What is a payment facilitator?
A payment facilitator (or PayFac®) is a software platform’s all-in-one payment processing solution. Instead of your customers needing to create their own merchant account to process payments, you – as the PayFac® developer – handle all the payments setup and complexity for them. Think of it as becoming the payments "master account" for all your customers.
Today, many software companies are opting to include PayFac capabilities directly into their platforms. This strategic move offers three key benefits for platforms.
- Enhanced revenue: Add payment processing fees as a new income stream
- Better user experience: Offer seamless, integrated payments within your software
- Valuable data insights: Gain visibility into transaction patterns and customer behavior
4 important considerations for becoming a payment facilitator
1. You will be responsible for all compliance and risk management requirements.
A payment facilitator manages compliance with payment network rules and other financial regulations. This includes verifying the identities of sub-merchants through Know Your Customer (KYC) checks, ensuring PCI compliance for secure handling of payment data, and mitigating risks through fraud or chargebacks. Also keep in mind, you:
- Are financially liable for your sub-merchants' activities and chargebacks.
- Must develop sophisticated risk scoring models for sub-merchant screening.
- Will need ongoing monitoring systems to detect suspicious transaction patterns.
- Are required to maintain dispute resolution processes.
- Handle sub-merchant compliance with card network rules.
- Will need to undergo rigorous underwriting by banks and card networks.
- Must maintain PCI DSS Level 1 compliance (the highest level of payment security).
- Must follow anti-money laundering (AML) and fraud prevention regulations.
- Are required to maintain certain capital reserves to cover potential losses.
2. Your business will need to make technical and infrastructure investments.
As a payment facilitator, platform providers:
- Need robust systems to handle payment processing at scale.
- Must build or integrate risk monitoring and fraud detection systems.
- Must develop sub-merchant onboarding and management systems.
- Need to implement detailed transaction reporting and reconciliation capabilities.
- Must maintain high availability and redundancy for payment processing.
3. You can offer your customers a simplified payment setup.
As a payment facilitator, you can streamline payment acceptance for your users by creating a master merchant account under which other businesses can sit. This helps your customers avoid having to set up direct merchant accounts with an acquiring bank. It also simplifies the merchant onboarding experience for small and medium-sized businesses, allowing them to start accepting payments quickly.
4. You may see enhanced revenue and scalability for your platform.
Acting as a payment facilitator, platforms can capture additional revenue streams through transaction fees and other value-add, payment-related services. A payment facilitator also enables scalable growth creating a centralized infrastructure for processing payments, making it easier for platforms to expand their network or customer base without needing to re-engineer payment systems.
Example of a platform becoming a payment facilitator
Let's say you built a fitness studio management platform. Without payment facilitation built into your software, each gym using your platforms will need to (1) set up their own merchant account, (2) integrate with a payment processor (someone other than you), (3) handle their own payment compliance, and (4) manage fraud prevention.
As a payment facilitator you eliminate these hurdles for your users. Instead, gyms sign up for your software and immediately can begin processing payments from their customers through your platform. You handle all the backend payment complexity – from compliance to fraud prevention – while allowing your customers to focus on running their business.
Payment facilitator FAQ
How does becoming a payment facilitator benefit software companies?
Becoming a payment facilitator provides software companies several advantages, including:
- Control over payments: When you become a payment facilitator, you gain control of the payment lifecycle, including onboarding, processing, and settlements, allowing for greater customization aligned to your customers’ needs.
- Improved insights and scale (and possibly, increased valuation): Access to payment data allows for a better understanding of customer behaviors and needs, letting you tailor and offer more to address those needs. The payment facilitator model can scale easily with your software business, letting you onboard more customers and more transaction volume. The combination of SaaS and payments can increase the revenue and valuation potential of software companies—as investors value predictable, recurring revenue that comes from transactions fees.
How does a payment facilitator enable software-led payments?
A payment facilitator provides the infrastructure that allows businesses to embed payment processing into their platform experience. By embedding these capabilities, the payment facilitator powers seamless payment experiences through the platform, driving convenience and efficiency for businesses and their customers.
What’s the relevance of a payment facilitator in software and fintech?
As demand for seamless financial and payments experiences grows, the payment facilitator model is becoming indispensable in powering software-led payments and financial solutions. Leveraging the PayFac infrastructure, software companies can scale operations, improve user experiences, and unlock new revenue opportunities through payments.
Becoming a payment facilitator puts you at the heart of the revolution around software-led payments, where financial transactions are integrated seamlessly into software applications and platforms. The payment facilitator makes it easy for businesses to embed payment and financial capabilities into their experiences. What’s more, by simplifying the onboarding process for customers, and handling a range of other complexities, the payment facilitator allows businesses to focus on their operations while delivering seamless, user-friendly payment experiences. Those benefits make your platform operating as a PayFac indispensable to your user base.
Taking it a step further, today’s payment facilitator plays an important role in embedded finance products and services too. Software providers can become a payment facilitator to offer instant payouts to workers, capital lending, and more, in addition to payments.
Terms related to payment facilitator
Learn more about being a payment facilitator
- Glossary: 117 software-led payments terms to know
- What is a PayFac® developer?
- A birds-eye-view of the PayFac® journey
- Payment Facilitation: Software's holy grail
- Payment Facilitation: Finding the perfect fit
- Risk management and payment facilitation: Are you up to the challenge?
- Does payment facilitation make sense for your business?