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PayFac: A Guide to Payment Facilitation


8 min read

As a distributor of products or services online, have you struggled with obtaining your merchant registration? Or maybe you could benefit from having a partner who will take care of your customer payments and just settle money in your bank account without any processing difficulties. If so, payment facilitation (PayFac) must be your choice of merchant operation model. 

Global retail sales amounted to $28.2 trillion, with e-commerce comprising 20.1% of it, which is $6.3 trillion. Numbers show the immense opportunity to distribute goods and products online. The question is how to operate as a merchant easily. 

In this article, you’ll discover what payment facilitator is, and how it operates in transaction processing. Besides, you’ll get to know the benefits and examples of using PayFac, as well as how PayFacs are different from ISO, processors, and payment gateways, so you will know exactly whether this model suits your particular situation. 

What is PayFac (Payment Facilitator)? 

PayFac model is a payment processing framework where a business or software platform takes on the role of the master merchant, enabling it to process payments on behalf of its sub-merchants.

Basically, it enables sub-merchants, i.e., businesses operating under a master merchant, like Stripe or Square, to accept electronic payments without a merchant registration, banking license, or complex payment processing flow needed. Respectively:

A Payment Facilitator is a type of service provider that simplifies the merchant onboarding process to accept electronic payments.

Sub-merchants, using the PayFac model, are typically distributors of businesses. Here are business models and platforms that have a need for a facilitated payment processing flow:

Business models and platforms in need of PayFac

How Do Payment Facilitators Work?

Opening a traditional merchant account requires obtaining a merchant ID, also known as MID. It is a unique set of characters that identifies the business as a payment processing system. A MID number can be issued by a credit card processor when you sign up for a business account.

Here are the reasons why starting merchants may struggle with obtaining a MID in their region:

  • Lengthy underwriting process that may take up to several weeks
  • Difficulties in gathering necessary documents for application
  • Regional restrictions for selling particular goods
  • Regional restrictions based on citizenship

With PayFacs, distributors of goods, products, and services, don’t need to apply for a MID. Payment facilitators already have relationships with acquiring banking networks. They operate by aggregating funds from multiple merchants into a pooled account and conducting online processing via various payment methods. As a result, multiple merchants can run their businesses under a single MID. Such an arrangement allows PayFac to manage all aspects of transaction processing, under its own merchant account. 

PayFacs relieve sub-merchants from the burden of handling transaction processing themselves or dealing with external processors. They also ensures that merchants don’t need to go through the underwriting process and can be onboarded and start operating quicker compared to obtaining MID traditionally. 

Pro tip: While PayFac will handle the processing and settlement of customer payments, you still need an application or platform with a customer-facing payment interface. It will enable you to share payment details with your buyers. 

Should you require PayFac integration, payment processing flow development, or another fintech development, don’t hesitate to reach out to the DashDevs team of expert developers. With an average of 1 month to project launch and more than a decade worth of experience, we can provide you with expert consultation or direct assistance in a timely manner. 

What Is the Role of PayFac in Recieving Payments? 

It’s worth understanding that PayFac is not a separate transaction processing option, but rather a model under which a large merchant simplifies receiving payments for small retailers. With respect to that, the role of PayFac includes the following responsibilities:

  1. Establish bank relationships: A PayFac signs contracts with acquiring banks allowing it to process payments, including cross border payments, on behalf of its merchants.
  2. Manage master merchant account: The acquiring bank issues a master merchant account to PayFac, which is used to accept all payments for the sub-merchants under a single merchant ID.
  3. Handle funds transfer: Any PayFac receives transfers from the end customers in the first place. It then directs funds directly to the sub-merchants’ accounts. This way, PayFacs manage the entire flow of funds, ensuring that the right amounts of money are settled in the bank accounts of corresponding retailers. 

Need web development assistance for your digital platform? Reach out to DashDevs and let’s discuss. 

