What is the Payment Facilitator Model?

Fintech industry is constantly evolving. Emergence of new types of players is an indicator of this evolution. Payment facilitator model is a relatively new concept. However, it is rapidly gaining popularity. Many people confuse it with other terms, such as payment aggregator, payment service provider, or merchant of record.

If you want to have a better understanding of PayFac model, this article is for you. In it we will outline the key points around payment facilitator model operation. We will also explain how it appeared, and why it is so lucrative and popular.

What Defines the Payment Facilitator Model?

A payment facilitator is a middleman between an acquiring bank and a portfolio of sub-merchants. Unlike an independent sales organization (ISO), it performs merchant underwriting on behalf of the acquirer. It also accepts payments under a single unified MID on behalf of all its sub-merchants. In fact, it actively participates in the whole sub-merchant lifecycle. And assumes lots of responsibilities, delegated by the acquirer.

Who Can Become a PayFac?

Implementation of a payment facilitator model is a bit easier for you, if you have an established customer base. It is even better if you have KYC logic in place for background verification. So, technically, SaaS billing platform owners are in the best position for becoming PayFacs. Indeed, beside KYC logic and customer base, they have ready-made technical solutions. These solutions allow SaaS companies to smoothly implement payment experience.

However, payment facilitator model was not some project of SaaS payments providers. It emerged as a result of evolution of fintech industry.

So, Where Did Payment Facilitator Model Come From?

Originally, prospective merchants had to get merchant accounts directly from payment service providers or