Guide to Becoming A PayFac
Is Becoming a PayFac the Right Fit for Software Providers?
Established independent software vendors (ISVs) with mature payments programs and newer entrants in the specialty software space who are looking to improve all or some aspects of their integrated payment programs are examining their program structures (often with encouragement of their payment processing partners) to find the best fit for their business and for their own customers.
There are a number of options – traditional referral relationships, becoming an agent or independent sales organization (ISO), advance residual buyouts, and variations of each. Increasingly, a number of ISVs are contemplating becoming a payment facilitator (PayFac – also known as a merchant aggregator).
The PayFac model is appealing to these ISVs because it ostensibly gives them more control, eases client onboarding, and can potentially boost profits. But becoming a PayFac solution also requires the ISV to accept higher levels of cost and liability and is certainly not the best solution in all circumstances.
PayFacs: An Evolving Market / Is the PayFac Model Right for You?
For ISVs to make an informed decision about whether or not the PayFac model is suitable to them, it’s important to understand what PayFacs are, why this model emerged in the first place, and how it is changing.
PayFac is based on the merchant aggregator model created by Visa/MasterCard to provide support for payment card acceptance in a marketplace environment.
PayPal and eBay are probably the most well-known examples of this type of PayFac, but other marketplace-type providers have also emerged. Uber and Lyft, Etsy, and Airbnb, to name a few, have also established marketplaces where customers can use cards as a form of payment.
The traditional merchant account process was established for brick-n-mortar and e-commerce businesses with clearly defined relationship between merchants and customer (think Macys, The GAP, etc.) However, the traditional merchant account was not a good fit for emerging new commerce platforms such as marketplaces, where anyone can be a buyer and/or a seller (i.e., eBay). The merchant aggregator model (PayFac) was created for marketplaces to facilitate payments without requiring each seller or service provider to go through the lengthy process of establishing a traditional merchant account.
Learn more about the PayFac model, the pros and cons, the appeal and more in our Guide for Software Providers Considering the Payment Facilitator Model.
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