Payfac
Payment Facilitator
Payfac (Payment Facilitator) is a company that connects many small merchants under its own master account and takes on their onboarding, verification and settlement with the acquiring bank.
What is Payfac (Payment Facilitator)?
Payfac (Payment Facilitator) is a payment acceptance model in which one company holds the contract with an acquirer or PSP and accepts payments from its sub-merchants. Each sub-merchant gets card acceptance without its own contract with a bank.
## How it works
A payfac registers with an acquirer or PSP as the master merchant. It then onboards clients: verifies them (KYC/KYB), sets acceptance rules, processes transactions through its own account and distributes payouts to sub-merchants. For the bank, the payfac is responsible for all of its sub-merchants.
## Where it is used
The model is common in marketplaces, SaaS services, freelancer platforms, booking services and niches where merchants are small and diverse. In high-risk verticals, payfac schemes are less common because acquirers strictly limit such onboarding and require separate underwriting.
## What it affects
The model speeds up launching payment acceptance but shifts chargeback, fraud and sanctions-screening risks to the payfac. The acquirer may require a rolling reserve, volume limits and ongoing sub-merchant monitoring. A verification error on a single sub-merchant can lead to blocking of the entire master account.
## Common mistakes
Typical problems include insufficient KYB of sub-merchants, lack of control over MCC and business descriptions, incorrect descriptor handling, and commingling funds of different clients on one account without accounting for settlement and payout rules. AML and sanctions screening requirements are also often underestimated.
FAQ
How is a payfac different from a regular merchant?
A regular merchant has its own contract and settlement account with the acquirer. A payfac signs a single contract and accepts payments for many sub-merchants, and is accountable to the bank for each of them.
Can a payfac operate in high-risk niches?
It is possible, but acquirers and PSPs usually impose stricter requirements for underwriting, reserves and monitoring. Terms depend on the specific bank and the rules of its program.
How is a payfac different from a PSP?
A PSP is a payment service provider that gives technical access to payment acceptance. A payfac is a separate role in the chain that onboards and services sub-merchants under its own account, often working through a PSP or acquirer.