The modern-day payment processing sector is rapidly evolving. According to a report by Worldpay, the preference for cash payments fell significantly in 2023 and is expected to continue declining until 2027. Online payments are becoming the norm, which is why understanding the different types of payment service providers is crucial for businesses aiming to choose the right vendor for their needs.
Businesses today are faced with numerous choices when it comes to accepting and processing payments themselves. With the growth of eCommerce and the increasing importance of digital transactions, selecting the right payment solution can make or break a company's success. This article delves into the fundamental differences between payment facilitators and payment processors, helping you decide which option best suits your business needs.
What is a Payment Facilitator?
A payment facilitator, also known as a PayFac, is an entity, independent sales organisation or organisation that simplifies the process of accepting electronic payments for merchants. Payment facilitators act as intermediaries between merchants and payment networks or banks, managing customer transactions, underwriting, fraud monitoring, and settling funds.
Role in the Payments Ecosystem
Payment facilitators play a critical role in the payments ecosystem by streamlining the onboarding process for merchants to accept payments. They provide sub-merchant accounts under their master merchant account, which allows for quicker and easier access to payment processing services. This payment facilitator model is particularly beneficial for small and medium-sized businesses that need to start accepting payments quickly.
How They Work
Payment facilitators handle the entire transaction process, from authorisation to settlement. They manage the underwriting process, which involves assessing the risk of each sub-merchant. This is a crucial step as it determines the merchant's ability to handle transactions securely and efficiently. For more details, see what merchant underwriting is and why it's important.
Once the underwriting process payments is complete, payment facilitators facilitate the cash flow of transactions between the merchant and the acquiring bank. They ensure that funds are correctly routed and settled into the merchant’s account. This process includes multiple checks and balances to prevent fraud and ensure compliance with industry standards.
Chargeback and Dispute Management
Payment facilitators also manage chargebacks and disputes, acting on behalf of their sub-merchants. This includes monitoring for fraudulent activities, handling disputes, and ensuring compliance with relevant regulations. Chargebacks can be a significant challenge for merchants, as they not only involve the return of funds to the customer but also potential fees and penalties. For a deeper dive, read Everything You Need to Know About Chargebacks.
Effective chargeback management involves timely responses to disputes, gathering necessary evidence to refute fraudulent claims, and maintaining clear communication with all parties involved in the acquiring customer's bank name. Payment facilitators often use advanced technologies and systems to automate and streamline this process, reducing the burden on merchants and ensuring faster resolution of disputes.
Quick and Easy Onboarding Process
One of the key advantages of payment facilitators is their ability to onboard merchants quickly. By using a master account, they can bypass the lengthy individual assessments typically required for individual merchant accounts. This allows for a setup of merchant services that can often be completed within a day or even a few hours.
The streamlined onboarding process includes verifying the merchant’s business information, conducting risk assessments, and integrating the business owner with necessary payment technologies. This efficiency is crucial for new businesses that need to start accepting payments immediately or for seasonal businesses that experience spikes in demand.
Popular Examples
Some popular examples of payment facilitators include Shopify Payments and PayPal Here (now deprecated). These platforms are known for their ease of use, quick setup, and comprehensive support for various payment methods. They are particularly favoured by small to medium-sized businesses and startups for their simplicity and efficiency.
What is a Payment Processor?
A payment processor is a company that handles the transaction data between the merchant, the issuing bank (the cardholder's bank), and the acquiring bank (the merchant's own bank account or own merchant account). They are responsible for ensuring that transactions are authorised and settled efficiently.
Role in the Payments Ecosystem
Payment processors play a pivotal role by providing the infrastructure needed for secure transaction processing. They integrate with various eCommerce platforms, shopping carts, POS systems, and apps to facilitate smooth mobile payments. The role of a payment processor is more technical and involves ensuring that all parts of the whole payment acceptance process work seamlessly together.
Secure Payment Gateway Integration
Payment processors offer secure payment gateways that encrypt transaction data, ensuring that sensitive information is protected during transmission. This is crucial for maintaining customer trust and complying with regulatory standards. These payment gateways act as the digital equivalent of a cash register, securely capturing and transmitting payment information from the customer to the acquiring bank.
Integration with popular eCommerce platforms is a significant advantage of using payment processors. They often provide plugins and APIs that allow merchants to connect their online stores to the payment provider card network or gateway, streamlining the process of accepting online payments. This integration ensures that transactions are processed quickly and efficiently, reducing the chances of cart abandonment due to payment issues.
Fraud Prevention and Risk Management
Payment processors use robust tools and protocols such as the Address Verification System (AVS) and Card Verification Value (CVV) to detect and prevent fraudulent transactions. They also assess their own merchant- and transaction risk, employing sophisticated algorithms to monitor and flag suspicious activities.
Fraud prevention is a top priority for payment processors. They use advanced machine learning models to analyse transaction data in real-time, identifying patterns that may indicate fraudulent behaviour. This proactive approach helps in minimising losses due to fraud and enhances the overall security of the payment industry and ecosystem.
