What does it take to become a PayFac?

The topic of becoming a payment facilitator is as fresh and relevant as ever for many companies. Indeed, during the last decade, we witnessed a real PayFac boom. We should admit, that, to a large extent, it resulted from demand for payment facilitation services and willingness of acquirers to delegate merchant experience to other entities. At the same time, success stories of PayPal, Stripe, Braintree, WePay, and others became model examples to follow.

For businesses that already have some customer background verification logic at hand, the task of becoming a PayFac is a bit easier to accomplish. For example, such businesses include ISO, SaaS companies, franchisors, ISV, online marketplace owners and, perhaps, venture capital firms. Moreover, the prospect of implementing a payment facilitation model became even more appealing with the emergence of intermediary solutions. For instance, these include white label PayFac, PayFac in a box, managed PayFac etc.

No matter how lucrative the prospect may seem, the process of becoming a PayFac means considerable upfront costs, new requirements, and responsibilities. So, if you are serious about becoming a PayFac, you should know what to expect as you go through the process.

10 basic steps to becoming a payment facilitator a company should take

1. Register your business with card associations (trough the respective acquirer) as a PayFac. Card networks (Visa and MC) charge around $5,000 a year for registration.
2. Establish a processing partnership with an acquirer/processor. The crucial aspect of this partnership is your transaction processing terms and costs/fees.
3. Go through underwriting process as a PayFac with the respective acquiring bank. Even if you are a certified merchant, long underwritten by some acquirer, becoming a payment facilitator requires you to get through a separate underwriting process as a new entity. And keep in mind: not all acquirers that issue merchant accounts are authorized to underwrite you as a PayFac. So, you will need to complete a review of your operations model, provide estimates of expected transaction processing volumes, financial credentials, and other data.
4. Meet general liability insurance and cyber insurance requirements.
5. Develop a mechanism for sub-merchant management. The merchant management system should allow you to perform ongoing monitoring and support of the whole merchant life-cycle.
6. Develop a mechanism for initial merchant background verification and underwriting (KYC logic etc).
7. Establish a payment gateway partnership. In this context you have several approaches to choose from. First, you can develop a gateway product from scratch. Second, you can license a readymade solution as an open-source-code product that you can customize in-house. Third, you can resort to some white label gateway option. And, finally, you can partner with a third-party gateway provider.
8. Go through Level 1 PCI certification.
9. Organize sub-merchant funding. This is one of the most important aspects, giving PayFacs an advantage over ISO. Indeed, they take an active part in sub-merchant funding, even though they fund merchants on behalf of (and/or via) some acquirer/processor.
10. Implement mechanisms to protect you against the merchant and consumer fraud.

Concluding remarks

These are, actually, just the basics any prospective PayFac should follow. So, if you need more in-depth guidance and specific recommendations regarding your particular business case, you are welcome to consult payment experts at unipaygateway.com. They will be happy to help you, just like they helped other companies that are now successfully working as a white label or full-fledged payment facilitators.