Learn what a Payment Facilitator (PayFac) is, how it works, and its benefits. Discover how PayFacs streamline payments, reduce costs, and enhance efficiency.
What is a PayFac? A Payment Facilitator (PayFac) is a service that lets businesses quickly accept electronic payments without their own merchant account. This article explains how PayFacs work and their benefits.
A Payment Facilitator (PayFac) is a third-party service that enables merchants to accept electronic payments through a sub merchant account under their Payment Facilitator agreement. PayFacs streamline the ability to accept electronic payments for businesses, taking some of the burden away from going through a traditional merchant application process.
PayFacs are typically a SaaS platform to manage your business operations like a point of sale, or marketplace, and provide the necessary infrastructure for seamless payment processing, enabling businesses to accept credit card payments online without the hassle of setting up a traditional merchant account. They underwrite and onboard sub-merchants, offering the technology needed for swift payment acceptance.
Within the payments ecosystem, PayFacs work with processors and gateways, benefiting smaller businesses by enabling rapid payment acceptance and reducing paperwork.
Navigating the complexities of becoming a Payment Facilitator (PayFac) requires specialized expertise and a strategic approach. Swipesum is here to guide businesses through every step of the process, offering comprehensive support from planning to full implementation. Our services include contract negotiation to secure the best terms and revenue sharing, leveraging our proprietary software, Staitment, to audit monthly reports, and delivering white-glove customer support to manage disputes and chargebacks efficiently.
Embarking on the PayFac journey can be challenging, with numerous considerations such as industry-specific knowledge, cost analysis, statement reconciliation, and customer service. Swipesum provides a dedicated payments team to address these needs, ensuring your business is equipped to offer seamless integrated payment solutions. By partnering with Swipesum, you can simplify the PayFac process while enhancing operational efficiency and customer satisfaction.
To discover how Swipesum can help you become a Payment Facilitator or find the best payment solutions tailored to your business, book a free consultation with our experts today.
Payment facilitators have a master agreement with a processor to allow their customers to instantly be approved to accept payments. Their goal in becomming a PayFac is to earn revenues from payment processing through their software, and offer a better customer experience. Typically processors want PayFacs to be serving a set group of merchants, and with that paperwork completed they can offer payment processing t their customers through their software. Merchants using their software can easily accept various electronic payments. This payment facilitator model uses advanced technology to enhance transaction efficiency and speed, providing a seamless experience.
As a single point of contact for merchants and banks, PayFacs simplify payment processing, managing everything from transaction authorization to fund transfers.
Payment facilitators serve as intermediaries between acquiring banks and sub-merchants. Through their connection with acquiring banks, PayFacs collect cardholder information and authorize transactions, ensuring smooth and efficient payment processing.
Beyond processing payments, PayFacs handle chargebacks, ensuring funds are returned when needed. They also underwrite and monitor sub-merchants to manage risks and provide a seamless payment experience.
When a SaaS platform becomes a PayFac they're the master merchant account. A PayFac can onboard sub-merchants under its account, which would be the users of that software. This enables businesses to process payments without a full merchant account setup.
The onboarding process in simplified and involves KYC screening and a fast underwriting for sub-merchants to ensure compliance and reduce risks. Once verified, sub-merchants are integrated into the PayFac’s infrastructure, enabling immediate payment acceptance.
PayFacs are responsible for controlling the funding experience for sub-merchants and reconciling transactions. This streamlined approach makes it easier for online businesses to obtain payment service provider (PSP) and independent sales organization (ISO) accounts, enhancing their ability to accept electronic payments.
Most people have heard of Shopify, the e-commerce platform. What is shocking is that Shopify generates the majority of its revenue from its Merchant Solutions segment, which includes services like Shopify Payments. In 2023, Merchant Solutions accounted for approximately 74% of Shopify's total revenue, amounting to $5.22 billion out of $7.06 billion.
In e-commerce, Payment Facilitators (PayFacs) revolutionize the payment process by enabling businesses to accept payments without requiring individual merchant accounts. This model simplifies onboarding, reduces operational complexity, and accelerates transaction handling. By acting as intermediaries, PayFacs manage compliance, underwriting, and risk, allowing merchants to focus on growing their businesses without the administrative burden of managing payment infrastructure.
Shopify Payments is a prime example of the PayFac model in action. It serves as an integrated payment solution for millions of merchants on the Shopify platform, streamlining the checkout process and enhancing user experience. With its seamless setup and ability to accept various payment methods, Shopify Payments not only simplifies operations for merchants but also significantly contributes to Shopify’s overall growth. The widespread adoption of this solution demonstrates the effectiveness of PayFacs in meeting the evolving needs of e-commerce businesses while fostering scalability and innovation.
