A PayFac is a third-party service that enables merchants to accept non-cash payments by acting as an intermediary between them and payment processors.
What it means to be a PayFacA payment facilitator, or PayFac, is a business entity that simplifies the process of accepting and processing digital payments for software platforms, business solutions and eCommerce marketplace sellers that want to make payments a part of their end customer experience.The PayFac does so by working with an acquirer, which assumes the risks of merchant underwriting, onboarding, compliance and security, and the delivery of merchant services; in exchange, the PayFac offers improved payments, payment services economics and the delivery of a more tailored merchant experience for its merchant customers.
Being a PayFac means having risk management as a core competency. PayFacs not only enable payment processing for digital payments but also hold or share responsibility for a number of details, including merchant onboarding. Some of these can be delegated, as the PayFac’s acquirer bank is ultimately responsible for compliance with the variety of payments and money transmission regulations, managing merchant and transaction risk for fraud and other security threats, settling funds and paying merchants, managing chargebacks and disputes, and more. PayFacs must be registered with the card networks and agree to abide by their operating rules; PayFacs must also have a sponsor bank that holds their funds and assumes the aforementioned key compliance risks. PayFac Enablers and PersonasWhen it comes to PayFacs, one size doesn’t fit all, even as the baseline technology required to enable their end merchant capabilities may be similar. Below is a non-exhaustive list of different types of PayFacs that have emerged over the years.
SMB AggregatorsAggregators facilitate transaction processing and other merchant services for small to mid-sized businesses (SMBs) without the need to establish a merchant account directly with an acquirer that can operate in the physical and digital worlds.PlatformsPlatform businesses make it possible for buyers and suppliers or consumers and merchants to transact in a single place. Onboarding third-party sellers is critical to growing and scaling the platform, as is accepting a variety of digital payments and paying out payments to sellers that are part of the platform.
Business software These are software platforms that typically solve a business problem for a merchant, such as appointment scheduling or sending eInvoices, and assist those that want to embed payment services into their software to capture new revenue streams. Connected ecosystems The rise of the connected economy has made it easier for platforms and marketplaces to leverage their scale to enter adjacent sectors, adding to the complexity of merchant onboarding, servicing, and compliance.
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Source: Visa