What Is A Payment Facilitator Payfac

As fintech continues to grow, many SaaS companies are transitioning into becoming full-service payment facilitators (or PayFacs). They provide white-labeled payment processing services and help sub-merchants process transactions using the PayFac’s master merchant account.

With the growing popularity of eCommerce and online payments, many payment service providers today offer plug-and-play solutions that can be easily integrated into an ISV or SaaS vendor’s overall solution. This provides ISVs with the payment functions they need without the extra work and provides additional revenue generation opportunities for the PayFac.

The payment facilitator model (or PayFac model) was created to streamline the process of allowing end-users of these software platforms to process payments without adding extra steps or requiring additional solutions. So what is a payment facilitator and how can it benefit small businesses who need to accept payments?

Let’s discuss this below.


  • A payment facilitator (or PayFac) is a payment service provider for merchants. Essentially, a payfac is a company that allows its customers to accept electronic payments using their platform.
  • Payfacs work by having a master merchant account (and a master MID) through its relationship with acquiring banks. This allows them to sign up sub-merchants and run their transactions under this MID.
  • The benefits of being your own PayFac range from 1. Hassle-free onboarding of merchants, 2. Managing who is approved on the platform, 3. Opening a new pillar of revenue by monetizing payments, and 4. Adding value for your platform.

What Is a Payment Facilitator? The PayFac Model

The short answer; it is a payment service provider for merchants. To expand on that, it is a company that allows its customers to accept electronic payments using the payment facilitator’s platform. (Think Square, Stripe, Stax, or PayPal.)

These account types aggregate funds across many merchants in a pooled account. Payment facilitators provide online processing services for accepting digital payments by a variety of paym ent methods including credit cards, debit cards, bank transfers, and real-time bank transfers based on online banking.

PayFacs simplify the enrollment process by creating a sub-merchant platform, thus cutting down the approval process for a merchant account. Now instead of two weeks, it takes 24-48 hours for approval. And for software companies who have chosen to become a payment facilitator, owning the payment functionality not only gives them a new revenue stream but also enables them to manage payments as a key piece of their customers’ experiences.

Using a facilitator to monetize payments within your existing website and systems gives both your users and their customers a seamless user experience. Payments technology is embedded straight within your software infrastructure giving both software solution providers and their customers a seamless user experience. Sub-merchants will be able to more efficiently manage their business, while their customers will enjoy an easier way to pay.

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How Do Payment Facilitators Work?

Opening a traditional merchant account typically involves going through an arduous process to get your merchant ID (or MID). A payment facilitator, on the other hand, greatly simplifies the process by providing sub-merchant accounts to retailers, so they don’t need to apply for a MID.

Essentially, the PayFac has a master merchant account through its relationship with acquiring banks. This allows them to sign up sub-merchants and run their transactions under the master MID. Thus, merchants don’t need to go through a lengthy underwriting process and can be onboarded a lot quicker compared to a traditional merchant account provider.

What Does a PayFac Do?

To sum up, they perform the following duties:

  • A PayFac gets into a contract with an acquiring bank to take payments on behalf of its merchants.
  • The acquirer issues the master merchant account that the PayFac uses to accept all payments for the sub-merchant.
  • The PayFac directs the funds from the buyer to the sub-merchant account.

In short, the PayFac controls the flow of funds and assumes responsibility for paying out funds to merchants directly.

RELATED: How Payment Facilitators Make Your Platform Better

What’s the Difference Between a Payment Facilitator, a Payment Processor, and an Independent Sales Organization (ISO)

At a glance, a facilitator, a processor, and an ISO may seem to be similar, but the differences are notable.

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PayFac vs Payment Processors

Payment processors do exactly what the name says. They provide the systems and technology that process transactions. No more, no less, and are typically a standalone service. Payment processors are required to maintain Payment Card Industry Data Security Standard (PCI DSS) compliance, and many also provide payment terminals and various security solutions.

When you’re looking to embed payment services into your platform, you likely won’t work with the processor directly; instead, you’ll work with a third party that resells the payment processor’s offerings.

This leads us to ISOs.

PayFacs vs ISOs

Known as independent sales organizations, ISOs serve as the middlemen between the sponsor bank and the merchant. The ISO is tasked with facilitating the relationship between the two parties and getting merchants signed up with a merchant account.

