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As a business owner, you’re responsible for lots of tough decisions. And, one of the newer decisions that you’ll have to make when accepting payments is if you’re going to sign up with an aggregator, such as PayPal, or go through the rigorous process of applying for a merchant account.

In other other words, are you going to stick with the traditional merchant account service provided by an independent sales organization (ISO) or embrace the newer, and more promising, sub-merchant account — which is also known as a payment facilitator.

What is a Payment Facilitator and the PayFac Model?

A Payment Facilitator, PayFac for short, is simply a sub-merchant account for a merchant service provider in order to provide payment processing services to their own merchant clients.

“A payments facilitator (or PayFac) allows anyone who wants to offer merchant services on a sub-merchant platform. Those sub-merchants then no longer have to get their own MID and can instead be boarded under the master MID of the PayFac who is sponsored by a bank,” Roy Banks, CEO of NMI, tells

“This allows merchant services to be offered in a very elegant and very efficient manner. The PayFac does not have to underwrite all merchants upfront — they are instead, underwriting the merchants essentially as they continue to process transactions for them on an ongoing basis.”

Banks goes on to say that “basically a PayFac wants to operate like a Square or a Stripe: a merchant aggregator processing transactions under a sub-merchant platform.”

As Katherine Pensatori, Director of Web Marketing at United Thinkers LLC, further explains, “A payment facilitator is a relatively new type of an intermediary entity, which emerged as a result of merchant services market evolution. In contrast to other intermediaries, such as ISOs, payment facilitators handle merchant underwriting process, relieving acquirers from the need to perform related administrative procedures.”

Most PayFacs, according to a document from Vantiv, “are Software as a Service (SaaS) providers that extend their vertical solution suite by offering payments acceptance and processing as part of their overall package of services. Other PayFacs operate within a spectrum of horizontal marketplace models.”

PayFacs take on an active role in facilitating transactions by providing white-labeled payment processing services that can be integrated into a sub-merchants overall solution or as part of the PayFac’s own platform as a service. PayFacs facilitate the movement of funds on behalf of their sponsored merchants.”

The PayFac is liable for processing the accounts of their sponsored merchants and often offer additional features like transaction processing support, new account underwriting review, transaction monitoring, merchant invoicing, and other non-processing business services or solutions. Ultimately, a PayFac simplifies the merchant account process.

Examples include shopping cart solutions and billing/recurring software.

Since PayFac is a MasterCard processing model, it’s called Payment Service Provider for Visa, there are plenty of acquirers around the world. These include the aforementioned companies and those such as, Payrix, Chase Paymentech, Worldpay, First Data, ProPay, and Due.

How Do PayFacs Work?

A merchant applies for a merchant account and enters 7-8 key data points. This data is evaluated by an underwriting tool and a decisions on whether or not you’re approved is made in real-time — unlike Independent Sales Organization (ISO) where you have to wait a week for a decision because of the intense applications. Payfac’s immediate information and approval makes a difference to a merchant.

Also, unlike an ISO, the PayFac provides the processing services, settlement of funds, and billing to the merchant. Even better? Funds are settled to the PayFac’s account and it’s determined by the PayFac to move those funds to the merchant. This means that the technology infrastructure required would be PCI Level 1 compliant, which in turn means that the burden on the PayFac to handle chargebacks and fraud.

The Advantages of the PayFac Model

One of the key advantages of the PayFac model is that it speeds-up the onboarding process. As a Payment Facilitator you have the power to set-up sub-merchants quickly, which streamlines new client acquisition since they don’t have to fill out paperwork or provide documentation in order to set-up their account. For example, you can purchase a Square reader at your local Walgreens, have your account set-up within 30 minutes, and start accepting payments.

Other advantages include a flat fee structure and the ability to earn more money from network and transactional fees, and potentially float a much larger amount of payments for a much longer time — helping the merchant with cashflow.


Hi, I'm Albert. I'm a content ninja. When I'm not writing and brainstorming content ideas, this New Jersey native spends his time traveling, blasting music, and keeping his chocolate lab at bay.

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