Payment Facilitator vs Payment Processor: Which Is Better?

Daniel Flynn

Daniel Flynn

In order to accept credit cards, you need a service that can “transport” money from customer bank accounts into your business checking account – securely, conveniently & quickly. As a result, the payments services industry exists. 

And due to high demand, there are many products on the market, such as mobile swipers, virtual terminals, shopping carts, invoicing systems & traditional countertop point of sale devices to increase the convenience customers experience.

With that being said, there are generally three types of service providers that offer these services to business owners like you. 

  1. Independent Sales Organizations (ISOs)
  2. Payment processors
  3. Payment facilitators (PayFac) 

All of these entities have the same goal: providing business owners with payment methods to collect revenue, offer convenience to customers & ultimately manage cash flow. 

However, each of these entities represents a different piece of the puzzle and takes a different approach to “getting money from point A to point B”.

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

ISO vs Payment Processor

Before we dive into the differences between payment facilitators and payment processors, it’s important to note the difference between ISOs and payment processors because they are the most common terms we hear in our industry. 

Most ISOs call themselves payment processors, but in reality, an ISO is an independent sales organization or company that redirects customer transactions from its server to a payment processor that then handles the actual processing of a transaction. 

When we refer to the processing of a transaction we mean, reporting the transaction to all necessary parties (card network, customer banks, security councils) and detecting fraudulent activity – protecting both the business owner and the customer from fraudulent activity.

Therefore, an ISO is a reseller of payment processing services. The main responsibility of an ISO is to submit an application to a payment processor on behalf of the business owner to open a merchant account and start accepting payments. 

However, the ISO doesn’t actually process your transactions. As a result, you end up paying two companies by signing on with any ISO or “payment processor”.

Payment Facilitator vs Payment Processor

Now that we’ve discussed the difference between an ISO and a payment processor, we can get into the details about what makes a payment facilitator different than a payment processor.

But in short, a payment facilitator is a service provider that manages the on-boarding, security, and maintenance of merchant accounts under a single MID – which is the fundamental difference from the payment processing model.

More on this below.

Difference #1: Merchant Accounts

As mentioned, 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 a quicker merchant on-boarding process & more control over the experience a payment facilitator’s customers receive.

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 on-boarding process. Specifically, each merchant must submit its own application to the payment processor & receive its own merchant ID. 

This whole process can take weeks.

Difference #2: Control In ISO vs Payfac Models

Payment processors are generally bigger companies that maintain vendor relationships with ISOs. As a result, you generally are speaking to a reseller when signing up for a merchant account or ordering a piece of equipment.

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, don’t play a direct role in the payment processing ecosystem. In fact, they serve as an intermediary between merchants & payment processors.

Difference #3: Fraud Detection

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.  

Difference #4: 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 a master merchant account, allowing a payment facilitator to distribute batches to merchants same-day or even instantly.

Difference #5: 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 account” that funds flow into. 

In addition, 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.

Related Resources

How We Can Help

We are a registered payment facilitator offering merchant services to businesses nationwide. Our platform allows you to accept online payments, in-person, by invoice, or wherever business takes you. 

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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