PayFac as a service: What is it and what are the benefits?

The digital reality dictates its rules to enterprises of all sizes and forms of activity, and now, online transactions and payment processing are indispensable. According to Grand View Research, in 2022, the size of the global digital payments market was $81.03 billion, and it is projected that the compound annual growth rate (CAGR) will be 20.8% from 2023 to 2030. The popularity of digital transactions has led to the emergence of another participant in the financial market—the payment facilitator. The main task of PayFac as a Service is to ensure the continuity and security of online payments.

To learn more about what PayFac as a Service is and the benefits it can bring, you can check out this material prepared by experts from PSPARK.

What is a Payment Facilitator (PayFac)?

A payment facilitator, also known as a PayFac model, is a financial organization whose primary activity is to simplify the payment acceptance process for small and medium-sized businesses. Companies no longer need to directly enter into agreements with acquiring banks or establish relationships with payment systems. As known, this process takes a lot of time (from submitting applications to meeting underwriting requirements) and involves substantial initial costs.

With PayFac, the process becomes simpler and faster. The facilitator acts as the main merchant, consolidating payment acceptance. Businesses can accept various payment methods, including electronic wallets, debit, and credit cards. Thus, payment facilitators leverage relationships with systems and existing infrastructure to provide a ready solution for businesses in need of streamlined payment acceptance.

Let’s now discuss more specifically the functionality of a Payment Facilitator.

Key Functions and Roles of a Payment Facilitator

The PSPARK team has compiled a list of the main functions performed by PayFac for you. Let’s take a closer look at each one.

Adaptation and Underwriting

Typically, to open a merchant account, a seller needs to apply through an acquiring bank, a process accompanied by a pile of documentation and taking at least a couple of days. Payment facilitators expedite adaptation, providing sellers with a better experience. Before connecting a new sub-merchant partner, the payment facilitator conducts underwriting. This confirms that the sub-merchant poses no threat or risk to the payment facilitator’s system, verifying the legality and alignment of the stated activities. Many payment systems employ frictionless underwriting, significantly speeding up the registration process for low-risk sub-merchant locations, which is automated. Manual verification is required for those with high risk or no previous verification. Companies working with a payment facilitator can initiate transaction processes in just a few seconds.

Monitoring Online Transactions

Payment facilitators are responsible for processing payments for their sub-merchant locations. Therefore, they also monitor such transactions to identify suspicious or abnormal behavior. In this case, software records transactions and sorts them using predefined procedures and policies. This helps in deciding which transactions require further review.

Trade Financing

Financing sub-merchant locations and reconciling transactions are additional areas of responsibility for payment facilitators. Managing the financing process allows them to enhance the experience for their sub-merchant locations. Standard electronic payments involve financing sellers according to any schedule set by the acquiring bank, often with restrictions. In this case, the payment facilitator has an advantage—they can improve the process they manage.

Regulating Refund Payments

Alongside the acquiring bank, payment facilitators manage the refund process. Typically, a sub-merchant that receives a refund is required to provide additional documentation related to it. The payment facilitator then forwards this documentation to the acquiring bank, which initiates the refund and transfers it to the cardholder’s bank. The primary goal of a payment facilitator is to simplify and expedite financial processes for its sub-merchant location.

What is PayFac-as-a-Service?

PayFac as a Service is a blended payment simplification model in which a third-party company provides businesses with the necessary tools and infrastructure. These tools include credit and debit cards, e-wallets, bank transfers. In essence, it involves outsourcing payment processing, freeing businesses from the need to create and maintain their own infrastructure. To better understand the differences between PayFac as a Service and the traditional model, please refer to the material below, prepared by PSPARK specialists.

How PayFac as a Service Differs From Traditional PayFac Models?

Collaborating with a payment facilitator eliminates the need to approach companies using the traditional acquiring model, and PayFac-as-a-Service differs significantly from it. The traditional method was applied to regular businesses and clearly defined the seller-buyer relationship. However, as e-commerce and marketplaces flourished, this model became unsuitable, leading to the introduction of PayFac-as-a-Service. Let’s delve into the differences between these two schemes.

