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 * Posted On: November 30, 2023
 * Posted By: Blogs


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

Payment Facilitator:

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.

Payment Processor:

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 Facilitator:

Payment facilitators offer a straightforward onboarding process. Sub-merchants
can often sign up and start accepting payments within minutes.

Payment Processor:

The Payment processor typically has a more involved onboarding process,
involving application, underwriting, and approval procedures.


 3. RISK MANAGEMENT

Payment Facilitator:

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.

Payment Processor:

The Payment processor places a significant focus on risk mitigation, working
with established businesses, and employing rigorous underwriting procedures.


 4. PRICING MODELS

Payment Facilitator:

Payment facilitators often use a simplified pricing model, charging
sub-merchants a flat fee or a percentage of each transaction.

Payment Processor:

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.


 5. SCALABILITY

Payment Facilitator:

Payment facilitators are ideal for businesses seeking quick and scalable payment
solutions, making them suitable for startups and SMEs.

Payment Processor:

The Payment processor is better suited for larger enterprises with established
operations and higher transaction volumes.


 6. OWNERSHIP OF MERCHANT ACCOUNTS

Payment Facilitator:

Payment facilitators own the master merchant account, and sub-merchants
typically share this account, often not having their individual merchant
accounts.

Payment Processor:

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.



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