When Do You Need PayFac as a Service? KEY TAKEAWAYS To speed up the onboarding process while also tailoring the experience and application to their specific niche or vertical, creating a better merchant experience PayFac is necessary. Understanding what PayFac is and identifying its different types. Getting to know how you can get PayFac for your business.
PayFac as a Service—also known as Payment Facilitation as a Service, Embedded Payments, and Managed PayFac—is a winning solution for tech-forward SaaS companies looking to deepen customer relationships and generate reliable recurring revenue.
Its growth shows software providers’ interest in embedded payments. Juniper Research estimates that embedded payment revenue will grow 84% to $59 billion in 2027 from $32 billion in 2023. Demand for alternative payment methods, especially online, will drive growth.
Who or What is a Payment Processor?
A registered Payment Facilitator, also known as a “PayFac” or “merchant aggregator,” contracts with an acquirer to provide payment services to their customers, called “sub-merchants.”
Common PayFacs include Square, Stripe,
PayPal, AirBnB, and Uber. PayFac is the merchant of record and is sponsored by an acquiring bank, so it receives and deposits funds into customers’ bank accounts.
Risk and financial reviews are required for payment facilitators. Register PayFacs handles underwriting, card brand compliance, risk, and sub-merchant funding. PayFacs ISVs can make more money, but they are responsible for platform fraud and write-offs.
It takes money, talent, and time to become a PayFac. Depending on location, setup can take two years and cost millions of dollars.
Money transmitter licenses, PCI assessments, card brand registration fees, annual audits, and specialized staff cost money. ISVs trying to implement this model should invest heavily in technology and talent to scale.
Differences between PayFac, PayFac as a Service, Payment Gateway, and Payment Processor?
Despite taking seconds, credit and debit transaction processing is complicated. The role overlaps and terms sound similar, making it easy to get confused. These are the main differences and brief definitions:
Payment processor: Routes transactions to card brands or debit networks, approves/denies transactions, and ensures funds are settled correctly between cardholder and merchant banks. Each merchant account is underwritten by a payment processor for its sponsor bank and managed for risk and compliance. Payment Gateway: Middleware technology securely captures, stores, and transmits cardholder data to the payment processor for authorization. The customer receives an acceptance or decline notification. ISOs or payment processors own some payment gateways, while others are independent third-party intermediaries. PayFac is the acquirer’s merchant-of-record, serving its sub-merchants. It performs some of the functions of a payment processor and gateway. The PayFac bank account receives all funds from one master merchant account. Submerchants are paid by PayFac. Chargebacks, onboarding, risk, compliance, and reporting are handled by Payfacs. This model lets SaaS companies enjoy all the benefits of being a PayFac without the upfront investment or ongoing overhead. Payment transactions generate revenue for the software provider, which brands integrated payments. PayFac-as-a-Service: How to Get the Right PayFac as a Service Provider
Independent product Providers (ISV) incorporate payments inside their products to offer a smooth, branded experience for customers and automatically transfer transaction data.
Offering more than credit card payments helps ISVs differentiate their offerings. They need an easy approach to let retailers take cards,
bank transfers, and local payment options. A sophisticated developer platform should have everything you need to incorporate payments into your app rapidly. DID YOU KNOW? The PayFac model provides a level of control over the pricing and payout that the ISO model can’t offer. So much so that some payment facilitators like PayPal don’t even do underwriting upfront before extending services.
The merchant onboarding process must be quick and easy using a white-label web form or an Applications API to tailor processes. Easy collecting and validation of KYC data increases acceptance rates.
ISVs choose Split Payout providers so they may automatically earn their fair portion of service fees from merchant accounts with each transaction. Automating one payment across many bank accounts simplifies reconciliation, particularly for multi-provider firms.
A thorough evaluation of functional and support skills is needed to choose the best PayFac as a Service partner, like Akurateco, for your company and customers.
PayFac as a Third-Party Facilitator
There is also the option to become a sub-payment facilitator while still being able to offer faster account setups.
You may find that a Third-party processor with APIs for merchant account onboarding offers a hybrid blend between traditional reselling for TPP and acting as a Payment Facilitator. You still gain without any administrative burdens.
In summary, the
PayFac As a Service is not for everyone, but that is not what’s really important. the question is “Is it right for you”? That’s a question that’s best answered by having a discussion with your payment service providers. FAQ’s Ans: It is a service provider that enables merchants to process transactions. They white-label payment processing services and help sub-merchants process transactions using their master merchant accounts. Ans: Using PayFac offers benefits such as rapid and easy onboarding of merchants, managing approved parties on the platform, new revenue opportunities, and added value for merchants’ platforms.
hey also provide extra services like fraud prevention and chargeback management and also have an easy-to-understand fee structure making it very good for small businesses.
Ans: A PayFac enters into a contract with an aspiring bank to process payments for its merchants. They control the flow of money from the buyer to the sub-merchant account and are responsible for disbursing funds to merchants directly.