The world of payments can be slightly complex and, in all honesty, do you need to know the intricacies of it all when your priority is to make sure your customer is checking out as quickly as possible?
There are many different payment models, however, which can make a difference to your customer experience and how you run your business. One of them is payment facilitation (PayFac), so what does this mean and how it different from a payment gateway?
A PayFac to put it simply enables businesses to accept online payments. They allow merchants to accept electronic payments from their end customers without having to obtain their own merchant account.
Instead, the payment facilitator aggregates the transactions of multiple merchants into a single merchant account, making it easier and more cost-effective for smaller businesses to accept electronic payments. Essentially they look after the card networks, sub-merchant onboarding, and payment services for merchants.
Usually payment facilitation is used by software platforms, or ISVs (independent software vendors), who have lots of customers that in turn take payments from end users. Payments are embedded into their software or Marketplace and their clients offer payments to their customers within the platform.
PayFacs typically handle all aspects of payment processing, including authorisation, settlement, and funding. They also provide merchants with access to payment gateway services, which enable them to securely transmit payment information between their customers and the payment processing networks.
The real benefit of PayFac is that businesses can onboard new customers very quickly, without the hassle of KYC/KYB, verification and so on – meaning payments can be taken without a long delay.
A payment gateway is helps merchants to accept payments online too – and essentially it’s a way into the card networks. When a customer pays for anything online via a card or digital wallet, it goes through the gateway.
The customer’s account information is then verified by the gateway and enables the transfer of funds to your merchant account. This is an account that allows businesses to accept and settle payment card transactions.
It’s key to remember that because sensitive information is being transmitted to the merchant account, the gateway has to be highly secure to safeguard that data.
A payment gateway is used mostly in ecommerce – but also for digital wallets, card on file payments and telephone purchases.
Finally we should point out that if you’re looking to take online card payments from customers, you can’t have a payment gateway by itself, you also need an acquirer to handle card transactions. Some acquirers have gateway built in, others have a third party gateway option.
A payment gateway, however, is software that creates a secure link between a website taking payments and the processor. It encrypts the sensitive card data and verifies its authenticity.
One of the biggest challenges that businesses face when it comes to accepting electronic payments is obtaining a merchant account with an acquiring bank.
This can be a time-consuming and complicated process, especially for smaller businesses with limited resources. PayFacs have helped to overcome this challenge by providing merchants with access to payment processing services without the need for a separate merchant account.
Using payment facilitation, customers can be onboarded and verified quickly, with a faster underwriting process. It also means that payment risk is moved from individual merchants to the PayFac, as they own the master merchant account.
A payment gateway on the other hand is technology that verifies payments between merchants or vendors. It’s quick to set up and means businesses can start taking card quickly, reports can be auto-generated In the main, and end users don’t need to do much to complete their online journey