Everything You Need to Know About PayFac

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Everything You Need to Know About PayFac

Since the pandemic, there’s a huge 30% growth for tap-to-pay transactions. So consumers found the option essential that 47% say they won’t shop at a store that doesn’t offer the option.

While this trend was only strengthened during the pandemic, experts say this is here to stay. Hence, more and more businesses are integrating with a PayFac nowadays.

New to PayFac? Keep reading to learn how PayFac works and why your business should partner with one.

Differentiating Payment Facilitator

If you want to start accepting electronic payments, you have to open up a merchant account. This bank account allows you to process online payments via credit or debit cards. Although it sounds simple, the process is arduous as it consumes a lot of time and money.

As soon as you start setting up the account, you’re bombarded with the underwriting process. This includes the long fraud protection, PCI compliance, and chargeback management procedures. Hence, there is a disparity between what merchants need and the service available to them.

Fortunately, this disparity is quickly resolved thanks to the invention of PayFac. However, you might be wondering what is a PayFac and how can it help merchants?

A payment facilitator, commonly known as PayFac, owns a master merchant account. They have an agreement with an acquirer allowing them to facilitate payments.

To put it simply, PayFacs are companies or firms that opened a big merchant account. They allow merchants to use their accounts instead of opening one for themselves. This relationship eliminates the strenuous process of creating a master merchant account.

Some example of businesses that use a PayFac includes Uber, Amazon, and Etsy. These platforms aggregate customers’ online payments of various individual sellers under one merchant account.

The PayFac Model: How It Works

Payment facilitation starts with a PayFac finding an acquirer who can accept the payments of their sub-merchants. After signing the contract, the acquirer will issue a master merchant account to PayFac.

The PayFac will use the account to accept all client payments made to the sub-merchants. Payments can be in the form of credit, debit, and others. The PayFac will be the one who will direct the payment to the account of the sub-merchant.

For comparison, let’s first take a look at how traditional master merchant account works. Similarly, the acquirer will issue a merchant bank account after signing the contract.

The merchant will accept all client payments in this account. The difference is that here, the acquirer will be the one to direct a client’s payment to the merchant account.

How Do You Become a Sub-Merchant?

When a payment facilitator takes on a client, it’s called merchant onboarding. After passing your application, applicants will undergo screening and verification. If approved, PayFac will sign you up as a sub-merchant and start acting as your provider.

PayFacs go beyond basic processing services and offer analysis and software services. Opting for PayFac payments is also a way out of the headaches that application and underwriting processes give.

It can further provide better fraud prevention measures and is fairly easy to start. Let’s discuss more on this in the section below.

Why Should You Consider Using PayFac?

As we’ve mentioned, starting a master merchant account requires going through a rigorous underwriting process. This is because acquirers take on a huge risk when they let businesses open merchant accounts.

Since the stakes are high, acquirers need to be more selective on who can open a merchant account. Hence, the need to complete all government-required compliances. These usually include an Anti-money Laundering check, Mastercard’s MATCH, OFAC checklist, KYC, and PCI compliance.

Under a PayFac model, however, you’re a sub-merchant. So leave the chunk of compliance requirements to the Payment facilitator. You’re only required to fill out a simple form and won’t have to complete reams of documents.

Applying for a PayFac can fasten your onboarding as a PayFac has already handled the big tasks. This includes verification and tokenization, which ticks off the KYC and PCI compliance list.

Moreover, approval for a master merchant account takes time. This means it’ll also take time before you can start making sales.

The good news is that most PayFac uses an automated underwriting process. Hence, the screening will be a lot faster, which means approval will come in no time.

As a result, you start to accept payments within hours or minutes under PayFac. On the other hand, it could take you a few days or weeks if you’ll apply for a master merchant account.

Avoid Hefty Fines

Businesses that handle credit card data must meet 300 PCI DSS-specified security controls. Otherwise, you’ll be subject to paying a heft sum of fines. To avoid such, you have to ensure that your business is PCI compliant.

Master merchants are responsible for making sure their platform is PCI-compliant. Thus, PayFac users don’t have to worry about fines.

Less Risk to Your Business

The majority of the risks with online transactions fall on the master merchant. You, as a sub-merchant, will have little worries aside from the transaction fees. Recovering losses caused by credit card frauds, for instance, is their responsibility.

It is also their responsibility to manage chargeback. When buyers disprove a charge, PayFac will do all the work to resolve the issue. However, if the sub-merchant refuses to pay for the chargeback, PayFac will be the one held liable.

Acquiring PayFac Services

When choosing a PayFac provider, go for a provider with the highest PCI compliance. This ensures that your data is well-protected. It’s also advisable to look for other elements such as data analytics and local support.

Are you looking for a PayFac that can allow direct service integration to your shopping cart? Perhaps one that can let you view reports, check transactions, store customer profiles, and send an invoice in one location?

For a simplified payment solution, PaylineData is a must-have! From shopping cart integration, custom reports, interchange Optimization, and Hosted Iframe Tokenizer.

There’s no better payment facilitator than us. So what are you waiting for? Sign up today and experience the benefits of Payline Data for a whole month, free of charge!

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