What is a PayFac?

What is a PayFac? Is a PayFac a new type of intermediary? Some kind of merchant account? A fancy new word for a payment platform? Could it be a payment service provider?

The answer is all of the above! A PayFac is just an industry term for a payment facilitator, and a payment facilitator is a merchant services provider that simplifies the payments lifecycle from enrollment through processing and reporting.

That may seem a bit confusing, so how does a PayFac work?

The PayFac Model

The PayFac model differs from the traditional merchant services  in a few distinct ways:

  • Increased efficiency: Instead of a heavy, paper based underwriting process upfront, the PayFac underwrites the sub merchant on an ongoing basis as they continue to process transactions. By being delivered digitally vs. paper, the merchants' data is evaluated by more automated underwriting tools and is approved much more quickly, and sometimes even in real-time.
  • Faster onboarding: Merchants can be onboarded using the Master Merchant ID (MID) provided by the PayFac. For instance, Bambora can onboard a new merchant as a sub-merchant using our Master MID, creating the account and having it ready for payments in minutes and seconds vs. the historical process of days and weeks.

  • New features: Acting as an intermediary enables PayFacs to seamlessly offer other value added solutions for merchants and partners (ie tools such as Recurring Billing and Card Updater provide an easy way to manage a subscription business).

One key difference is that instead of the acquiring bank, it is the PayFac who takes on the liability of underwriting the sub merchant accounts.  This is key to facilitating a speedy, digital, and elegant onboarding process including custom branding for software partners, or even fully hosted via API to really own the experience.

To help understand the benefits that PayFac can provide, let's take a look at the differences between a PayFac and its close relative, the Independent Sales Organization (ISO) model.

PayFac vs ISO

The speed at which a merchant can start processing payments with a PayFac is vastly different than the rate at which this could be done in the legacy ISO model.

While an ISO product will sometimes take weeks to approve a merchant due to the more stringent and quite often paper-based application process, PayFacs are able to approve or disapprove merchants in real-time.

A PayFac provides their merchants with the entire payments flow from payment processing through settlement, reporting, and billing. In many cases an ISO model will leave much of the underwriting as well as settlement and reporting to the acquiring bank.  

Unlike an ISO, the funds are initially settled into the PayFac account, and it is up to the PayFac to settle the funds to the merchant.

A PayFac like Bambora can facilitate the movement of funds on behalf of the merchant. Because we take on this extra risk on behalf of our PayFac merchants, we must adhere to the highest security standards.  This is a win for both the merchant and the software partner plugging into Bambora for payments.

These differences between a PayFac account and an ISO account do not mean that one is better than the other, but rather they are each geared towards a different audience.

An ISO product can be better suited for larger organizations with higher transaction volume and more sophisticated payments needs or pricing options. While a Payfac product is just the right thing for speedy, secure payments that scale.

Why PayFac?

If you are a software provider, ISV, or SaaS platform that wants to seamlessly offer payment options for your merchants in one or more countries, choosing a payment facilitator like Bambora allows for you to bake in a payments solution quickly and efficiently.  

Easy to understand billing, settlement, and payment processing capabilities are just a few examples of the variety of services you get when you sign up with a PayFac.

If you are curious about what a PayFac can do for you, contact our sales team for more information.


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