The Basics of Payment Facilitators (PayFacs) Explained
When you run a business, one of the most important parts of your operation is accepting payments from customers — quickly, securely, and without headaches. That’s where payment facilitators, or PayFacs, come in. This article breaks down the basics of what PayFacs are, how they work, and what to look for when choosing one for your business.
What is a PayFac or PayFac service?
A Payment Facilitator (PayFac) is a company that enables other businesses — known as sub-merchants — to accept electronic payments under its master merchant account. Instead of every business needing to set up its own master merchant account, which can be a complicated and time-intensive process, a PayFac acts as the middle layer that processes payments on your behalf.
In simpler terms: a PayFac service lets you start accepting credit and debit card payments faster and with less paperwork. The PayFac manages underwriting, compliance, and settlement so you can focus on your customers.
Common examples of companies that serve as PayFacs include Square, Stripe, and PayPal.
The history and evolution of PayFacs
Before PayFacs existed, only large corporations could afford to become registered payment processors. Smaller businesses had to go through lengthy approval processes, often dealing directly with banks and multiple third-party vendors.
Companies like PayPal and Square changed that by bundling merchant services into one simplified package. The Payment Facilitator model emerged to make accepting card payments faster, more accessible, and more affordable — especially for small and midsized businesses.
Today, PayFacs play a vital role in the digital economy, powering millions of transactions for online retailers, app developers, and brick-and-mortar stores alike.
Using a PayFac service vs. setting up your own traditional master merchant account
| PayFac | Traditional Master Merchant Account |
|---|---|
| Fast onboarding (often minutes to hours) | Longer onboarding (can take days or weeks) |
| PayFac handles compliance and underwriting | Your business must handle compliance directly |
| One master account shared among sub-merchants | Each merchant requires its own merchant account |
| Easier to integrate with software and apps | Typically less flexible |
| Ideal for small businesses and startups | Often geared toward larger or established businesses |
In short, choosing to use a PayFac makes it a lot easier for smaller businesses to start accepting payments vs. getting your own traditional master merchant account.
What’s required to become a PayFac?
Becoming a recognized payment facilitator isn’t easy. It requires:
- A sponsoring bank relationship
- Registration with card networks (like Visa or Mastercard)
- Compliance and strict regulations and security standards (such as PCI DSS)
- Underwriting processes to vet sub-merchants
- Risk management systems to detect and prevent fraud
The fact that a company has successfully completed the rigorous undertaking that’s required to become a payment facilitator is a big reason why you can trust them as a PayFac provider.
What is a PayFac account?
A PayFac account is essentially a sub-merchant account under a PayFac’s master merchant account. When you sign up with a Payfac like Stripe, Square, or PayPal, you’re technically being onboarded under their umbrella account.
This setup allows you to accept card payments without needing your own direct merchant account with and acquiring bank. The PayFac takes care of settlement, transfers, and compliance for you — and you receive your funds (minus fees) directly into your business bank account.
The benefits of becoming a PayFac client
If you’re deciding between using a PayFac or a traditional payment processor, here are they key benefits of going with a PayFac:
- Faster setup: Start accepting payments within hours instead of weeks.
- Simplified pricing: Flat-rate or transparent pricing models are common.
- Better integration: Many PayFacs offer APIs and integrations for online stores and apps.
- Flexible payment options: Accept credit, debit, mobile wallets, and more in one platform.
For businesses, these advantages often outweigh the minor trade-offs, such as slightly higher per-transaction fees.
What to look for in a PayFac Service Provider
When choosing a PayFac, consider these key factors:
- Ease of onboarding — How quickly can you start accepting payments?
- Price transparency — Are there hidden fees or complex rate structure?
- Security and compliance — Does the PayFac meet PCI DSS standards?
- Customer support — Is help available when you need it?
- Integration options — Will it work smoothly with your point-of-sale system or website?
- Reputation and reliability — Is the provider well-established with proven uptime and use satisfaction?
Taking time to evaluate these areas will help ensure you choose a PayFac that aligns with your business’s requirements, growth plans and technical needs.
Conclusion
Payment facilitators make it easier for small businesses to accept digital payments — no banking expertise required. Whether you’re operating a retail store or service, running an e-Commerce site, or managing a software platform, understanding how PayFacs work will ensure you’ll know what questions to ask and how to identify the provider that best supports your business objectives.