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What is a Payment Facilitator (PayFac)?

What is a Payment Facilitator | Exact Pay

What Is a Payment Facilitator?

What is a payment facilitator? A good payment facilitator definition or payment facilitator meaning (PayFac) is an entity that enables its customers to accept payments, providing the infrastructure, banking relationships, underwriting, onboarding, expertise, and procedures needed. Put another way, PayFacs offer embedded payment solutions, encompassing a comprehensive range of services and tools necessary for organizations to seamlessly accept payments. This includes the provision of technical infrastructure and the intricate backend processes that facilitate smooth and secure payment transactions. Payment facilitators not only enable payment acceptance but also shoulder the responsibilities of risk management and compliance to ensure a hassle-free payment experience for their clients.

History of Payment Processing

To understand what is a payment facilitator and what their roles are, it’s important to look at the history of software monetization and embedded payments. In the past, software was sold as a single purchase, but as technology advanced and the internet became more accessible, Salesforce revolutionized the industry as the first true SaaS using a subscription model. From the late 2000’s to the present, pricing models evolved yet again as more SaaS businesses started to offer complex pricing structures like usage-based and tiered.

In addition to pricing strategy, many SaaS companies chose to compete by implementing product-led growth initiatives, while some opted to expand into new geographies or target specific verticals. In fact, as competition continued to increase among SaaS businesses, a new trend called “vertical SaaS” gained traction as an effective go-to-market strategy. Instead of creating software to serve a broader audience, vertical SaaS businesses specialized in software made to fit the unique needs of any given industry, such as property management or accounting. Through these varied strategies many companies saw success as they found ways to grow their total addressable market. But in 2020 the market changed.

As office workers, students, teachers and more were isolated at home during the pandemic, the number of SaaS businesses exploded to meet the needs of the new work-at-home era. This explosion created an even more competitive environment where churn was up, acquisition costs were only getting higher, and growth rates were slowing. As a result, software businesses started looking for new ways to grow. Enter embedded payments and various payment facilitator models.

Today, we see many businesses turning to embedded finance, and specifically, embedded payments, as the next strategy to sustain growth over time. With embedded payments, SaaS businesses take a portion of the processing fees generated on its platform as revenue. Incredibly, it’s estimated that the payments opportunity for independent software vendors (ISVs) and SaaS business is $35 trillion, accounting for 15% of the world’s payment volume.

Capturing this opportunity can be done through various models, including partnering with an independent sales organization (ISO) or a processor. However, this has traditionally involved a lengthy and manual onboarding process, often requiring individual merchant accounts for each business and a level of complexity that made it difficult for an online platform or application to offer payments individually to all its customers.

Payment Processors: ISO Versus the PayFac Payment Model

The PayFac payment model has transformed the payments industry by simplifying the onboarding process and offering an all-in-one solution for SaaS businesses. In the past, businesses often collaborated with Independent Sales Organizations (ISOs) to enable payment acceptance for their clients—a practice that continues today. When partnering with an ISO, the SaaS business directs its clients to work with the ISO to establish payment processing capabilities. This involves going through various compliance checks, including Know Your Customer (KYC), Know Your Business, anti-money laundering regulations, Office of Foreign Assets Control (OFAC), and more. The ISO also facilitates the process of obtaining a merchant account with a payment processor. This entire process can often span weeks and involves extensive paperwork and signature requirements.

Instead of setting up separate merchant accounts and going through laborious processes, SaaS businesses that become PayFacs operate under a master merchant ID and can quickly onboard clients as sub-merchants. This approach simplifies the process for clients, as they can start accepting payments quickly without the need for lengthy underwriting. As opposed to waiting weeks, as is typical with an ISO, PayFacs use advanced underwriting tools and can approve payment processing accounts in just a few minutes.

How PayFacs Operate To Accept Electronic Payments


Payment facilitators build their payment infrastructure from the ground up, including the necessary software, hardware, and processes. One of the first steps is partnering with an acquirer or payment provider to set up their master merchant account. They need to register with the major card networks and build or integrate with a payment gateway. PayFacs also invest in robust systems that ensure secure and reliable payment processing for their clients. This infrastructure enables their clients to accept a wide range of payment methods, including credit cards, debit cards, digital wallets, and other alternative payment methods.

Fee Structure

Payment facilitators typically charge a fee for their services, which is often a percentage of the transaction value plus a flat transaction fee. This covers the costs of payment processing, risk management, compliance, and the ongoing maintenance and support of the payment infrastructure. The fee structure may vary depending on the PayFac and the specific services provided.

Onboarding Process

One of the key advantages of the PayFac model is a more streamlined onboarding process. Payment facilitators have developed efficient processes and tools to quickly onboard businesses as sub-merchants. This eliminates the need for extensive paperwork and underwriting, enabling businesses to start accepting payments within a short timeframe. The simplified onboarding process is particularly beneficial for small and medium-sized businesses that may not have the resources or expertise to navigate the complexities of payment processing.

Level of Risk

Payment facilitators assume a significant level of risk as they take on the responsibility of managing payment processing for their portfolio of clients. They must have robust risk management and fraud prevention measures in place to protect their customers. By leveraging advanced technologies, data analytics, and industry best practices, payment facilitators can identify and mitigate potential risks and fraudulent activities.


Payment facilitators work by establishing relationships with banks, card networks, and acquiring institutions. They leverage these relationships to access the necessary infrastructure and acquire the ability to process payments on behalf of their clients. Payment facilitators handle the onboarding process, fund disbursement, pricing determination, and oversee risk management and compliance. They act as intermediaries between businesses and financial institutions, ensuring smooth payment processing operations.

