Payment Facilitator Vs. Payment Processor: Which Is Right For You?

In order to accept credit cards, you need to partner with a company that can provide you with a means of transferring money from your customers’ bank accounts into your business checking account.

As such, the merchant services industry exists. And in this industry are three client-facing service providers that offer applications through which you can process transactions: ISOs, payment processors & payment facilitators. 

All of these entities have the same goal: providing business owners with payment solutions to run their businesses. However, these entities represent a different piece of the puzzle.

The rest of this article explains these differences in detail & will hopefully give you an understanding of which solution is best for your business.

Merchant Accounts

The primary difference between payment facilitators & payment processors lies in how merchant accounts are organized. 

You see. Under the PayFac model, each client is assigned a sub-merchant ID. Each of these sub IDs is registered under the PayFac’s master merchant account. What this allows is quicker onboarding & more control over the experience a payment facilitator’s client receives.

Payment processors, on the other hand, rely on ISOs (independent sales organizations) to sell & distribute their payment solutions. What this relationship introduces is a bunch of extra steps in the onboarding process. Namely, each merchant must submit its own application to the payment processor & receive its own merchant ID. 

This whole process can take weeks.

ISO vs Payfac

What you need to understand is that payment facilitation services have a direct role in the processing of credit and debit card transactions. ISOs, on the other hand, do not play a direct role in the payment processing ecosystem. In fact, they serve as an intermediary between merchants & payment processors. 

Underwriting Process

Another key difference between the payment facilitator & payment processor models is the underwriting process. 

For those of you who don’t know, merchant underwriting is an anti-fraud measure in which a financial institution evaluates the potential risk associated with a merchant’s card transactions. (Business 2 Community)

Under the payment processor model, a traditional merchant account is underwritten up front, resulting in the merchant’s application being approved or not.

With a payment facilitator, the underwriting process is continuous, meaning that underwriting occurs as each transaction is facilitated. The value of this is continuous risk management for a processing merchant, meaning added protection from fraud & chargebacks.

As such, payment facilitators often rely on proprietary software platforms to manage risk.  

Acquiring Bank

In the payments ecosystem, an acquiring bank houses the account that receives the funds from a cardholder’s bank, aka an issuing bank. 

In the payment processor model, the acquiring bank is oftentimes the bank that houses the merchant’s business checking account. One of the flaws in this business model is that credit card payments take a much longer time to get from point A to point B. 

The payment facilitator model offers a widely different approach in which the acquiring bank houses the payment facilitator’s merchant account. Under this model, all of the merchant’s transactions flow into a single account & are then distributed to the merchant’s business checking account.

Batch Processing

Due to the organization of merchant accounts in both models, a payment facilitator is able to offer streamlined batch processing because a facilitator controls the master merchant account that all funds flow into. 

Due to the third-party nature of the payment processor/ISO model, streamlined batch processing is impossible since all merchants have their own, individual merchant accounts that must be processed individually. 

Benefits of Partnering With A Payment Facilitator

By working directly with a payment facilitator, there are a bunch of benefits that you cannot obtain under the payment processor model.

Quicker Sign-Up

A payment facilitator is able to sign up merchants more efficiently than an ISO or payment processor because the merchant receives a sub-merchant id. Therefore, the payment facilitator can approve an account within a matter of minutes. 

Price Flexibility

A payment facilitator is able to offer a cheaper solution than an ISO/payment processor because of its streamlined payments solution. As a result, the payment facilitator model has fewer steps and entities in the process. This translates into fewer costs, which the facilitator can then pass on to you the merchant as a result.

Diverse Solutions

Whereas an ISO resells the services of a payment processor, a payment facilitator sells a payment solution that they built themselves.

As a result, most payment facilitators can support a multitude of payment solutions other than in-person payments. A great payment facilitator will tailor-fit their payment technology to any solution you need. 

Technology Integration & Reseller Partners

Another great benefit of payment facilitators is the flexibility that they have. Flexibility allows a payment facilitator to offer a completely customizable & seamless payment solution to a partner organization. 

Additional Benefits

Payment facilitators are able to offer additional benefits to the merchant, such as instant funding because they underwrite transactions themselves. Therefore, they have more control over the timing of deposits. However, the benefits provided to a merchant are endless based on technological developments. 

Related Resources

How We Can Help

We are a registered payment facilitator offering merchant services to businesses nationwide. Our merchant platform showcases a robust feature set that allows you to accept payments any way you want. 

Even better yet, we offer some of the most competitive rates in the industry. Our flat rates start at 2.5% + $0.10 per transaction (compared to Square’s 2.6% +$0.10 per transaction). You can also lower your rate by bundling some of our local marketing products with your payment solution

For more information, visit our webpage. For more articles like this, visit our blog.

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