.
Managed PayFac or do-it-yourself?
As an ISV, you can register as PayFac through a provider or take advantage of a Managed PayFac service. Managed PayFac services provide specialized expertise in underwriting, ensuring proper risk assessment and compliance with regulatory standards. They also offer ongoing monitoring of accounts, managing KYC, AML checks, and transaction reviews to reduce fraud and maintain compliance before building an in-house operations team. We recommend starting with a Managed PayFac to give yourself time to learn all the compliance and underwriting requirements. You should also ensure that a traditional referral program will not provide you with what you need to integrate into your software.
Get the facts about PayFacs.
PayFacs can streamline the payment processing experience through centralized, scalable technology, rapid customer onboarding, additional revenue opportunities, and integrated reporting.
Want to see how the PayFac model can transform your business?
Contact the Qualpay sales team or visit our payment partnership opportunities page to learn more.
