Payment Facilitators (PayFac) Explained: Is It Right for Your Business?

If you’re building a platform where users need to get paid, you’ve likely come across the term payment facilitator. But what does it actually mean, and is it something you should take on yourself?

This guide is for founders, product teams, and platform builders who are exploring how to integrate payments into their product experience. We’ll explain what a payment facilitator (PayFac) is, how the model works, and whether it’s the right approach for your business. 

If you're weighing up whether to build your own infrastructure or partner with a provider, this article will help you make an informed decision.

A payment facilitator (or PayFac) is a company that enables other businesses, known as sub-merchants, to accept online payments and card payments under its master merchant account. Instead of each sub-merchant applying for their own account with a bank, ISO, or payment processor, the PayFac streamlines onboarding, compliance, and payment technologies to manage the entire process.

Some well-known examples of PayFacs include PayPal, Stripe, Square, and Adyen.

Businesses in industries like fintech, ecommerce, and online marketplaces are most likely to encounter this model. It’s also common among platforms in sectors such as on-demand services (like ride-sharing or food delivery), creator tools, and vertical SaaS products.

Payment facilitators primarily focus on electronic payments, but their scope often goes beyond just credit card processing. Depending on the provider, a PayFac can support a variety of payment methods, including:

• Card payments – Debit and credit card transactions (e.g. Visa, Mastercard®), whether online, in-app, or in-person.
• Online payments – Checkout flows for ecommerce, payment links, and hosted payment pages.
• Recurring payments – Ideal for SaaS platforms and subscription-based services.
• Mobile wallets – Support for Apple Pay, Google Pay, and similar digital wallets.
• Bank transfers – In some jurisdictions, PayFacs also support ACH or local bank transfers.
• Alternative payments – Some offer integrations with Buy Now, Pay Later (BNPL) providers or other localised payment methods.

A payment facilitator acts as an intermediary between sub-merchants and the broader payments infrastructure, such as banks or payment service providers. Instead of each user setting up their own merchant account with a processor or bank, the payment facilitator model handles it centrally and enables sub-merchants to process payments under its master account. The key players in the PayFac model include:

• Sub-Merchant (Your User): A business or individual using your platform to accept payments (e.g. a seller on your marketplace).
• Payment Facilitator (You or Your Provider): Onboards sub-merchants, performs KYC/AML, handles risk, and routes transactions.
• Payment Processor: Executes the transaction by connecting to card networks like Visa or Mastercard®.
• Acquirer (Acquiring Bank): Holds the merchant account and settles funds to the PayFac after processing.

Let’s look at the model in a picture to get a clearer idea.

Instead of each merchant having to open a merchant account directly with a bank, they can go through a much faster and simpler onboarding process using this model. At the same time, a business that becomes a payment facilitator can take control of the payment flow, improve user experience, and potentially earn revenue from processing fees.

Before diving into whether you should become a PayFac or partner with one, it’s important to understand what makes the model attractive in the first place. For many fintech platforms, PayFacs unlock flexibility, speed, and monetisation that traditional setups can’t match.

Key Benefits:

1. Faster Onboarding for Sub-Merchants: Let your users start accepting payments quickly without going through a full underwriting process with a bank or processor.
2. Control Over User Experience: Customise the onboarding flow, checkout process, branding, and reporting tools to match your product’s experience.
3. Revenue Generation: Earn a margin on every transaction processed through your platform, rather than passing all fees to a third party.
4. Operational Visibility: Get direct access to transaction data, chargeback management, dispute handling, and analytics, which is useful for support, optimisation, and scaling.
5. Stronger Product Stickiness: By embedding payments directly into your platform, you increase customer dependency and reduce churn.

For platforms that serve creators, gig workers, vendors, or service providers, these benefits can significantly improve both customer experience and monetisation potential.

While both options enable payments, there are some significant differences between payment facilitators and payment processors. Here’s a side-by-side comparison. 

Becoming a payment facilitator is a strategic move, but it’s not a light lift. It means taking on critical functions within the payment system, including onboarding sub-merchants, performing Know Your Customer (KYC) and Anti Money Laundering (AML) checks, and overseeing compliance. You’ll also be responsible for setting up a bank account, handling funds flow, and providing merchant services under your own umbrella. 

For many startups, this can be time-consuming and resource-heavy, especially when compared to partnering with a PayFac-as-a-Service or BaaS provider. These providers manage the payment system infrastructure and compliance, allowing you to generate a new revenue stream without taking on the full operational burden of becoming a licensed PayFac.

So, how do you decide?

• Go full PayFac if you want full control, you're ready to invest in compliance and infrastructure, and payments are central to your business model.
• Partner with a provider if speed to market matters more, you want lower upfront costs, or you’re still validating your payment use case.

In most cases, early-stage platforms start by partnering and only consider becoming a full PayFac once they’ve scaled.

Choosing the right payment setup depends on your platform’s growth stage, technical capacity, and how central payments are to your business model. Whether you’re considering becoming a PayFac, working with one, or using a traditional processor, there are a few key factors to evaluate.

Key Evaluation Criteria

Here are the key criteria to help you evaluate which payment setup is right for your platform.

• Integration
  How easily can you connect the payment solution to your platform’s core functions? Look for flexible APIs, clear documentation, sandbox environments, and built-in support for global payments.
• Cost Structure:
  Consider setup fees, transaction fees, compliance costs, and revenue-sharing models. Also, evaluate how the provider handles payouts, settlement timelines, and their impact on your cash flow.
• User Experience
  Can you customise onboarding, branding, and the checkout flow? A seamless user journey enhances trust and can reduce drop-off, which is especially important when dealing with recurring payments or multi-party transactions.
• Support and Compliance
  Does the provider manage PCI DSS requirements, fraud prevention, and risk management on your behalf? For startups, choosing a partner that simplifies regulatory obligations can significantly reduce operational strain.

Questions to Ask PayFac-as-a-Service Providers

If you choose to work with a PayFac-as-a-Service provider instead of becoming a licensed PayFac yourself, it’s important to choose a partner that fits your platform’s needs. 

Here are key questions to ask during your evaluation:

• Do you support custom onboarding and sub-account creation?
  The ability to control user flow and branding rather than being limited to the provider’s default experience is crucial for platforms that rely on streamlined onboarding or want to differentiate their user experience.
• Who handles KYC, AML, and chargeback management?
  Some providers take full responsibility for compliance and dispute handling, while others may expect your team to assist. Understanding who manages what can reduce operational strain and risk exposure.
• What is your typical payout time and currency support?
  Fast and reliable access to funds is essential for managing cash flow. If your platform serves international users, multi-currency support and predictable payout cycles become even more critical.
• How does your pricing compare across volumes or currencies?
  Transparent pricing is key to managing costs as your transaction volume increases. Some providers may offer tiered pricing or better rates for high-volume businesses, while others charge more for specific currencies or cross-border payments. Understanding how fees scale can help protect your margins as you grow.
• Can we access detailed reporting or reconciliation tools?
  Access to real-time transaction data, settlement reports, and chargeback logs is critical for finance teams and customer support. Without this visibility, resolving issues or tracking revenue becomes difficult.

The PayFac model can offer significant advantages, from more control to better user experience and new revenue streams, but it also comes with high responsibility. It's a strong fit for platforms where payments are core to the value proposition and the team is ready to manage compliance, risk, and operations in-house.

If you’re unsure which route is right for you, speak with a payments advisor or start exploring platforms like Stripe Connect, Adyen for Platforms, or others that offer flexible PayFac support. Making the right choice early can save time, cost, and compliance headaches later on.