Infrastructure
Payment Facilitator (PayFac)
Definition
Payment Facilitator (PayFac) a payment model where a master merchant (the PayFac) aggregates sub-merchants under its own merchant account. PayFacs like Stripe, Square, and PayPal perform underwriting, onboarding, and risk management on behalf of their acquirers. This enables fast merchant onboarding but means sub-merchants don't have their own MIDs. PayFac model works well for smaller merchants but creates single-point-of-failure risk.
Related Terms
Payment Service Provider (PSP)
A company that provides payment processing services to merchants, typically bundling acquiring, processing, and gateway services into a single offering. PSPs like Stripe, Adyen, and Checkout.com handle the entire payment stack, simplifying integration for merchants. PSPs may operate as PayFacs (aggregating merchants under their own MID) or facilitate direct merchant accounts with acquirers.
Merchant Account
A bank account that enables a business to accept card payments. The merchant account holds funds from card transactions before settlement to the merchant's business bank account. Obtaining a merchant account requires underwriting by an acquirer. High-risk merchants face more scrutiny and may require specialized acquirers. Terms include processing limits, reserve requirements, and fee structures.
ISO (Independent Sales Organization)
A third-party company authorized to resell payment processing services on behalf of acquirers. ISOs find merchants, handle sales, and often provide support, while the acquirer provides the actual merchant account. Unlike PayFacs, ISOs don't aggregate merchants - each merchant gets their own MID. ISOs earn residual income on processing volume and may specialize in specific verticals or risk profiles.
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