A facilitator, on the other hand, creates a more streamlined path to electronic payment acceptance for small- and medium-sized businesses. In a traditional onboarding model, a merchant must first apply for a merchant ID (through the ISO) and sign a direct agreement with a sponsoring bank.

With a PayFac model, the facilitator already has a bank relationship allowing you to work with them instead of the bank, so it’s easier to get approved. The signup process is easier as it is usually fairly automated—typically PayFac is a service or software you are already using.

The most impactful difference for your users is cutting down the time waiting for underwriting to sign off on a new merchant bank account. Instead of waiting for days to be approved to start taking payments, your users will be up and running in hours.

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The Benefits of Using a Payment Facilitator

Payment facilitation allows a platform to instantly onboard new users and enables payment acceptance as soon as 15 minutes from the submission of the application. In addition to streamlining the enrollment and onboarding process, a payment facilitator offers additional payment processing benefits to sub-merchants including seamless payment integration solutions.

The benefits of using a facilitator include the ability to enable all major card networks and types (Visa, Mastercard, Discover, Amex) as well as ACH, eCheck, and even Electronic Bill Pay Presentment (EBPP) through one interface. Having a transparent, easy-to-understand fee structure further encourages businesses to sign up with a payment facilitator because it eliminates any surprise charges and gives merchants the ability to manage their budgets more easily.

PayFacs are particularly great for small businesses because they can eliminate a lot of headaches related to Know Your Customer (KYC) requirements, Anti-Money Laundering (AML) regulations, underwriting, and application processing.

Merchants can also benefit from PayFac’s integrated fraud prevention tools and chargeback management services in addition to the payment processing hardware, software, and APIs they provide.

Additional benefits of using a PayFac:

1. Provides a rapid and hassle-free onboarding process

Working with a facilitator eliminates the need to go through traditional payment companies. In a traditional model, merchants need to sign a direct agreement with a sponsor bank as well as apply for a MID. This typically involves a lot of paperwork which can take days (sometimes weeks) to complete.

As mentioned above, payment facilitation expedites merchants’ onboarding and underwriting process. They can complete their application and have a live account usually on the same day. Partnering with a payment facilitator provides the shared power of setting up sub-merchants quickly. This streamlines new client acquisition since they don’t have to fill out paperwork or provide documentation in order to set up their account.

Once sub-merchants are on-boarded and they start accepting money, payment facilitators are then responsible for providing the necessary customer service.

2. The PayFac manages who is approved on the platform

The facilitator enters into a direct agreement with the bank, so sub-merchants aren’t locked into a contract with the bank’s terms. This gives the PayFac greater flexibility in managing their sub-merchants.

This also means that the responsibility of screening applicants lies with the facilitator. This process is known as underwriting and it ensures that high-risk businesses aren’t approved as sub-merchants.

Once onboarding is complete, the PayFac must see to it that transactions are legitimate and comply with all applicable rules and regulations (laid down by the government and card networks).

On top of that, PCI compliance is also necessary to ensure customer data is safe and secure during payment processing.

3. Open a new pillar of revenue for your business

You’ll enjoy more revenue opportunities with a payment facilitator. With an ISO, the acquiring bank takes a share of the revenue, so it’s split three ways. But with a payment facilitator, you’ll generate more revenue from the opportunity since the acquiring bank is no longer in the equation. This leaves a larger share of revenue between you and the payment facilitator. The ability to earn more money from network and transactional fees, and potentially float a much larger amount of money for a much longer time is a benefit that helps the sub-merchant with cash flow.

4. Added value for your platform

Payment facilitators add value to your platform for your users. The integration between software and payments has opened up additional opportunities, such as EMV, mobile payment options, and contactless payment solutions. There are also opportunities for NFC (Near Field Communication) based loyalty programs providing an overall enhanced customer experience thanks to these digital payment tools. The ability to integrate these payment functions directly into your platform not only allows you to have greater control over your client’s end-to-end user experience, you’ll be able to leverage:

  • Simple and transparent flat-rate pricing structures
  • Access to seamless integrations and cutting-edge technology
  • Eliminate the need to use a separate payment software

How Stax Connect Solves Payment Challenges

An alternate payment facilitation model would be a SaaS provider with a web-based payments component. This is where Stax Connect comes into play.

