A Payment Facilitator (PayFac) is a service provider that operates under a master merchant account with an acquiring bank and enables multiple sub-merchants to process transactions under that single account. Instead of each merchant establishing a direct relationship with an acquirer, the PayFac streamlines the process by handling onboarding, underwriting, compliance, and funding on behalf of the sub-merchants.

‍

In this model, the PayFac is the registered merchant of record with the acquirer and assumes financial responsibility for all payment activity conducted by the sub-merchants it supports.

‍

Key Functions of a PayFac:

• Acts as a merchant aggregator, bringing many small or micro-merchants under one master MID
  
• Performs underwriting, KYC/KYB checks, and transaction monitoring for each sub-merchant
  
• Manages payouts to sub-merchants and oversees settlement and reconciliation
  
• Implements fraud controls, reserves, and chargeback handling within its own risk framework
  
• Registers with card networks and must adhere to rules specific to the PayFac model

‍

Benefits of the PayFac Model:

• Faster onboarding: Sub-merchants can start accepting payments within minutes or hours, compared to days or weeks under traditional acquiring models
  
• Simplified access: Ideal for platforms, marketplaces, and software providers enabling embedded payments
  
• Centralized control: Risk and compliance responsibilities are concentrated at the PayFac level, reducing friction for small merchants

‍

Risk and Compliance Considerations:

• The PayFac assumes the risk for all sub-merchants, including fraud, chargebacks, and non-compliant activity
  
• Because of the aggregated structure, PayFacs must implement automated monitoring systems, conduct ongoing merchant reviews, and maintain robust reporting and controls
  
• The PayFac must remain in compliance with card network registration requirements and may be subject to audits or enforcement actions if sub-merchant activity violates standards

‍

In summary, a Payment Facilitator enables fast, scalable access to payment acceptance by acting as a mini-acquirer for a portfolio of sub-merchants. While it offers efficiency and flexibility, it also concentrates risk requiring strong infrastructure for onboarding, fraud prevention, and compliance oversight.

‍