Payment Facilitators vs. Acquiring Banks

The advance of payment facilitation services during the last decade was tremendous. Card networks introduced the initial set of formal rules of the game for payment facilitators back in 2011. Since then, the PayFac concept has gone a long way. As of now, we are witnessing a situation when independent sales organizations (ISO) are vacating the stage for payment facilitators. At the same time, PayFacs themselves are rapidly increasing their market share.

So, what is the secret of payment facilitation model? Why is everyone so thrilled by success stories of PayPal, Stripe, Square, WePay, and other payment facilitation pioneers? Are PayFacs really some new highly intelligent predators “hunting for residual revenue and stealing it from acquiring banks”? Or is it just the survival of the fittest that we are witnessing?

The top-five candidates to become payment facilitators

1. ISVs;
2. SaaS platform owners;
3. Franchisors;
4. Investment and venture capital companies;
5. Online marketplace owners.

Besides them, becoming a PayFac is a way of survival for many traditional ISOs.

It may seem that newly emerging PayFacs (especially, software companies implementing PayFac models) are laying their hands upon revenues intended for acquirers and processors. In fact, they are not. The payment facilitator model is so popular with software companies not because they have more capital and developers at hand (or because they are somehow more aggressive). It just works best for all interested parties: merchants, acquirers, and PayFacs. Let us take a closer look at the situation:

• merchants get smooth underwriting experience and better service throughout their whole cycle of operation (onboarding, reporting, reconciliation, funding, processing, fraud protection, chargeback handing etc);
• acquirers happily delegate the listed functions (and much of the respons