Simplified Registration

Payment Facilitation as a Service allows businesses to become payment coordinators more quickly without undergoing extensive underwriting processes. The traditional model conducts underwriting for each sub-merchant, including risk assessment, business nature, and creditworthiness.

Risk Management Burden Reduction

PayFac as a Service enables the platform provider to regulate transactional risks. This involves using fraud prevention tools, managing payment reversals, and other methods to reduce risks. Traditional PayFac is entirely responsible for risk management and may have reserves to cover fraud and refund payments.

Infrastructure

PayFac-as-a-Service platforms have their infrastructure for payment processing. This means cost savings for businesses, as they are relieved of the need to create their own systems for this function. In the traditional PayFac model, all payments from sub-merchants are consolidated and processed through the facilitator’s own merchant account.

Financing

PayFac-as-a-Service frees companies from delving into all the nuances of payment processing, allowing them to focus primarily on their core business. Traditional PayFac is responsible for financing sub-merchants, often involving withholding funds for a short period before transferring them to the sub-merchant.

The adapted functionality of the payment simplification service provides clear advantages for the overall business. Let’s explore each of them with the PSPARK team in more detail.

Advantages of PayFac as a Service

PayFac as a Service is the best solution for companies seeking a simple, fast, and secure way of accepting payments. Here, we’ll outline five undeniable advantages of this model.

Revenue Growth

With PayFac-as-a-Service, you can monetize transactions on the platform, quickly increasing the revenue stream for your business by 2-5 times and enhancing customer satisfaction.

Easy Implementation

Any enterprise can use PayFac-as-a-Service as a payment simplification solution. The model can be easily configured within a few days, aligning with pricing policies and sales strategies and seamlessly integrating into the business without complications.

Developer-Friendly APIs

The convenience of APIs lies in providing access to payment acceptance, payout management, and connecting with sellers within a single platform. 

Full Payment Services Regulation

Using PayFac-as-a-Service means the provider takes on all obligations and hassles related to PayFac operations. The business can focus on its core activities without delving into programming, implementation, intensive training, compliance requirements, and more.

Clear Customer Registration Procedure

With PayFac-as-a-Service, the customer registration process becomes clear and transparent, allowing businesses to start accepting transactions immediately without spending time on lengthy verifications.

The benefits of this model have an even greater impact on platforms expanding their core specialization beyond financial services.

How to Choose a PayFac-as-a-Service Provider

To make the right choice for PayFac as a Service provider, evaluate numerous aspects of support and functionality. Here’s what to consider:

• Security Compliance: Ensure that PayFac-as-a-Service complies with regulatory requirements (PCI-DSS) and can provide conditions for secure payment processing. Look for companies with a good reputation that implement encryption, tokenization, fraud detection, and prevention.

• Payment Processing Potential: Choose a provider offering more transaction options, such as electronic checks, ACH, credit, and debit cards. Consider the types of electronic payments your business processes now and determine types for future implementation. Also, pay attention to the volume of transactions processed per month by the offered payment systems, as some may impose limitations.

• Easy Integration Configuration: Some systems offer customizable integrations, allowing you to integrate PayFac services with other models for time-saving and process simplification.

• Customer Support: Round-the-clock customer support via email and phone, as well as online resources such as user guides and FAQs, is highly valued.

• Scalability: The ability of Payment Facilitation as a Service to adapt to changing business needs plays a significant role. This may include support for new payment methods, increased online transactions, integration with new systems, and more.

• Analytics and Reporting: Some providers offer businesses the ability to track transactions and account balances and control payments. Built-in mechanisms for data analysis and reporting will help improve operational efficiency.
• Pricing and Fees: Comparing prices and fees offered by different payment systems will ensure that you are getting the best value for your business.

By thoroughly examining each provider’s offering, you can select the best option that aligns with your business requirements.

Ensure your business has the best technologies and fraud protection by choosing PSPARK! Using our tools, you’ll not only free yourself from payment management worries but also maximize your focus on your core business activities.