Barriers to Becoming a PayFac

While the payment facilitator model offers numerous benefits, there are several barriers that ISVs and SaaS businesses may face:

Capital Investment: Building a payment infrastructure from scratch requires a significant capital investment. ISVs need to allocate resources to develop or acquire the necessary technology, compliance measures, and security protocols.

Time to Return on Investment (ROI): It may take time for ISVs to see a return on their investment after becoming a payment facilitator. Implementing the initial setup and onboarding processes can be time-consuming, and it may take even longer to attract a sufficient number of merchants to generate substantial transaction volumes.

Additional Business to Manage: Becoming a payment facilitator adds a new dimension to an ISV’s business. They will need to manage the payment infrastructure, compliance requirements, and ongoing support for their merchant clients. This additional responsibility may require additional resources and expertise.

Lack of Payment Expertise: Payment processing is a specialized field that requires knowledge of payment technology, regulatory compliance, risk management, and industry best practices. ISVs transitioning to the payment facilitator model may face challenges if they lack expertise in these areas.

Increased Risk: Payment facilitators assume all of the risk for the transactions processed through their platform. It’s important for ISVs to have robust risk management and fraud prevention measures in place to protect themselves and their merchants.

PayFac Alternatives

For ISVs that are hesitant to become full-fledged payment facilitators, there is an alternative option called Payment Facilitation-as-a-Service (PFaaS). PayFac for SaaS businesses or PFaaS providers offer a pre-built payment facilitation platform that allows ISVs to leverage the benefits of payment facilitation without the need to develop their infrastructure from scratch. This approach can be a more cost-effective and time-efficient solution for ISVs who want to offer payment processing capabilities to their customers.

PFaaS providers handle the underlying payment infrastructure, compliance, risk management, and ongoing maintenance, allowing ISVs to focus on their core software offerings. By partnering with a PFaaS provider, ISVs can quickly integrate payment processing capabilities into their software solutions without the need for extensive development or investment.

PFaaS providers offer a range of services, including merchant onboarding, transaction processing, fund disbursement, and customer support. They typically have established relationships with banks and acquiring institutions, enabling them to facilitate payments on behalf of their ISV clients. The opportunities and advantages offered by the PFaaS model make it an enticing option for ISVs looking to optimize their payment processing capabilities and deliver a seamless experience to their customers.

Payment Facilitator Benefits for SaaS Businesses Using PFaaS

Independent software vendors (ISVs) are increasingly adopting the PFaaS model for several reasons:

Seamless Integrations: Becoming a payment facilitator allows ISVs to seamlessly integrate payment processing into their software solutions, enhancing the value they offer to their customers. By integrating payments, ISVs can provide a comprehensive solution that streamlines operations, improves the user experience, and adds a core, commonly requested feature.

Revenue Generation: Payment facilitation presents a revenue-generating opportunity for ISVs. ISVs can charge for taking payments or earn a percentage of the transaction fees. ISVs can create an additional revenue stream to complement their software sales.

Control of the User Experience: As payment facilitators, ISVs have more control over the end-to-end user experience in terms of their own software and SaaS business payment processing. They can shape the payment process to align with their software, including user interaction flows and brand, ensuring a seamless and cohesive user experience. This control over the user experience can lead to increased customer satisfaction and loyalty.

Reduced Risk: By becoming a payment facilitator, ISVs can offload a significant portion of the risk associated with payment processing. Payment facilitators assume the responsibility of compliance, fraud prevention, and data security, reducing the burden on customers. This allows ISVs to focus on their core competencies while leveraging the expertise of payment facilitators.

How Can ISVs and SaaS Businesses Attract Merchants By Utilizing a PFaaS Solution?

To attract merchants and businesses, ISVs adopting a PFaaS solution can offer several advantages:

Fast Onboarding: With PFaaS, ISVs can provide a streamlined onboarding process, minimizing paperwork and accelerating the time it takes for businesses to start accepting payments. This quick onboarding is appealing to clients who value efficiency and want to begin accepting payments promptly. The change is dramatic, going from weeks or days of onboarding to hours or minutes.

Better Pricing Economics: Offering flexible pricing structures, such as flat-rate pricing or interchange plus, can be attractive to merchants. This flexibility can often result in much lower rates for clients, giving them a reason to stay with their SaaS provider long term.

Cutting-Edge Technology: ISVs and SaaS businesses can leverage cutting-edge payment technologies, such as the ability to accept multiple payment methods, like credit cards, ACH, and digital wallets. ISVs can also enable their clients to accept payments in multiple currencies. By providing merchant clients with innovative payment options, ISVs enhance the overall customer experience.

PCI Compliance and Enhanced Security: PFaaS providers maintain PCI compliance and implement robust security measures to protect sensitive payment data. In turn, ISVs can highlight their commitment to data security and reassure clients that their transactions will be secure and protected against fraud.

PayFac for SaaS Growth

By adopting PFaaS, ISVs can enjoy many of the benefits associated with payment facilitation, such as revenue generation, improved customer experience, and reduced risk. They can also attract clients with this model by offering fast onboarding, competitive pricing, cutting-edge technology, and enhanced security measures. And when they’re ready, a full-fledged payment facilitator role is always an option. Overall, both the payment facilitator and PFaaS models offer an attractive solution for SaaS companies looking for scalable growth strategies. Learn more about Exact’s embedded payments offering, PayFac-as-a-Service.

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