PayFacs vs. Payment Aggregators: Understanding the Differences

In the dynamic landscape of electronic payments, businesses have a variety of options to choose from when it comes to processing transactions. Two popular models that have gained significant traction in recent years are payment facilitators (PayFacs) and payment aggregators. While these terms may sound similar, there are distinct differences between them. In this blog, we will explore the disparities between PayFacs and payment aggregators to help businesses make informed decisions about their payment processing needs.

Payment Facilitators (PayFacs):

Payment facilitators, also known as PayFacs or payment service providers, are entities that simplify the payment process for businesses and their customers. They enable businesses to accept payments by aggregating transactions under their own merchant accounts. Here’s how PayFacs operate:

1. Simplified Onboarding: PayFacs offer a streamlined onboarding process, allowing businesses to sign up and start accepting payments quickly. Instead of each business having to establish its own merchant account with various payment networks, PayFacs provide a centralized account that covers multiple businesses under their umbrella.
2. Sub-merchant Management: PayFacs manage sub-merchant accounts on behalf of businesses. When a business signs up with a PayFac, they become a sub-merchant under the PayFac’s master merchant account. This simplifies the process for businesses, as they don’t need to handle the complexities of establishing and managing their own merchant accounts.
3. Risk and Compliance: PayFacs assume the responsibility of managing risk and compliance on behalf of their sub-merchants. They handle tasks such as fraud detection, chargeback management, and adherence to regulatory requirements like Payment Card Industry Data Security Standard (PCI DSS). PayFacs leverage their expertise and infrastructure to mitigate risks associated with payment processing.
4. Simplified Settlement: PayFacs consolidate funds from multiple sub-merchants and provide a streamlined settlement process. Instead of each sub-merchant receiving individual settlements, PayFacs aggregate funds and distribute them to sub-merchants based on their transaction volumes. This simplifies the accounting and reconciliation processes for businesses.

Payment Aggregators:

Payment aggregators, also known as payment processors or payment service providers, enable businesses to accept payments by aggregating transactions under their own merchant accounts. Here’s how payment aggregators operate:

1. Easy Onboarding: Payment aggregators offer a straightforward onboarding process, similar to PayFacs. Businesses can quickly sign up and start accepting payments without the need to establish individual merchant accounts with payment networks.
2. Individual Merchant Accounts: Unlike PayFacs, payment aggregators set up individual merchant accounts for each business they onboard. This means that each business has its own unique merchant identification number (MID) and assumes the responsibility for managing its merchant account.
3. Risk and Compliance: While payment aggregators may provide some level of risk management and compliance support, businesses generally have a higher level of responsibility for managing fraud prevention, chargeback management, and regulatory compliance. They need to implement their own risk mitigation measures and adhere to PCI DSS requirements.
4. Settlement Process: Payment aggregators typically settle funds to each individual merchant account separately. Each business receives its own settlements, which requires businesses to manage their accounting processes and reconcile individual transactions.

Choosing the Right Solution:

When deciding between PayFacs and payment aggregators, businesses should consider several factors:

1. Risk Management: If businesses prefer a more hands-off approach to risk management and compliance, PayFacs offer comprehensive support in these areas. Payment aggregators require businesses to take on more responsibility for managing risk and ensuring compliance.
2. Scalability: PayFacs often offer scalability benefits, allowing businesses to easily onboard new sub-merchants as they grow. Payment aggregators may require additional setup.