The Benefits of Using a Payment Facilitator

With PayFac, retailers don’t need to obtain their MID or have integrated payment processing with both customer-facing and back-end systems. So, sticking to this transaction handling model has to offer the following benefits: 

  1. Rapid platform user onboarding: PayFacs enables merchants to start accepting payments quickly, often within the same day of application.
  2. Diverse payment options: PayFac often has an established payment processing infrastructure, relationships with banking institutions, and integrations with multiple payment processors. Due to that, they support major card networks and types, including ACH and eCheck, through one interface.
  3. Simplified compliance: PayFac single-handedly manages aspects of compliance with KYC and AML regulations. This reduces the administrative burden for small businesses.
  4. Enhanced platform value: Providers of PayFacs are usually also providers of payment gateway and payment processor solutions. It allows them to offer integrated payment technologies like EMV, mobile, and contactless solutions, while still managing all transactions under a single merchant account. In case a business has a separate platform, it can largely benefit from such an advancement in payment processing diversity and simplicity. 
  5. Seamless technology integration: PayFac is an incredibly easy payment processing model to adopt from the technical and administrative perspectives. Thus it benefits the integration of payment processing capabilities directly into business platforms.
The DashDevs team is ready, willing, and able to contribute to your best project

PayFac vs ISO: Which Model to Choose for Your Business? 

An Independent Sales Organization (ISO) is a third-party company authorized to sell or process payment services on behalf of banks.

ISOs are essentially third-party resellers of merchant accounts that connect businesses to payment networks. They get merchants signed up with a merchant account, with the mandatory acquiring a MID which was explained previously. Yet, ISOs don’t actually streamline payment processing or make it easier from a technical or administrative perspective. 

In the case of a PayFac model, the facilitator already passed regular registration with ISO and has necessary bank contracts allowing new merchants to work with the facilitator instead of banks. That’s why it’s easier to get approved. The signup process is fairly automated — typically PayFac is a service or software you merchants use anyway, such as a larger retail platform. 

Let’s review all the differences between PayFac and ISO in the comparison table: 

Comparison FactorPayFacISO
Onboarding speedFast, often within 24-48 hoursUp to several weeks, as each merchant must be individually approved
Merchant controlHigh, as sub-merchants are under one master MIDLower, as each merchant has an individual MID
Regulatory complianceManaged by the PayFac, reducing merchant burdenEach merchant is responsible for their own compliance
Cost structureTypically flat fee or percentage per transactionMay involve more complex fee structures, including setup fees
Risk managementCentralized by the PayFac, covering all sub-merchantsIndividual merchant risk management
Technical integrationSimplified through one system for all sub-merchantsRequires integration for each individual merchant
Revenue opportunitiesPotential for additional revenue through managing multiple sub-merchantsPrimarily from direct sales and services to individual merchants
Customer relationshipsPayFac manages customer service for sub-merchantsMerchants manage their own customer relationships

Opting for a PayFac instead of obtaining a MID and operating in a traditional way can be recommended for small to medium businesses. In particular, those who have rapid onboarding needs, have limited resources for compliance, looking for simplified operations, or struggle with legal restrictions in a particular region may find the PayFac model the most suitable to their needs. 

At the same time, traditional merchant registration with ISO is more suited for merchants who aim to preserve their full independence and don’t lack time. Besides, registration with ISO is the only option for those who aim to become master merchants themselves in the future. 

Looking for a trusted provider of software development services? Drop DashDevs team a line. 

What Is the Difference Between a Payment Gateway and a PayFac?

A payment gateway is a service that serves as an intermediary between the merchant’s website and the payment networks. 

Basically, it’s a customer-facing system that allows you to securely collect data from customers and pass it to a payment processor. It’s only needed when there’s no unit that can gather customer data automatically, like a Point-of-Sale (POS) terminal, during a regular physical card payment. It’s so because during online transactions the customer must enter their billing data in a certain digital environment.

