Evaluating the PayFac Model for Your Small Business Needs
As a small business owner your customers expect you to be able to accept electronic payments. To do so, you have two options.
- You can set up a master merchant account with a bank or payment processor, or…
- You can set up a sub-merchant account with a payment facilitator (PayFac).
Which option is better? Read on to discover if a master merchant account or PayFac account is right for your business.
What is a Master Merchant Account?
A direct account with a bank or payment processor that lets you accept online payments under your own business name.
What is a PayFac Account?
A sub-account under a larger company (the Payment Facilitator) that already has a master merchant account — i.e., you use their infrastructure to accept online payments. These payment methods could be credit cards, debit cards and digital wallets. A PayFac account even accepts payments in foreign currencies.
Now, Let’s Compare the Two
How long does it take to set up each type of account?
For a master merchant account the application process is very in-depth with financial checks, business history and credit checks. To complete the process it can take days or weeks.
With a PayFac account the setup process is much quicker. There’s usually a simple, online application. Minimal checks are required. Approval is within minutes or hours
How much paperwork is involved with applying for each type of account?
To apply for a master merchant account you must be prepared to provide business financials, bank statements, incorporation documents, ID and more.
When you apply for a PayFac account, all that’s required is basic business information such as bank account details and your ID.
How long before you can start accepting payments?
With a master merchant account it can take anywhere from 3-14 days, sometimes longer, before you’re able to process payments.
The PayFac model is the total opposite. In most cases you’ll be able to accept payments the same day or within 24 hours of when you applied.
What about fees?
Generally with a master merchant account the per-transaction fees are lower than what you would pay with a PayFac account but the monthly fees and setup costs are higher. With a PayFac account there are fewer or no monthly fees.
Who’s responsible for risk and compliance?
When you have a master merchant account, you’re responsible for complying with payment card industry regulations and managing any payment disputes that may arise with customers.
With a PayFac account the payment facilitator takes care of risk and compliance management, and any chargebacks that need to be handled.
How much customization can you do with each type of account?
Owning a master merchant account means you can customize the rates that you charge and payments options that you offer. If you become a PayFac account holder you have limited customization options and must follow the terms set down by the payment facilitator.
So, is the PayFac Model right for your Small Business?
The PayFac model or approach is the right choice for your business if your goals are to start accepting card payments quickly, avoid lengthy applications and piles of paperwork, and keep your upfront and ongoing costs low.
With a PayFac account, you can be approved and processing transactions in a matter of minutes or hours, instead of waiting days or weeks.
You won’t need to provide extensive financial records or jump through compliance hoops.
And the payment facilitator oversees most of the risk management, regulatory requirements, and chargeback disputes for you.
While you may pay slightly higher per-transaction fees and have fewer customization options than with a master merchant account, the PayFac model is ideal if convenience, speed, and simplicity are more important to your business than having a fully tailored payment setup.
Learn how a PayFac can enhance your business.