Leading payment facilitators (PayFacs) are transforming the way businesses operate by integrating seamless payment solutions directly into industry-specific platforms. From e-commerce to health and wellness, these PayFacs simplify transactions, enhance efficiency, and provide a superior user experience. With the PayFac model continuing to gain traction, tens of thousands of these facilitators are expected to emerge globally, reshaping industries by offering tailored solutions that enable businesses to accept electronic payments effortlessly.
Toast serves the restaurant industry by integrating payment processing into its platform, which also includes inventory management and point-of-sale (POS) systems. By acting as a PayFac, Toast streamlines operations for restaurants, allowing owners to focus on providing exceptional dining experiences without worrying about payment complexities.
Mindbody caters to fitness studios, salons, and spas, offering software solutions that seamlessly integrate payment processing. As a PayFac, Mindbody enables health and wellness businesses to manage bookings, memberships, and payments in one place, improving efficiency and customer satisfaction.
Shopify simplifies online retail by embedding payment processing directly into its platform through Shopify Payments. This PayFac solution eliminates the need for third-party gateways, allowing merchants to focus on scaling their businesses while offering a smooth checkout experience.
ServiceTitan specializes in software for home services professionals, incorporating scheduling, dispatching, and payment processing into a unified platform. Acting as a PayFac, ServiceTitan enhances financial management and customer interactions for businesses in the home services industry.
Lightspeed offers a robust POS and e-commerce platform for retail and hospitality businesses. Its PayFac model integrates payments, making transactions efficient and easy to manage, ultimately driving better business outcomes for its users.
Amazon also operates as a payment facilitator, empowering third-party sellers to accept payments through its platform. This setup enhances sellers' online retail capabilities, providing them with secure and streamlined payment processes. By handling the complexities of payment processing, Amazon allows its sellers to focus on their core business activities while ensuring a reliable shopping experience for customers.
PayFacs generate revenue by charging a small flat fee and a fractional percentage of each sale, making it a sustainable business model.
In addition to transaction fees, PayFacs can also generate revenue from software sales and subscription fees. Offering value-added services like advanced fraud detection and detailed analytics justifies additional charges and provides significant value to clients.
With credit card processing fees for Visa and MasterCard exceeding $71.1 billion in 2021, PayFacs can drive significant revenue growth by managing payment processing internally and offering a range of services.
The only real benefit from using a PayFac vs. other merchant services offerings is the ability to instantly accept payments, without waiting the 1-3 days to be approved for a standard merchant account. Using a payment facilitator allows businesses to start accepting payments quickly and reduces paperwork, benefiting small and medium-sized businesses looking to improve payment options and customer satisfaction.
Payment facilitators provide additional revenue streams and greater control over the customer experience for merchants. By bundling necessary services, PayFacs simplify the payment process, reduce manual labor, and enhance operational efficiency.
Payment facilitators enable businesses to accept various payment types, enhancing the overall customer experience. By enabling merchants to accept various payment methods, from credit cards to digital wallets, PayFacs cater to diverse customer preferences and increase transaction success rates, including ACH transfers, thereby improving payment processing capabilities and payment services.
Typically PayFacs earn substantial revenues from ACH as the costs are next to none, and the markup is ~.10%-1% of the transaction amount. The ability to offer multiple payment methods is a significant advantage in today’s digital economy.
Payment facilitators use a streamlined onboarding process, allowing merchants to accept payments within hours, eliminating the lengthy underwriting process of traditional own merchant accounts.
Sub-merchants can begin accepting payments in seconds, showcasing the efficiency of the onboarding process and helping businesses adapt quickly to their niches with a sub merchant account.
Payment facilitators provide flexible contract options that accommodate various business needs. These flexible contract terms let companies tailor payment solutions and set competitive pricing to fit their unique operational needs.
PayFacs must adhere to the Payment Card Industry Data Security Standard (PCI DSS) to ensure data security. By adhering to established regulations, PayFacs assist businesses in managing risk and protecting against fraud and data breaches.
Robust security protocols and compliance measures are crucial for PayFacs to protect against fraud and data breaches. Many implement tools like AML and anti-fraud measures, screen transactions for suspicious behavior, establish investigation procedures, and regularly update systems to defend against cybercrime.
PayFacs design fee arrangements to be clear and predictable, aiding in effective budgeting. Clear documentation ensures merchants are not surprised by unexpected costs, fostering trust and enabling informed financial decisions.
The payment facilitator sector has seen significant expansion, with numerous companies emerging as leaders in the market. This growth allows businesses to explore new opportunities and expand their offerings more easily.
