With the rapid evolution of financial technologies, businesses are becoming more reliant on streamlined payment solutions that facilitate payment processing. Recognizing the need for a seamless, secure, and swift payment experience, payment facilitators have emerged in the fintech arena. Serving as the vital link between merchants and financial institutions, payment facilitators, shortened to PayFacs, have swiftly cemented their position in the market. It has sparked the rise of an innovative solution: PayFac as a Service.
This article provides a comprehensive answer to the question “What is PayFac-as-a-Service,” how it operates and what benefits it brings to Payment Service Providers (PSPs) and merchants worldwide.
What is a payment facilitator?
The term payment facilitator refers to a type of fintech solution provider that assists businesses in accepting digital payments.
In the early days of PayFacs, their primary role was to act as a mediator between merchants and acquiring banks. Opening a merchant account was complicated, expensive, and time-consuming, especially for newly established companies. PayFacs helped businesses start accepting payments quickly and easily, aggregating multiple merchants under their own master merchant accounts. Due to this, they swiftly took off on the market.
Recognizing changing merchants’ needs in the ever-evolving digital landscape, payment facilitators expanded the range of their services. Today, many PayFacs not only assist in opening merchant accounts but also provide payment infrastructure with advanced technologies for efficient transaction processing, help them set up and manage various payment methods, detect fraudulent activity, and many more.
How do payment facilitators work?
PayFacs act as middlemen between merchants and the main financial players (banks, credit card networks, payment processors, etc.), facilitating online transactions. The main scope of their functions depends on the spectrum of payment facilitation services the particular PayFac offers. Commonly, PayFacs assist with:Â
- Merchant onboarding and underwriting
PayFacs streamline merchant onboarding by providing a unified and automated application process. Such an approach enables small and medium-sized businesses to start accepting payments faster, reducing the time and effort it takes to set up a merchant account. Also, PayFacs assist businesses in underwriting by performing the necessary due diligence to assess the risk associated with new merchants. This process is usually automated, being much faster than traditional bank underwriting.
- Payment gateway
PayFacs often provide a payment system that facilitates transactions between buyers, merchants, and financial institutions. So, once onboarded, merchants can start leveraging PayFac’s payment system. This includes integrating with various traditional and alternative payment methods, including credit cards, mobile payments, Buy Now Pay Later (BNPL), and many more.Â
- Additional services
Many PayFacs offer additional services for improving payment conversion and approval rates. They can also provide compliance assistance, fraud protection and chargeback prevention technologies, real-time data analytics, automated billing, and many other tools to help merchants manage their businesses more effectively.
The journey to become a PayFac
If you want to become a payment facilitator, there are two main routes you can take. You can establish PayFac independently or leverage the ready-to-use system of a third-party vendor, marketing it as your own. The difference between these two approaches comes down to the cost, time, and risks associated with PayFac’s development.Â
If you are ready to spend $200K- $1M on a PayFac development (the overall cost will depend on the system’s functionality) and wait six months to a year until it starts generating profit, this is the best way to go. In this way, the system will be fully tailored to your needs and completely customizable. However, if you want to establish a PayFac quickly and for a much lower cost, you can shortcut this process by going with a ready-made white-label system called PayFac as a Service.
What is PayFac as a Service?
PayFac-as-a-Service emerged as a solution for entrepreneurs who want to become payment facilitators without developing their own system from scratch. It is an end-to-end brandable system provided by a third-party vendor on a subscription basis. Since the payment facilitator is offered to payment providers or merchants as a service, it is called PayFac as a Service.
When a payment provider or a merchant wants to leverage payment facilitation services, they can easily integrate the system via an open Application Programming Interface (API). To prepare the system for launch, the vendor sets it up according to the client’s requirements and brands it under the customer’s brand identity. Overall, these preparations take a couple of weeks. Once everything is in place, the system is ready for launch, and the client can operate as the full-fledged payment facilitator.Â
Benefits of PayFac as a Service
There are multiple benefits that PayFac-as-a-Service brings to the table. The key ones are:
Zero upfront costs
Building your own payment infrastructure requires significant upfront investment in technology, security measures, and compliance certifications. In contrast, with PayFac as a Service, these costs are borne by the provider. It allows customers to access an innovative payment system without zero initial investment.
Reduced operational expenses
PayFac-as-a-Service is beneficial not only in terms of upfront expenses but also in maintenance. The vendor maintains the system’s compliance with payment security standards (e.g., Payment Card Industry Data Security Standards), saving you recurring audits, updates, and yearly certification costs. Furthermore, the vendor handles system updates and technology enhancements.
Fast time-to-market
Another significant advantage is that the system comes pre-built, tested, and fully functional. It means customers can go live within a couple of weeks after integrating payment facilitation services and start generating profit right away.
Access to advanced technologies
Vendors must offer the latest technologies integrated into their PayFacs to remain competitive. Therefore, clients will gain access to intelligent routing, cascading, real-time payment analytics, advanced anti-fraud, tokenization, etc.
High degree of customization
Although PayFac as a Service is not fully customizable, it still offers a high degree of customization. First and foremost, if the system is white-label, you can adjust it to match your branding, including logos, colors, and overall design. Also, users can customize payment technologies to tailor them to the specific requirements of their business and customers’ needs. For instance, set different routes for various transaction types, implement customized risk management and fraud prevention strategies, etc.
