3 Benefits of Becoming a PayFac for Franchisors

Written by

James Davis

Written by James Davis

Senior Technical Writer at United Thinkers

Author of the Paylosophy blog, a veteran writer, and a stock analyst with extensive knowledge and experience in the financial services industry that allows me to cover the latest payment industry news, developments, and insights. Read more

Reviewed by

Kathrine Pensatori

Reviewed by Kathrine Pensatori

Product Specialist at United Thinkers

Product specialist with more than 10 years of experience in the Payment Processing Industry. I help payment facilitators and PSPs solve their various payment processing issues. Read more

Imagine you discover spring with clear water on your property. What will you do with it? Scenario 1: keep the water source to yourself, to be used by your family and friends only. Scenario 2: start letting people enter your property and use the well for a fee. Scenario 3: start selling bottled water from your spring to whoever wants to buy it. Finally, you can start with scenario 1, and then gradually switch to scenarios 2 and 3. Similarly, if you’re a franchisor, you should consider becoming a payfac and explore “payfac for franchisors” model.

It is your business idea or concept that you are willing to share with your franchisees for a commission. And if you decide to become a payment facilitator, then you are ready to start selling “bottled spring water.” By “bottled water” in this case, we mean high-quality merchant services. Naturally, the people who are already using the water from your spring will be the first ones to purchase it in bottles. Similarly, your franchisees should become your first sub-merchants.

It is easier to become a PayFac if you are a payfac for franchisors because you already have a certain degree of control over your franchisees. You are, probably, able to impose particular requirements upon them, aren’t you? You might also have some background verification (KYC) logic already in place. And you might be able to monitor ongoing operations of the franchisees. These and some other PayFac-specific functions are commonly available to franchise owners.

Payment facilitator model

The payment facilitator model has 3 significant benefits. Here they are:

1. You can consolidate the processing volumes of your sub-merchants. Based on this large consolidated processing volume, it is easier to negotiate better processing terms with the acquirer/processor. (Standard bottles are all the same, so you can easily arrange wholesale operations. Plus, you do not have to pay much for the bottling service itself, because of large operations scale).
2. If you already have some logic for initial background verification and ongoing monitoring of your franchisees, it provides a good foundation for smooth merchant onboarding, provisioning, and funding. (If you know people, who are using your spring water, then you do not additionally check their background when you start selling bottled water to them).
3. As a PayFac, you can easily deduct and withhold merchant services fees because you get hold of the sub-merchant funding process.

But what if you do not feel like you can meet all PayFac-specific requirements all at once? Well, you can start with white-label PayFac model. (PayFac in the box, virtual PayFac, managed PayFac are other names for similar try-it-before-buy-it solutions). The significant benefits of white-label PayFac model are lesser responsibility and significantly lower upfront costs. Some modern platforms, such as UniPay Gateway offer white-label PayFac solutions.

Naturally, these are just the most general conceptual points, related to becoming a PayFac for franchisors owners. If you need more specific information regarding your particular case, you are welcome to consult payment experts at UniPayGateway.com.