Accepting customer payments means being able to process their preferred payment type. Today, that increasingly means credit and debit cards. Of course, the path to being able to process customer credit and debit cards can be challenging, particularly for startups and small and medium businesses. That’s where a payment facilitator comes in.

What Is a Payment Facilitator?

A payment facilitator, often abbreviated as “PayFac” does precisely what it sounds like: these companies facilitate payments. Specifically, they facilitate payment by debit and credit cards. This is a critical consideration for businesses that might struggle to afford or set up their own merchant account.

A payment facilitator processes transactions, allowing their customers to essentially avoid having their own merchant account. During this process, the PayFac takes on all the risks that merchant payment processors traditionally do – risks related to the merchant.

How Does a PayFac Operate?

Payment facilitators perform a similar function for merchants as payment processors do, but how they do this differs greatly. With a payment processor, merchants must apply for an account and then wait for the approval. It can take several weeks to be approved and there is a chance that the payment processor will require additional paperwork to supplement the application (all related to risk).

In contrast, payment facilitators do not have the same process. Instead, PayFacs create what’s called a sub-merchant platform. With this platform in place, payment facilitators can sign up merchants under their own merchant account, eliminating the weeks of waiting and accelerating the process for clients (merchants).

Merchants can complete a brief application (usually online) and have near-instant approval. They are evaluated by an underwriting tool and then be approved for a sub-merchant account under the PayFac’s master merchant account.

Of course, this does not eliminate any risk in the situation. Traditionally, merchants signing up for their own merchant accounts were assessed for risk (part of the reason for the cumbersome process and long delays). With a payment facilitator, though, the sub-merchant does not bear any risk, and the master merchant account holder does.

Pros and Cons of a Payment Facilitator

Working with a payment facilitator can be a smart decision. However, it is not the right choice for all startups or SMBs. It’s important to make an informed decision here, which means knowing the pros and cons involved.


Simplification – One of the most important benefits of working with a payment facilitator is the simplification of the process. Startup owners, entrepreneurs, and SMB owners don’t need to jump through hoops or take time away from what they do best to apply for a merchant account. A single, brief online application is usually all that’s needed, and then you can begin processing customer cards (although you might have to wait for a card reader to be shipped).

Speed – The other obvious benefit of working with a payment facilitator is the speed with which you can start processing customer payments. Applying for a merchant account can require weeks before you get approval, much less everything necessary to start accepting debit and credit cards. With a payment facilitator, that process is dramatically shortened, giving you the speed necessary to compete in today’s economy.

Simplicity of Pricing – Pricing is relatively simple with a payment facilitator. For instance, if you are charged a 5% fee, that includes the payment facilitator’s fee, as well as the credit card fee, making it easier to understand and streamlining some of the processes.


Holding Your Money – Let’s get the big one out of the way quickly: when you work with a payment facilitator, there is a chance that some of your money may be held in what is called a “reserve”. This is a financial tool used to offset risk. In this case, it generally helps to reduce the risk incurred by chargebacks.

You can think of reserves similarly to how some merchants will authorize more than your purchase amount and then release the hold hours or days later. This is common practice with some gas stations that accept debit card payments at the pump. The card reader preauthorizes a very high amount, the customer pumps their gas and replaces the nozzle. Eventually, the merchant releases the hold on the customer’s funds.

However, it does not take much to see the potential problem here. For our example customer/merchant scenario, it means that some of the customer’s money is essentially locked up until the hold drops off. If they need to use those funds immediately, they will not be available.

Reserves work similarly, with payment facilitators using what’s called a “rolling reserve”. In this process, a percentage of your processing volume is placed into a reserve on a rolling basis. They are not used unless there is a chargeback, but they are essentially unavailable to you until the reserve is released.

Know Your Risk – Reserves are not applied on an evenhanded basis. Your payment facilitator is likely to do so based on your business’s risk level, the types of goods or services you sell, and other factors. However, the PayFac you work with may not make that information particularly easy to find. Some of the factors that play a role in whether a reserve is set or not include:

  • Goods or services that are often disputed
  • Industries that have historically high levels of chargebacks
  • Goods or services delivered at a future date rather than at the time of the purchase

See the Difference a Top Payment Facilitator Can Make for Your Organization

Not all payment facilitators are the same. Contact National Processing today to learn more about how we can help support your business while adding the flexibility and convenience that you need to better serve your customers.