What is a Payment Facilitator or PayFac & How does it Work

Payment Facilitator

Even before the global pandemic, online shopping is already very popular all around the world with more and more people gaining access to high-speed internet. 

However, it’s also no secret that the COVID-19 situation throughout 2020 and 2021 has accelerated the adoption of digital technologies, and more and more people are ‘forced’ to familiarize themselves with eCommerce and online transactions. 

As a result of this phenomenon, many businesses are also forced to adopt the eCommerce model and enable online transactions, especially online credit card transactions. 

One viable option for businesses to accept online credit card payments as soon as possible is to enlist the help of a payment facilitator, or PayFac. 

In this post, we will learn all you need to know about the payment facilitator (PayFac) concept, and how does it work. 

Without further ado, let us begin right away. 

What is a Payment Facilitator?

A payment facilitator, in a nutshell, is a company or organization that facilitates other businesses so they can start accepting online credit card payments quickly and easily.

The question is, why do these businesses need to be facilitated? And to answer this question, we have to first understand the process you’ll otherwise get without the help of an online facilitator. 

How Businesses Can Start Accepting Online Credit Card Payments

For customers, an online credit card payment might seem like a very simple, frictionless process. After all, by today’s standards, the transaction will only take no more than a few seconds. 

However, in practice, it is an intricate and complex process involving several different parties: 

  • Acquiring bank: the bank that acquires and holds the business’s fund from customers. Also known as an acquirer, and is responsible for all transactions processed by the business (the merchant) 
  • Payment processors: a company that authorizes transactions, validating the credit card’s information, and relays the information to the appropriate credit card network (i.e. VISA or MasterCard).
  • Issuing bank: the bank that issued the credit card to the customer, responsible for sending the fund to the credit card network, and then to the acquiring bank. The cardholder (customer) will then pay the issuing bank with any applicable interest.

For a business to start accepting online credit card payments, it must apply as a merchant to an acquiring bank. Only after this business is approved and gets its own Merchant ID (MID) can it be recognized by a payment processor and starts receiving online payments. 

The thing is, this process of being approved by an acquirer can involve lengthy and complex paperwork. The business is required to have developed adequate policies and procedures, have invested in the required infrastructure, and is compliant with relevant regulations before it can be approved as a merchant.

Even after the time-consuming underwriting process, there’s simply no guarantee that it will be approved as a merchant.

This is where a payment facilitator comes in. 

A payment facilitator essentially allows businesses to bypass the lengthy paperwork mentioned above. While the underwriting process without a payment facilitator can last days and even weeks, it will only be a matter of minutes with a payment facilitator.

This is possible because the payment facilitator is a company that has been approved by an acquiring bank and payment processor (often collectively referred to as a sponsor) and has received a master merchant ID, or also known as Payment Facilitator ID (PFID).

With this PFID, the payment facilitator is authorized to share its merchant ID with other businesses, that will act as the payment facilitator’s sub-merchants.

In this payment facilitator model, the sub-merchant is not directly in contact with an acquiring bank so it doesn’t need to undergo a lengthy underwriting process. Instead, it only needs to undergo an underwriting process with the payment facilitator, which is typically simpler and much faster.

Typically a payment facilitator utilizes an automated underwriting tool, so the underwriting process can happen in just a few simple steps: 

  1. The sub-merchant signs up for an account on the payment facilitator’s website or app. To do so, the sub-merchant must provide basic information (business name, phone number, address, etc. )
  2. With the automated underwriting tool, the payment facilitator will verify the information provided by the sub-merchant to check whether the sub-merchant is a legitimate business. 
  3. The application is either approved or rejected, and the approval happens in a matter of minutes. 
  4. If the sub-merchant is approved, the payment facilitator will then onboard the business. 

As you can see, a payment facilitator offers a real value to its sub-merchants, allowing a business to start accepting online payments in just a matter of minutes so it can get up and running right away. 

How To Start a Payment Facilitator Business

To become a payment facilitator, a business must be approved for a Payment Facilitator ID by a processing bank. This will involve a very complex underwriting process (much more complex than getting a standard merchant ID), and even after you’re approved, you’ll be routinely audited and may lose the PFID anytime. 

This is where professional payment consultant can help you:

  • Get approved for a Payment Facilitator ID (PFID)

Getting the help of a professional consultant like RPY Innovations can help your business in undergoing very detailed audits and examinations that are typical in the underwriting process of becoming a payment facilitator. 

  • Implementing policy, procedures, and infrastructure

Your business is required to implement various company-wide policies and procedures to ensure compliance with the credit card network and relevant regulations, and you’ll also need to integrate relevant infrastructure to ensure you can provide adequate service as a payment facilitator. 

  • Educating and training your team

RPY Innovations can help organize regular training for your existing and future team, which is necessary to ensure your team stays compliant with the relevant standards and regulations that apply to payment facilitators. 

Wrapping Up

A payment facilitator allows other businesses to quickly and easily start accepting online payments by taking these businesses as their sub-merchants. However, while payment facilitation can be a lucrative business opportunity, especially for SaaS companies, the process of becoming a payment facilitator can be quite lengthy and complex.

This is where professional payment facilitation services like RPY Innovations can help your business get approved as a payment facilitator with a much higher likelihood of approval. 


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