Five PayFac Myths Debunked

As a software provider, even if the term PayFac is not familiar to you, as a consumer you probably do business with one or more on a regular basis. The term is short for payment facilitator, and it allows a master merchant a platform to offer payment processing services to sub-merchants without going through the traditional steps of applying for a merchant account.  This is a common practice known as payment aggregation.

Becoming a payment facilitator offers advantages to you as well as to your software users (sub-merchants).  As a PayFac you have greater control over the entire payments cycle, from sales and on-boarding to day-to-day customer support. However, before deciding if the PayFac model is right for you, there are a few myths about the model that will be helpful for you to understand so you can make sure you are armed with all the information you need to make the best decision possible.

1. PayFac Is a New Innovation

It depends on your definition of “new.” The earliest payment facilitators, like PayPal and eBay, have been in business for 20 plus years, and some of the most familiar, like Uber and Airbnb, have been in operation for about 10 years.

2. Any Software Provider Can Become a Successful Payment Facilitator

Whether you can gain success as a payment facilitator depends a great deal on your customer base. Your customer base should be comprised of small businesses that accept moderate volumes of relatively small payments directly from customers.  Not all merchants are eligible for payment aggregation. Visa and MasterCard have a one-million-dollar annual volume cap on how much a merchant can process under a PayFac. Merchants exceeding this limit are required to have individual merchant accounts.

3. PayFac Is Always Profitable

While it can be profitable to become a payment facilitator, there are many upfront and ongoing costs involved in activities including maintenance, compliance, engineering, and staffing. In order to create enough offsetting revenue to cover the costs and make a profit, a payment facilitator needs high payments volume from a sufficiently large client base.

4. Becoming a Payment Facilitator Is Without Risk

Quite the contrary, in fact. When you adopt the PayFac model, it means you accept the majority of the responsibility and risk for the payment process. It also means that in case of fraud, you are fully liable.

5. Becoming a Payment Facilitator Is the Only Alternative to Traditional Payment Program Structures

For those who want to take advantage of the benefits provided by payment facilitation, like frictionless merchant onboarding, but who do not want to assume the liability and risks involved, there find a payments partner that can work with you to configure a partnership model that is right for you.

Ready to see our API or open a test account?  Looking for more information on our Partner Programs?  Are you a merchant with a question?  We are here to help!