A Payment Facilitator (PayFac) is a model that simplifies the merchant account enrollment process, allowing businesses to accept payments more easily. PayFacs act as a master merchant, under which individual businesses can operate as sub-merchants. This setup reduces the complexity and time required for each business to individually establish a merchant account with a bank or payment processor. By using a Payment Facilitator, platforms and marketplaces can quickly onboard businesses, enabling them to accept payments from customers without the need for each business to undergo a lengthy and complex approval process.

Payment Facilitators handle the processing of transactions, manage the flow of funds, and take responsibility for compliance with payment industry standards and regulations. They also deal with fraud detection and prevention, making it easier for small businesses and startups to securely accept payments without significant upfront investment in security and compliance infrastructure.

Common Types of Platforms and Marketplaces That Use Payment Facilitators 

The PayFac model is particularly beneficial for various types of online platforms and marketplaces that connect sellers with buyers. Here are some common examples:

The Payment Facilitator model supports the growth of these platforms and marketplaces by simplifying the payment process, reducing barriers to entry for small businesses, and ensuring secure and efficient transactions. This model has become increasingly popular as businesses seek more streamlined and user-friendly payment solutions to meet the demands of the digital economy.

How do Payment Facilitators Work?

The Advantages of Payment Facilitator

History of PayFacs

The concept of Payment Facilitators began to take shape with the advent of online payments and the need for a more streamlined, efficient way for businesses to accept electronic payments. Traditional merchant services were often too cumbersome and slow for the fast-paced digital market, requiring each merchant to go through a lengthy and complex application process to open a merchant account.

As e-commerce grew, so did the need for a more flexible and accessible solution. Enter the PayFac model, which simplified this process by allowing a single entity (the PayFac) to act as a master merchant that could onboard businesses (sub-merchants) under its umbrella. This innovation significantly reduced the barriers to entry for small and medium-sized businesses looking to sell online.

The rise of major online platforms and marketplaces further propelled the adoption of the PayFac model. Companies like PayPal, Stripe, and Square have become synonymous with the PayFac model, offering businesses easy-to-use platforms for processing payments, managing transactions, and more.

What is a Payment Facilitator Model?

A Payment Facilitator Model is a framework that allows a payment facilitator (PayFac) to streamline the merchant account enrollment process. Under this model, the PayFac is authorized to onboard businesses as sub-merchants under its master merchant account. This arrangement simplifies the process of accepting payments, making it faster and less cumbersome for businesses to get started.

The Functions of a Payment Facilitator

Underwriting and Onboarding

One of the primary functions of a PayFac is to conduct underwriting and onboarding for its sub-merchants. This involves assessing the risk associated with each business before allowing them to process payments under the PayFac’s master account. The PayFac must ensure that the sub-merchant complies with legal and financial regulations, minimizing the risk of fraud or financial loss.

Transaction Monitoring

PayFacs are responsible for monitoring transactions processed by their sub-merchants. This includes keeping an eye on transaction volumes, detecting unusual patterns that may indicate fraud, and ensuring that transactions comply with industry standards and regulations. Effective transaction monitoring helps maintain the integrity of the payment system and protects against financial crime.

Merchant Funding

After transactions are processed, the Payment Facilitator facilitates the funding of its sub-merchants. This involves collecting the funds from transactions, deducting any fees, and transferring the net amount to the sub-merchant’s account. The efficiency and reliability of the merchant funding process are crucial for maintaining trust and satisfaction among sub-merchants.

Chargeback Management

Chargebacks occur when customers dispute a transaction, often due to fraud or dissatisfaction with a purchase. Managing chargebacks is a critical function of PayFacs, involving disputing unjustified chargebacks, recovering funds when possible, and providing tools and guidance to sub-merchants to minimize chargeback occurrences. Effective chargeback management helps protect the financial stability of both the PayFac and its sub-merchants.

The Payment Facilitator model plays a vital role in today’s digital payment landscape, offering a streamlined solution for businesses to accept online payments. By handling critical functions such as underwriting, transaction monitoring, merchant funding, and chargeback management, PayFacs enable businesses of all sizes to focus on growth and customer service, rather than the complexities of payment processing.

Difference Between a Payment Facilitator and a Payment Processor

Payment Facilitator (PayFac):

Payment Processor:

Obligations of a Payment Facilitator

Simon IoT & Payment Facilitators

By leveraging a PayFac, Simon IoT can offer its customers a seamless payment experience, whether for recurring subscriptions, on-demand services, or pay-per-use models. This partnership could also alleviate the administrative burden of managing multiple merchant accounts and compliance requirements.