Popular Examples
Some well-known payment processors include Braintree and Worldpay. These companies are recognised for their extensive experience in handling high-volume transactions and their robust security measures. They cater to credit card payments to a wide range of businesses, from small startups to large enterprises, providing reliable and scalable payment solutions.
What is the Difference Between a Payment Processor and a Payment Facilitator?
Where They Stand in the Payments Process
Both a facilitator vs payment processor both facilitators and processors are essential for handling online financial transactions, but they have distinct roles and responsibilities.
Payment facilitators act as intermediaries, providing quick onboarding and managing sub-merchants. Payment processors focus on the technical infrastructure and secure transaction handling.
Onboarding Process
Payment Facilitators:
- Quick setup using a master account to onboard sub-merchants.
- Minimal documentation required.
- Approval times are faster, often within a day or hours.
- Easy plug-and-play integrations.
- The ease of onboarding with payment facilitators makes them an attractive option for businesses that need to accept online payments get up and running quickly. This includes startups, seasonal businesses, and those with limited resources for handling complex payment setups.
Payment Processors:
- Detailed application process requiring extensive financial information and business plans.
- Setup can take weeks, especially for high-risk businesses.
- More rigorous assessment procedures.
- The thorough onboarding process of payment processors is designed to ensure the long-term stability and security of payment operations. This approach is beneficial for larger businesses or those with high transaction volumes that require robust fraud prevention and risk management systems.
Payment Methods
Payment Facilitators:
- Support a broad range of payment methods, including credit/debit card transactions, digital wallets, and bank transfers.
- Often offer more localised payment methods due to closer merchant relationships.
- Payment facilitators typically provide merchants with the flexibility to accept various payment methods, enhancing customer satisfaction and expanding market reach. This can be particularly advantageous for businesses targeting international markets or diverse customer bases.
Payment Processors:
- Typically support a wide array of payment methods and have more extensive resources for handling diverse payment types.
- Provide more robust and scalable solutions for larger businesses.
- Payment processors are equipped to handle a high volume of transactions across multiple payment channels. Their extensive resources card networks and infrastructure make them ideal for businesses with complex payment needs and high transaction volumes.
Regulatory Compliance Responsibilities
Both payment facilitators and processors must comply with PCI DSS standards. However, their approaches differ:
Payment Facilitators:
- Handle compliance for the sub-merchants.
- Ongoing process of monitoring and ensuring compliance.
- Implement tailored fraud detection solutions due to direct merchant interactions.
- Payment facilitators are responsible for ensuring that their sub-merchants adhere to regulatory requirements. This involves continuous monitoring and updating of security measures to protect financial institution against emerging threats and vulnerabilities.
Payment Processors:
- Conduct a lengthy one-time assessment during the onboarding process.
- Employ advanced fraud detection tools and comprehensive risk management protocols.
- Payment processors focus on maintaining a secure payment environment through rigorous initial assessments and ongoing risk management. Their advanced tools and technologies help in detecting and preventing fraud, ensuring the safety and security of payment transactions.
Fees
Payment Facilitators:
- Often charge higher fees per transaction due to additional services.
- Simpler and more inclusive pricing models to appeal to smaller merchants.
- The pricing structure of payment facilitators is designed to be straightforward and easy to understand. This can be beneficial for small businesses that prefer predictable costs and minimal administrative overhead vs payment processor.
Payment Processors:
- Generally have lower per-transaction fees, especially at high volumes.
- May include monthly service charges if a subscription model is chosen.
- Can offer flat fee structures depending on the merchant's needs.
- Payment processors offer competitive pricing for high-volume merchants, making them a cost-effective option for businesses with significant transaction volumes. Their flexible pricing models can be tailored to suit different business needs and budgets.
Which One Do You Need for Your Business: Facilitator or Processor?
Choosing between both a payment processor or payment facilitator depends on several factors, including:
- Control: How much control you want over your payment processing.
- Customisability: The level of customisation required for your payment system.
- Support: The amount of support needed based on your team's capabilities.
- Services: Additional services and add-ons that might be needed.
- Budget: Cost considerations and fee structures.
- Business Size: Whether your business is small, medium, or large.
- Industry and Risk Profile: The nature of your business and associated risks.
- Time to Market: How quickly you need to start accepting payments.
- Transaction Volume: Expected frequency, volume, and size of transactions.
For businesses that need a quick setup and simpler compliance management, a payment service provider or payment facilitator vs payment processor might be the better choice. They offer quick onboarding and handle much of the regulatory burden. However, for larger businesses with high transaction volumes and the need for robust infrastructure, a payment processor may be more suitable.
Conclusion
Understanding the key differences between payment facilitators and traditional payment processors is crucial for making an informed decision. Payment aggregator and facilitators offer quick onboarding and a simplified process, making them ideal for smaller businesses. Payment processors provide a more robust and scalable infrastructure, which is essential for larger businesses.
At payabl., we offer tailored, secure, and scalable payment solutions for businesses of all sizes. Learn more about our payment gateway services and how we can help you supercharge your business growth.