Stax Connect provides a suite of features with embedded payment processing and reconciliation all in one place. It allows platforms to integrate and embed payments in as little as 30 days for a minimal cost. Your business will also have access to an award-winning support team and a dedicated partner success manager who can manage payment implementation and operations for you, versus competitors who give you a bunch of documentation and leave you to figure it out on your own.

You Might Also Like: What are the Costs of Being Your Own Payments Facilitator?

With Stax Connect, you can process card-present transactions and card-not-present transaction in a single solution. Use the partner portal to provide full reporting transparency right out of the box.

Card Present Payments – Simplify how you swipe, dip, and tap credit cards and accept contactless mobile transactions.

Easy to Integrate API – Enhance your technology infrastructure with a customizable, feature-rich payments integration.

Quickbooks Online 2 Way Sync – Auto-sync invoices, catalog items, customer data, and payments between our platform and QBO.

eCommerce Solutions – Optimize shopping cart and checkout pages with increased functionality, address verification, and automated batching.

Business Analytics – Access powerful Business Intelligence with real-time and historic financial, inventory, payments, customer data analytics, and more for every location.

Virtual Terminal – Complement card-present payments and extend your ability to accept compensation anytime, anywhere, on any device.

Learn more about Stax Connect and how you can quickly get started on monetizing payments today.

We will be happy to answer any questions you have and help you leverage the best all-in-one software payment processing solution for your needs. Contact us for a consultation or request a demo today!

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FAQs about Payment Facilitator

Q: What is a Payment Facilitator (PayFac)?

A Payment Facilitator or PayFac is a service provider that enables merchants to process transactions. They white-label payment processing services and help sub-merchants process transactions using their master merchant account. The PayFac model was created to streamline the processing of payments without additional steps or solutions.

Q: How does a PayFac work?

A PayFac simplifies the process of becoming a merchant. They have a master merchant account through their relationship with acquiring banks and can sign up sub-merchants to process transactions under this account. This eliminates the lengthy process of underwriting and allows for quick onboarding of merchants.

Q: What is the role of a PayFac?

A PayFac enters into a contract with an acquiring bank to process payments for its merchants. They control the flow of funds from the buyer to the sub-merchant account and are responsible for disbursing funds to merchants directly. They also manage the approval process for merchants who wish to use their platform.

Q: How is a PayFac different from a Payment Processor or an Independent Sales Organization (ISO)?

A Payment Processor provides systems and technology that process transactions. It is usually a standalone service and doesn’t provide additional services. On the other hand, an ISO serves as a middleman between the sponsor bank and the merchant. A PayFac, however, offers a more streamlined path to electronic payment acceptance for businesses.

Q: What are the benefits of using a Payment Facilitator?

Using a PayFac offers benefits such as rapid and easy onboarding of merchants, managing approved parties on the platform, new revenue opportunities, and added value for the merchant’s platform. They also provide additional services (like fraud prevention and chargeback management), and easy to understand fee structures, making it a beneficial choice for small businesses.

Q: What are some examples of Payment Facilitators?

Some examples of Payment Facilitators are Square, Stripe, Stax, and PayPal.

Q: What is Stax Connect and how does it solve payment challenges?

Stax Connect is a SaaS provider with a web-based payments component. It provides a suite of features with embedded payment processing and reconciliation in a single place. This enables businesses to integrate and embed payments in as little as 30 days for a minimal cost. Stax Connect offers features like card present payments, business analytics, and more.

Q: What is the PayFac model?

The PayFac model is a payment service provider model where a PayFac enables its customers to accept electronic payments on their platform. They aggregate funds across many merchants in a pooled account and streamline the process of onboarding merchants for payment processing.

Q: What is the impact of the PayFac model on small businesses?

The PayFac model simplifies the enrollment process for small and medium-sized businesses by allowing them to accept electronic payments through an optimized process. With a PayFac, businesses can avoid lengthy approvals and start accepting payments quickly, usually within hours.

Q: What is the difference between a traditional merchant account and a sub-merchant account under a PayFac?

In a traditional merchant account, the merchant typically has to go through a lengthy process of acquiring a merchant ID (MID) to accept payments. On the contrary, with a sub-merchant account under a PayFac, the merchant doesn’t need to apply for a MID. The PayFac uses its master merchant account to facilitate transactions for its sub-merchants.