Mobile credit card paymentsThe business of accepting credit cards and payment processing can be pretty confusing for merchants.  The primary concern of most merchants is making sure they are able to accept credit card payments from their clients. Most merchants know they need to open a merchant account to accept the various forms of payments, other than cash, that consumers are using today. But they aren’t concerned with whether they get it from an MSP, a PayFac, or PayPal.

It’s enough work for a merchant to undertake and understand the inner workings of each aspect of their own business.  Merchants don’t want to understand how a supporting business (merchant services) that provides the services they need also works!

There are many entities involved and so much different terminology in the payments industry, here and internationally. And to make matters worse, industry insiders often use many of the terms interchangeably, whether they should be or not.  

All of this makes it hard for merchants to understand the difference between the various entities that offer merchant services. So how are merchants to know which type of provider to turn to for those services?

They all facilitate payments – so what’s a Payments Facilitator?

Today we are going to explain what a Payments Facilitator (abbreviated as PayFac by the industry) does. And how this business model differs from traditional (or sometimes called old school) merchant services.

This type of platform is sort of a one size fits all option. For most PayFacs, the focus is on providing Software as a Service (SaaS). Not providing merchant accounts to accept payments. They offer the merchant the software services they need to run their business. That software comes with the ability to accept and process payments built right in. IF you want the software, you must accept their merchant account and its terms.

This one-size-fits-all solution takes control and flexibility away from the merchant as far as the rates are concerned.  Every merchant who applies gets the same account with the same acquirer for the same price and uses the same software.

Choosing a POS system and then a processor separately gives the merchant much more control over their merchant account and rates. This option gives you the control over who you choose to open a merchant account with for accepting payments. You have the freedom to find a processor who can integrate with your POS and Gateway and negotiate the best rates for your account.

How does the merchant account with a PayFac differ from a dedicated account from a Merchant Service Provider?The difference between a PayFac and a dedicated merchant account

A Payment Facilitator is an entity that partners with and opens what we consider a Master Merchant Account with an acquiring bank. A merchant who holds a master account is creating a payment ecosystem other merchants can tap into.

No dedicated Merchant ID

The acquiring bank grants the master account and assigns the PayFac their own Merchant ID (MID). The master account holder then signs up other merchants under their MID as a sub-merchants and assigns them their own MID.  Each of the sub-merchants is then able to process credit and debit card transactions through the master account. 

PayPal, Stripe, and Square are all good examples of PayFacs.

This is very different from a dedicated merchant account. When a business applies for a merchant account, they undergo strict underwriting. The acquirer takes the time to properly underwrite, and approve, each merchant for a dedicated merchant account and MID.

The PayFac will perform a very limited underwriting process for its sub-merchants. Payment facilitators can allow a merchant to begin processing right away, under the master account. The master account assumes all responsibility, compliance, and risk for the account. This can greatly simplify the process for those merchants who are not processing large volumes of transactions.

Flat-rate Pricing

The PayFac will give their sub-merchants a flat rate for credit card processing, regardless of card type or transaction type. This type of rate structure can be ideal for small businesses (SMBs) that process low volume. But due to higher transaction fees, it can sometimes end up far more expensive than a traditional interchange-plus rate plan. This rate plan is also much less transparent than interchange-plus pricing. That’s because it’s difficult to see exactly how much you are paying for each type of transaction.  

These types of accounts often also carry processing volume constraints. Volume limits restrict sub-merchants to a maximum sales transaction volume per month. If a business were to need to exceed this threshold, they would then be required to open a dedicated merchant account.

How does a PayFac differ from a payments aggregator or an “Agg Account”?

You may think PayFacs sound a lot like a payment aggregator and that’s because it is a lot like that. A payment aggregator is a specialized subset of payment facilitators. There is one significant difference, however. In an aggregate account, a sub-merchant would not receive its own MID (merchant ID). Instead, they process under the account holders MID. While a PayFac will provide the merchant with its own MID.

Either way, these types of merchants will effectively share their merchant account with (sometimes) millions of other businesses. Because of this, they take on quite a bit of risk. PayFacs essentially take on the risks associated with processing and fraud for all of their sub-merchants, as well as any financial losses that could be associated with it.

Choosing a dedicated merchant account to accept credit card payments may be the right choice for your business.

Merchant Services ProviderAlternatively, when you use a broker to acquire your merchant account, they’ll connect you directly with the acquirer. You will be approved for a dedicated merchant account and they’ll issue you your own MID, or merchant ID. Acquiring banks, however, generally do not provide any customer service directly to merchants.

Instead, it’s best to get your merchant account through an experienced Merchant Services Provider (MSP). Your merchant service provider is there to provide you with account support and customer service. They will act as the intermediary between your business and the banks that issue your customer’s credit cards.

Because they often work with many processors, they can offer merchants a wider variety of rates and rate plans. They are able to offer a solution with the processor that is the best fit for your business type. Also, as your business grows and processing volumes change, they’re often more willing to negotiate for better rates. Which can’t happen under a master account as a sub-merchant.

Often an Interchange-plus rate plan will greatly benefit a larger business that processes higher transaction volumes. An interchange-plus rate plan will bill the merchant based on the wholesale cost to run transactions (set by Visa/MasterCard) along with their markup. The fact that the merchant can clearly see how much he’s paying the provider above the card brand fees makes this the most transparent rate plan available.  

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Because the MSP not only deals with multiple merchant types but also multiple different processors, they are more able to find the perfect fit for all business types. Whether you’re categorized as a low-risk merchant or a high-risk merchant, they’ll have the most competitive pricing.

When you have a dedicated merchant account, transaction proceeds (your funds) are deposited directly into your business bank account. Unlike under a Master account, where funds are deposited in the master account holder’s bank. The merchant must wait for the aggregators to transfer funds from the master account to each individual merchants’ bank account. It is also important to keep in mind that a PayFac can potentially withhold funds.

Merchant service providers focus more on providing comprehensive merchant account service and high-quality customer support. Unlike a PayFac, who often just gives out an 800 number, a quality merchant service provider has in-house customer service.

A dedicated merchant service provider’s primary goal is supporting their client. They will often be able to provide their merchants with a dedicated account representative. In addition, merchants have access to U.S. based customer service available 24/7 for support after normal business hours.

Accepting credit card payments is about finding the right fit for your business needs.

Both avenues for accepting payments have their respective pros and cons. It is all about finding the right fit for your business. At Bankcard Brokers, we’re dedicated to our client’s success. We provide access to the most technologically advanced solutions for payment processing as well as offer advanced business development services. And we offer all this while also having the most transparent and competitive prices out there.

At Bankcard Brokers we work for you. We know how important dependable and affordable merchant solutions are to our merchants. We strive to exceed our clients’ expectations and do that by making sure we are a trusted resource for the cutting-edge solutions our customers are looking for.

Call us today and see what it feels like to “Experience The Bankcard Brokers Difference”.

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