A payfac, or payment facilitator, typically works by providing merchants with a simplified process for setting up and maintaining a merchant account. This can include handling the application and underwriting process, managing compliance and regulatory requirements, and providing payment processing and fraud prevention services.
When a merchant wants to start accepting credit card payments, they sign up with a payfac and provide them with the necessary information, such as business information, bank account details and documents. The payfac then acts as an intermediary between the merchant and the acquiring bank or payment processor, handling the application process and underwriting for the merchant.
Once the merchant account is set up, the payfac will provide the merchant with the necessary tools and equipment to start accepting credit card payments, such as a card reader or virtual terminal. The payfac will also handle the processing of payments and manage the settlement of funds to the merchant’s bank account.
In addition, payfacs typically provide additional services such as chargeback management and fraud prevention. The payfac will monitor transactions for suspicious activity and will handle any disputes or chargebacks that may arise.
It’s worth noting that different payfacs may offer different features and services, so it’s best to check with the payfac to understand the exact process and how it works.
- Simplified setup and maintenance: Payfacs typically provide a more streamlined process for setting up and maintaining a merchant account. This can include handling the application and underwriting process, managing compliance and regulatory requirements, and providing payment processing and fraud prevention services.
- Reduced underwriting requirements: Payfacs often have less stringent underwriting requirements than traditional merchant accounts, making it easier for merchants with poor credit or a lack of business history to get approved.
- More flexible pricing options: Payfacs may offer more flexible pricing options than traditional merchant accounts, such as tiered or pay-as-you-go pricing.
- Access to a wider range of payment methods: Payfacs may offer a wider range of payment methods than traditional merchant accounts, such as alternative payments like Apple Pay and Google Pay.
- Reduced compliance and regulatory burden: Payfacs may handle compliance and regulatory requirements on behalf of the merchant, reducing the compliance and regulatory burden on the merchant.
- High-risk industries: Some industries like online gambling, adult content and products, pharmaceuticals, supplements, e-cigarettes and vaping products, Cannabis and CBD are considered high risk by traditional acquiring banks and merchants in these industries may have difficulty getting approved for a traditional merchant account. Payfacs can offer merchant account for high-risk industries.
It’s worth noting that payfacs may also have some downsides, such as higher costs, limited control over the payment processing and fraud prevention, limited customer support and limited customization options. So, it’s important to weigh the pros and cons of using a payfac and compare it to other options before making a decision.
Some of the pros of using a payfac include:
- Easier to set up and maintain than a traditional merchant account
- Reduced underwriting requirements and quicker approval process
- More flexible pricing options
- Access to a wider range of payment methods
- Reduced compliance and regulatory burden
Some of the cons of using a payfac include:
- Limited control over the payment processing and fraud prevention
- Potentially higher costs and fees
- Limited customer support
- Limited customization options
The main difference between a payfac and a traditional merchant account is that a traditional merchant account is a direct relationship between the merchant and the acquiring bank or payment processor, while a payfac acts as an intermediary between the merchant and the bank/processor. A payfac typically provides a more streamlined and simplified process for merchants to get set up with payment processing, but also offers less control over the process and potential higher costs.
Payfacs are not illegal, but they are subject to the same regulations and compliance requirements as traditional merchant accounts. Payment facilitators are required to register and comply with the rules of card networks such as Visa and Mastercard, and obtain licenses and certifications from regulatory bodies in order to operate legally.