A payment gateway is a part of the transaction processing flow required for some types of transactions.

You can discover information about payment gateway and payment processor from another blog post by DashDevs. 

PayFac is an approach that simplifies the merchant account enrollment and management processes. With PayFacs, larger merchants allow smaller businesses to receive transactions under their MID, which has to deal more with the administrative aspect of distributing the flow of funds with the technical aspect of conducting transactions. 

PayFac is not a constituent of a transaction processing flow but a merchant account management model. 

Examples of Payment Facilitation Companies

The DashDevs team has experience setting up platforms for retail businesses. Among others, it included PayFac integration. Here are some examples of PayFac companies that are both well-established and trustworthy:

#1 Stripe

Stripe provides economic infrastructure for the Internet. It enables both private individuals and businesses to make and receive payments globally. Stripe’s PayFac service simplifies customer onboarding and streamlines payment integration, making it accessible for businesses of various scales.

Founded: 2010

Headquarters: San Francisco, California, USA

Employees: 4,000+

You can discover additional information about Stripe, financial services provider, from another our blog post. 

#2 Square

Square offers tools that allow merchants to accept card payments and also provides reporting and analytics, and next-day settlement. PayFac solution by Square integrates features like invoicing, digital receipts, and financial reporting within a single system.

Founded: 2009

Headquarters: San Francisco, California, USA

Employees: 5,000+


#3 StaxPayments

Stax Payments focuses on a subscription model for payment processing, eliminating the variable fees typically associated with transactions. The PayFac model by StaxPayments is designed to streamline the payment process with features like flat-rate pricing and same-day funding.

Founded: 2014

Headquarters: Orlando, Florida, USA

Employees: 300+


#4 Adyen

Adyen provides a single payments platform globally to accept payments anywhere, anytime. Adyen PayFac model allows businesses to manage risks, track transactions, and optimize payment processes through a unified platform.

Founded: 2006

Headquarters: Amsterdam, Netherlands

Employees: 2,000+


#5 Worldpay

Worldpay is one of the largest providers of payment technology services worldwide, facilitating mobile and online payments for a wide variety of merchant categories. WorldPay PayFac service includes tailored payment processing solutions for businesses of all sizes.

Founded: 1989

Headquarters: London, UK

Employees: 5,000+


Let the DashDevs team advise you on PayFac or any other implementation project

Final Take

Payment Facilitators (PayFacs) offer an alternative to traditional merchant account management processes. By simplifying merchant onboarding, managing compliance, and offering centralized control, PayFacs relieve the administrative and technical burden of businesses, allowing them to focus on their operations and user experience. 

Entrust the development of your digital platform and setting transaction processing up to DashDevs. With over 12 years of experience on the market and more than 500 projects under our belt, we can handle the development part of launching a retail business online. 

Contact us

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Table of contents
What is a PayFac?
A PayFac, or payment facilitator, is a service provider that streamlines merchant onboarding for electronic payments. It allows sub-merchants to use a shared Merchant ID under a master account resulting in a simplified procedure for receiving payments.
What is the difference between a PayFac and a PSP?
A PayFac manages merchant accounts under one master MID, while a PSP (Payment Service Provider) typically connects merchants to payment networks without offering sub-merchant accounts.
Is Stripe a payment processor or PayFac?
Stripe functions as both a payment processor and a PayFac, offering direct processing and sub-merchant accounts for platform users.
Payment processor vs payment facilitator, is there a difference?
Yes, payment processors connect merchants directly to payment networks, whereas PayFacs provide a master merchant account for sub-merchants to simplify onboarding and management.
Who are the biggest PayFacs?
Major PayFacs include Stripe, Square, PayPal, and StaxPayments. They also offer additional transaction processing services and infrastructure.
What is PayFac as a service?
PayFac as a service is a business model under which providers offer businesses a ready-to-use framework to become PayFacs without building their own infrastructure, simplifying payment processing for their clients.