Eternity Law International News What is a PayFac?

What is a PayFac?

September 9, 2023

A Payment Facilitator is a kind of legal entity that furnishes specialized services for financial transactions. It is about processing electronic online-payments as well as postings through terminals. Many people believe that these intermediaries work with standard trading accounts, but their actual functionality has certain differences.

One of the main differences is the lack of an individual account for vendors working through these intermediaries. They receive a sub-trader account number and do not have a unique identifier. However, the functionality of such intermediaries is very similar to popular payment-platforms.

But while on outlets, dealings are processed separately, with the help of an intermediate, they are processed collectively and a single trading account is used for this purpose. This procedure has many benefits, but most of all its users appreciate the ease of access to dealings. Let’s take a closer look at why it’s worth exploring the opportunity of completing revenues this way and how it works.

What is PayFac’s function in revenue transactions

A payment facilitator license is issued to legal entities that work as an intermediary between the vendor and the payment-system. Their function is similar to independent merchants, but they operate on a sub-trade basis and can provide transaction-processing themselves.

With a sub-trade-account, the seller will be able to work through the structures of a revenue intermediate. He does not need to enroll and obtain the appropriate merchant`s account, as this role will be assumed by the intermediary. He will also be subject to due diligence and provide vendors with access to process the transaction through major payment-processors or banking programs.

You could say that the intermediary is loaning his identifier to other vendors. However, the risk of operating such an intermediary is very high. The point is that if the seller under his identifier will conduct dubious or illegal transactions, it is the intermediary, not the seller himself, who will be responsible. Therefore, intermediaries should actively study their potential sellers, conduct a comprehensive check of partner companies, and work only with those legal entities, in cooperation with which they are fully confident. 

Advantages and disadvantages of working with PayFac

Working with such companies implies a simplified method of registration and greater accessibility for small sub-vendors. All companies that have cooperated with this kind of intermediaries highlight the following advantages of working:

  • no need to obtain an identifier;
  • faster processing of payments;
  • possibility to work with small transactions without complex entries;
  • no need to open individual-accounts.

Of course, getting a definitive trading arrangement is not very challenging, but going through the due diligence process can take a lot of time. It may also require a certain level of the company’s reputation in the market. Therefore, cooperation with intermediaries is favorable for new legal entities that conduct one-time transactions or work on small volumes.

The main disadvantage of working with such companies is high risk, high intermediary commissions, and strict restrictions. Since PayFac companies go out to bid themselves, they risk their license and reputation. Therefore, they compensate for risk losses through the cost of transaction fees. If you conduct one-time transactions, the amount will be very different, but when accumulating turnovers, you need to calculate the lost income and possibly work independently through large platforms. But for small transactions, intermediaries will be an ideal solution for trading on the market.

Similarities between PayFac and ISO

Many analysts notice that despite the differences individual-providers and intermediaries have many similitudes. First and foremost, they are both a possible, but not always required, link in the chain for these kinds of dealings. Both companies have the goal of helping the merchant process their revenue. And even though they provide-services in different ways, they share a common goal. It is to help process payments and not to overload the processors of payment-systems with the number of requests.

It is also possible to highlight as a similar feature the use of modern technology to furnish their assistance. There is high competition among the intermediaries and each seeks to find sellers who will work through their trading system. Both entities try to centralize important tasks, combine several dealings from sellers into one case, and try to carry them out with a single click.

Who will help you pick the right intermediary

Since competition among intermediaries is high, there will be plenty of offers on the market. Therefore, co-founders of new companies or those working with small turnovers may get confused by the number of offers and start cooperating with potential fraudsters.

To avoid such situations, we recommend you to consult with our staff. We will help you to check the potential intermediary and make sure of its business reputation and honesty in achieving dealings. Thanks to us you do not lose but gain opportunities, reputation, and develop your interchange.

What is a Payment-Facilitator?

It is a kind of corporation that furnishes an ID for sub-vendors and the vendors can transact on behalf of such an intermediate.

How to obtain a payment-facilitator-license?

You need to get registered and meet the requirements of the regulator for such companies.

What does it take to become a PayFac?

In addition to registration, it is necessary to comply with the standards and prerequisites of the controllers and achieve due perseverance on all sub-vendors for each transaction to eliminate illegal postings.

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