Comparing PayFacs with other payment solutions helps businesses understand their unique advantages. From smoother onboarding to advanced fraud detection, PayFacs offer distinct benefits over traditional processors and gateways.
PayFacs offer a smoother onboarding process compared to traditional payment processors, enabling businesses to start accepting payments more quickly and capturing a larger share of transaction fees.
For fraud management, PayFacs use advanced detection measures like machine learning algorithms for real-time monitoring, significantly enhancing fraud detection and risk management.
Payment gateways serve as the communication link between a merchant’s website and the payment processor, enabling secure data transmission. Payment gateways focus on data security, whereas payment facilitators handle broader aspects of merchant account management, including onboarding and compliance.
The key difference: payment gateways ensure secure data transfer during transactions, while payment facilitators offer a wider range of services, simplifying merchant operations and improving the payment process.
Assessing the fee structures of various PayFacs is crucial to uncover potential hidden costs and ensure significant savings. By analyzing these fee structures, businesses can avoid unexpected charges and make more informed decisions.
Choosing a payment facilitator involves evaluating unique business needs, like transaction volume, features offered, and customer support. Key factors include fees, payment methods accepted, and customer support level.
Assessing these factors ensures the selected PayFac aligns with business goals, optimizing performance and user satisfaction. A thorough evaluation helps businesses choose the PayFac that best meets their needs.
Payment facilitators streamline onboarding, allowing for rapid payment acceptance and capturing a larger share of transaction fees. When quick setup is a priority, a payment facilitator is usually the best choice, offering simpler pricing models and faster onboarding.
Customer reviews offer valuable insights into business owners’ experiences with PayFacs, aiding in selecting one that offers smooth onboarding and meets specific business needs.
Accepting all major card networks maximizes payment options for customers, ensuring businesses can cater to a wider audience and improve payment processing capabilities.
Comparing fee structures among PayFac providers ensures businesses receive the best deal. Effective strategies include scrutinizing each PayFac’s fee structure, including any additional or hidden fees.
Businesses should compare fee structures to save money and avoid hidden fees that inflate costs. Double-checking for hidden fees prevents unexpected charges and aids in informed financial decisions.
PayFacs must adhere to strict industry security standards to protect merchant and customer data. Implementing advanced encryption and regular security audits allows PayFacs to safeguard sensitive information and comply with industry regulations.
E-commerce merchants can expand their reach by accepting global payments. PayFacs offer tools that simplify payment processing across regions, aiding geographical expansion.
For global expansion, selecting PayFacs that handle international transactions is crucial. These PayFacs provide multi-currency support and regional compliance, broadening market access significantly.
Payment Facilitators (PayFacs) have transformed how businesses handle transactions, providing efficient solutions to streamline onboarding, manage compliance, and enhance the customer experience. However, becoming a PayFac or selecting the best provider requires deep expertise and strategic planning. This is where Swipesum excels. From planning and navigating PayFac requirements to negotiating the best provider contracts, Swipesum ensures your business is positioned for payment success.
Swipesum doesn’t just guide you through the PayFac journey; we empower your business by handling statement audits with Staitment, offering dedicated support for disputes and chargebacks, and providing white-glove customer service. Whether you’re considering becoming a PayFac or exploring alternative payment solutions, Swipesum’s team of experts is your trusted partner. See our pricing today to unlock the future of seamless payment processing.
A Payment Facilitator (PayFac) is a vital third-party service that simplifies the process for merchants to accept non-cash payments, enhancing efficiency in payment transactions.
PayFacs simplify the payment process by acting as intermediaries between merchants and banks, facilitating seamless payment processing. This enables merchants to accept payments more efficiently and securely.
Utilizing a PayFac offers numerous advantages, including a variety of payment methods and streamlined onboarding processes. This can enhance your e-commerce capabilities while ensuring robust fraud prevention and clear fee structures.
PayFacs generate revenue primarily through transaction fees and subscription fees for software services, along with additional income from value-added offerings like advanced fraud detection and analytics.
When selecting a PayFac, it's essential to consider factors such as efficient onboarding, card network acceptance, competitive fees, strong security measures, and the ability to process international payments. These elements will ensure a smooth and secure payment experience for your business.
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Michael Seaman
Michael Seaman is the co-founder and CEO of Swipesum. A veteran of the payments industry and former employee at one of the largest payments companies, Michael, along with his brother Stephen, has led Swipesum since its inception in 2016. Swipesum is committed to providing innovative payment solutions and exceptional service to its diverse clientele. In his free time, Michael enjoys traveling with his wife Kelsey and their three children, pole vaulting, and engaging in typical Midwestern dad activities.
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