PayFac-as-a-Service vs. Traditional PayFac
PayFac as a Service is an end-to-end payment facilitation model offered by a third-party vendor. Its goal is to reduce the burden of regulatory compliance, infrastructure development, and financial risks for entrepreneurs. It provides a quicker and less costly path to offering payment services.Â
In contrast, traditional PayFacs develop their own payment system. They must invest heavily in infrastructure, compliance, and risk management. Yet, they gain more control over the system and can tailor it to their needs.
PayFac as a Service vs. Payment Gateway
PayFac-as-a-Service is a comprehensive payment solution that includes merchant onboarding, regulatory compliance, and multiple banks and payment providers for payment processing on a single platform.
In contrast, a payment gateway facilitates the transfer of transaction data between a merchant’s website and payment processors. Thus, while PayFac as a Service offers a broader range of services for a seamless payment experience, payment gateways focus on the specific aspect of processing online payments securely.
PayFac as a Service vs. Payment Processor
While PayFac as a Service provides a platform with a broad set of tools and services for easy integration and management of payments, it does not handle transaction processing directly.Â
In turn, a payment processor is precisely a company that focuses on the operational aspect of processing transactions. PayFac-as-a-Service has multiple banks and payment processors integrated into the system and may offer an integration-upon-request option to address various customers’ needs.
What to look for in a PayFac-as-a-Service provider
When choosing a payment facilitation services provider, it’s essential to consider several key factors that can impact the overall success of your business. They include:
Regulatory complianceÂ
Be sure to verify whether a vendor is PCI DSS Level 1 compliant and employs strong security measures to protect sensitive payment data. They include anti-fraud filters, tokenization, encryption, partnering with third-party risk-scoring providers, etc.
References and reputation
Research the provider’s market reputation. Look for reviews on various websites and testimonials from current and past clients. Also, check out case studies presented by vendors and news regarding the latest collaborations to gauge their reliability.
Pricing structure
Compare the pricing structure and fees offered by different vendors to ensure you get the best deal. Look at the setup fee, monthly or yearly fee, transaction fee, and any additional charges for services like new integration development. Consider vendors who provide transparent pricing and clear fee breakdowns from the beginning.
Available payment integrations
Choose a provider that supports multiple banks and payment providers that address your requirements and are preferred by your clients. If you want the vendor to integrate additional payment methods of your choice, ensure they develop integrations upon request.
Features and technologiesÂ
Establish payment technologies and features crucial for your business and ensure the vendor is equipped with them. For instance, payment service providers might significantly benefit from automated merchant onboarding, while merchants will likely appreciate real-time payment analytics and streamlined billing.
How can Akurateco help?
Akurateco is a renowned global PayFac as a Service provider that allows businesses to establish a payment facilitator under their brand identity. Here are the key services the company provides:
- PCI DSS Level 1 certified payment platform with advanced in-house anti-fraud modules. Akurateco also partners with external risk-scoring providers, including Fraudio, MaxMind, and AcuityTec.
- Software-as-a-service, on-premise, or cloud-agnostic system setup.
- Innovative payment technologies, including intelligent routing, cascading, automated merchant onboarding, tokenization, recurring payments, and more.
- A dedicated payment team that acts as in-house business consultants and technical support, ready to assist you with any matter you may have.Â
- Access to over 350 integrated banks and payment providers via an open API.
- High-end customization, including customizable payment page and admin panel URLs, logos, and reports to mirror your company’s identity.
- Advanced payment analytics that allows you to create and download custom payment reports.
- Billing tools to calculate merchant fees, create settlements, and perform efficient reconciliations.
Conclusion
PayFac as a Service is a worthy alternative for payment solution providers and merchants seeking to launch their own payment facilitator without the extensive development efforts and regulatory hurdles, which makes it indispensable for businesses aiming to thrive in the digital age.
Frequently Asked Questions
What does a PayFac do?
PayFac’s primary function is to streamline the process of accepting e-payments for merchants, bypassing the traditional lengthy bank underwriting process. PayFac also manages transactions, ensures compliance with security regulations, provides fraud protection, and handles funds settlement. Overall, it simplifies the payment ecosystem for small and medium-sized businesses.
What is an example of a PayFac service?
Akurateco is a prominent example of PayFac-as-a-Service, offering businesses a seamless way to manage online payments without requiring a complex software development process. Through Akurateco, payment service providers, merchants, and other fintech solution providers can access a white-label payment system with a comprehensive suite of tools for payment processing optimization and over 350 integrated banks and payment methods.
What is the difference between PayFac and a merchant account?
PayFac is a payment solution provider that assists businesses in accepting digital payments by providing them with a robust ready-to-use payment infrastructure that encompasses multiple payment integrations and technologies.Â
In contrast, a merchant account is a specific type of bank account individual businesses obtain to accept and process credit card payments, requiring a direct relationship with a bank or payment processor.
How does a white-label PayFac as a Service platform function?
A white-label PayFac as a Service platform allows businesses to offer robust payment services under their own brand, leveraging the infrastructure and capabilities of an established PayFac without revealing the underlying provider. Leveraging this solution, businesses can provide a branded payment platform with advanced features while the service provider manages the complexities of transactions, compliance, and support.
How does PayFac as a Service cater to the needs of merchants?
PayFac as a Service caters to merchants by offering an easy-to-use end-to-end payment solution. It allows them to be in charge of their customers’ payment experience. Also, it provides a comprehensive suite of payment features for revenue increase and processing cost savings. Ultimately, PayFac-as-a-Service enables merchants to focus on their core business activities while ensuring secure and efficient transactions.
