Pros and Cons of Becoming a Payfac

Payment facilitators, also known as payfac, have emerged as a byproduct of market evolution, technological advancements and innovative business models. Initially, acquirers managed payment processing for merchants. However, as the industry grew, the underwriting, onboarding and funding process became cumbersome for some. Small businesses took the same amount of work as large organizations and didn’t bring adequate revenue for the effort.

As the number of small companies grew, some acquirers were overwhelmed, and customer service levels dropped. Many small businesses left looking for better service.  Around this same time, many small to medium sized merchants stopped using stand-alone credit card terminals and began to use all-encompassing business management software which included integrated payment processing. As integrated payment processing has grown and evolved over the past decade, the demand from software providers to have more control over the customer experience brought forth payment facilitators.

Payfac Pros

• Cost Reduction for Processing Volume – Software developers that want to offer enhanced services to their clients often become a payfac. Often, by consolidating merchants into the payfac model, the merchants are then aggregated producing large transaction volumes. With these large volumes integrated payments providers are in turn able to sometimes reduce processing costs.
• Full Control of the Customer Experience – From onboarding and underwriting to settling disputes, disbursements and post-processing, facilitators have flexibility when handling complicated issues. Billing processes are streamlined and the software provider can create and manage programs specifically tailored to meet their merchant needs.

Payfac Cons

• Increased Risk – Managing fraud and chargebacks are among the many responsibilities that come with being a payfac. Choosing the right technology, personnel and partners is crucial to success.
• Significant Upfront Investment – Financial guarantees and payments for specific certifications are necessary to become a payfac. Depending on the software vertical and type of customers, the cost can be significant.

For developers with the tools and expertise to support customers’ needs as well as meet legal requirements, becoming a payfac may be the right next step. If you aren’t ready or interested in becoming a payfac, one of the benefits of working with a boutique payments provider such as Paragon Payment Solutions, is flexibility. Paragon realized that each partnership is unique and Payfac or not, look to Paragon to craft a tailored payments partnership that paves the way for growth and profitability.