Payment Facilitator vs. Payment Processor: 6 Key Differences
The world of financial transactions and payments is complex, and businesses often rely on specialized entities to facilitate these processes. Two key players in this ecosystem are the payment facilitator and payment processor. In this article, we’ll explore the definitions and roles of these entities before delving into the six key differences that set them apart.
What is a Payment Facilitator?
A payment facilitator, often known as a “PayFac,” is a specialized entity within the payments industry. Payment facilitators streamline the process of accepting payments for sub-merchants. Here are the core characteristics of a payment facilitator:
Aggregation Model: Payment facilitators aggregate multiple sub-merchants under their own master merchant account. This allows sub-merchants to accept payments without going through the traditional merchant account setup process.
Simplified Onboarding: Payment facilitators offer a simplified onboarding process, which can often be completed within minutes. Sub-merchants appreciate this efficiency, making payment facilitators an attractive option for small businesses, startups, and software platforms that want to provide payment services to their users.
Risk Management: Payment facilitators assume a significant portion of the risk associated with payment processing. They are responsible for underwriting the sub-merchants they aggregate, monitoring transactions, and mitigating fraud and chargebacks.
Pricing Model: Payment facilitators frequently use straightforward pricing models, typically charging sub-merchants a flat fee or a percentage of each transaction. This simplicity helps sub-merchants understand their costs.
Scalability: Payment facilitators are known for their ability to offer quick and scalable payment solutions, making them a preferred choice for businesses seeking rapid integration and growth.
Ownership of Merchant Accounts: Payment facilitators own the master merchant account, and sub-merchants typically operate under this shared account. Sub-merchants often do not have their individual merchant accounts.
What is a Payment Processor?
A payment processor is another essential player in the world of electronic payments, and its role is distinct from that of a payment facilitator. Here are the key characteristics of a payment processor:
Transaction Facilitation: The Payment processor acts as an intermediary between the merchant, the acquiring bank, and the card networks (Visa, Mastercard, etc.). They handle the technical aspects of the transaction, including authorization, settlement, and reporting.
Comprehensive Onboarding: The Payment processor typically has a more comprehensive onboarding process. Sub-merchants must go through a rigorous application, underwriting, and approval process.
Risk Management: The Payment processor focuses on risk mitigation and often works with established businesses. They have robust underwriting procedures in place, and the primary responsibility for handling risk typically lies with the merchant.
Pricing Model: The Payment processor may offer more complex pricing structures, including interchange fees, assessments, and various service fees. The pricing is often tailored to the specific needs and transaction volumes of the merchant.
Scalability: The Payment processor is better suited for larger enterprises with established operations and higher transaction volumes. They provide flexibility to customize services to meet specific business needs but may not be as agile as payment facilitators.
Ownership of Merchant Accounts: The Payment processor enables merchants to have their dedicated merchant accounts. This grants businesses more control and autonomy over their payment processing operations, allowing them to build and maintain their banking relationships.
Understanding these two entities and the six key differences between them will help businesses make informed decisions when selecting a payment solution that aligns with their specific goals and growth plans. It’s crucial to assess your business’s specific requirements, risk tolerance, and scalability goals before choosing the dynamic world of payment processing.
The Six Key Differences Between The Payment Facilitator and Payment Processor
Now that we’ve defined The payment facilitator and payment processor, let’s delve into the six key differences that set them apart and influence the choice of businesses seeking payment solutions:
1. Definition and Role
A payment facilitator acts as an aggregator, simplifying the payment process for sub-merchants by allowing them to operate under the facilitator’s master merchant account. This approach streamlines onboarding and transaction acceptance.
A payment processor serves as a facilitator of electronic payment transactions, managing the technical aspects of transactions between the merchant, acquiring bank, and card networks.
2. Merchant Onboarding
Payment facilitators offer a straightforward onboarding process. Sub-merchants can often sign up and start accepting payments within minutes.
The Payment processor typically has a more involved onboarding process, involving application, underwriting, and approval procedures.
3. Risk Management
Payment facilitators assume a more substantial portion of the risk associated with payment processing. They are responsible for underwriting the sub-merchants they aggregate, monitoring transactions, and mitigating fraud and chargebacks.
The Payment processor places a significant focus on risk mitigation, working with established businesses, and employing rigorous underwriting procedures.
4. Pricing Models
Payment facilitators often use a simplified pricing model, charging sub-merchants a flat fee or a percentage of each transaction.
The Payment Processor may offer a more complex pricing structure, including interchange fees, assessments, and various service fees, tailored to the specific needs and volumes of the merchant.
Payment facilitators are ideal for businesses seeking quick and scalable payment solutions, making them suitable for startups and SMEs.
The Payment processor is better suited for larger enterprises with established operations and higher transaction volumes.
6. Ownership of Merchant Accounts
Payment facilitators own the master merchant account, and sub-merchants typically share this account, often not having their individual merchant accounts.
The Payment processor enabled merchants to have their own dedicated merchant accounts, granting more control and autonomy over their payment processing operations.
In conclusion, understanding these key differences is crucial for businesses seeking the right payment solution. The Payment facilitators and payment processor offers distinct advantages and challenges, and the choice between them depends on your business’s specific needs, risk tolerance, and growth goals. Careful consideration of these factors will help you navigate the dynamic world of payment processing and make an informed decision.
In summary, the payment facilitator and payment processor serve distinct roles in the payment industry. Payment facilitators offer simplicity, speed, and ease of use, making them a great choice for small businesses and startups. The Payment processor, with their comprehensive services and risk management, are more suitable for larger enterprises with greater transaction volumes.