Payment Facilitation (PayFac) Made Simple

There’s a better way to enable payments within your software platform quickly, efficiently, and cost-effectively.

Payment Facilitation (PayFac) is a service provider for merchants that want to accept payments online or physically.

A Payment Facilitator provides merchant accounts in near real-time to businesses that want to process credit card payments. Payment Facilitators are able to quickly onboard new merchants because they are onboarded as sub-merchants of the PayFac, not as merchants of the Payment Processor.

Before you earn one dollar from processing, here are the must-haves.


Find a processor that will sponsor you as a PayFac with a member bank and the card associations.


Pass an extensive underwriting process.

Cash Reserves

In most cases, put up substantial cash reserves and personal guarantees with the bank or processor. Additionally, you must develop credit underwriting guidelines and anti-money laundering policies.

Tech Resources

Ensure that you have the internal capabilities and infrastructure required to manage settlement funds to your downstream customers.

Payment Expertise

Hire staff that are experts in acquiring customers to sell, implement, support, and manage the day-to-day activities of the payments business.


Ensure that payments operations are in (and remain in) full compliance with PCI & other mandates, which can cost hundreds of thousands of dollars annually.

Payment Facilitation & Risk 101

Becoming a PayFac requires building and investing in multiple systems.

PayFacs have ongoing legal requirements to maintain their good standing and credit requirements with acquiring banks and card networks.

The Electronic Transactions Association (a professional advisory group from payment processors, banks and card networks) strongly recommends engaging these industry experts and legal counsel to ensure compliance and adherence to laws and guidelines.



It’s estimated that payment fraud increases at a rate of 41% every two years.


Roughly 40% of consumers who commit fraud will do it again within 60 days.

$7.2 billion estimates $7.2 billion will be reported in fraud by 2020.

Steps to Becoming a Payment Facilitator.

Banks & Sponsorship

Find an acquiring bank. As a PayFac, you must approach acquiring banks with a business plan to establish a partnership. Next, get sponsored to facilitate payments for your customers.


Integrate your payment platform and gateways to provide functionality for your customers to process online payments.

Certification – It’s the law

Obtain Level 1 PCI certification to ensure data security. You are required by the Payment Card Industry Data Security Standard to be certified, which may also include Mastercard and Visa (EMV or chip) certification if the PayFac supports in-person transactions.

Onboarding & Compliance

Create underwriting policies and systems to ensure only legal entities that comply with card network and acquirer rules are onboarded. Your system and employees must:

  • Estimate the nature of sub-merchant’s financial health and risk; including compliance issues, fraud, credit, regulatory and reputational risk;
  • Verify the identity of each customer, including KYC, owner structure, and other business details; and
  • Check OFAC and MATCH lists for your customers before onboarding. Mastercard manages the Member Alert to Control High-Risk Merchants (MATCH) list.

Internal Systems

To mitigate risk, you will need to a build a system with internal policies to conduct due diligence. Your PayFac system and staff will need to:

  • Comply with each AML law by encoding rules and requirements from card networks and regulatory organizations;
  • Identify suspicious activities (including indications of terrorist financing); and
  • File Suspicious Activity Reports with the Financial Crimes Enforcement Network (FinCEN) or acquirer as required.

Registration & Licenses

Submit registrations and apply for any additional required licenses such as:

  • Register as a PayFac with each card network.
  • Apply for money transmitter licenses (MTLs) in each state the Payfac operates in (if required to support certain fund flows).

Merchant Systems

Build automated customer dashboards, payout systems, and dispute management processes to handle chargebacks.

Ongoing System Maintenance.
Verification: Verify the identity, business model and owner information for each customer. Set up payments processing for each customer.

Update and Monitor Risk Systems: Perform due diligence, monitor customer activity on an ongoing basis and mitigate risk as needed (e.g., apply processing caps, delayed funding, or reserves).

Prevent and Block Fraud: Proactively prevent fraud on the platform and block or review suspicious transactions. Best practices include using adaptive machine learning for fraud detection. Submit evidence to card networks when needed for chargebacks on behalf of your customers.

Pay out Funds to Customers: Ensure customers are paid their earnings on time.

Reporting and Reconciliation: Generate and distribute 1099s or other tax forms annually as needed.

Maintain PCI DSS Compliance: Ensure the platform remains compliant even as data flows and the customer experience evolves. Some card networks require PayFacs to submit quarterly or annual reports or complete an annual on-site assessment to validate ongoing compliance. Renew PayFac registration and licenses: Re-register as a PayFac with card networks annually and update or renew MTLs on the required cadence

Traditional Payment Facilitation Cost & Time Table Initial Set-Up Costs:

Acquirer Sponsorship: business plan + attorney fees 2 – 6 months Varies
Payment Gateways 1– 6 months Varies
PCI Compliance 2 – 4 months $40,500 – $600,000
Merchant Management Platform 8 months – 1 year $500,000 +
Compliance System 1 – 7 months $300,000
License Fees 6 months – 2 years $1,000,000
Estimated Initial Cost >$2MM

Ongoing Expenses:

Merchant Onboarding ongoing $5 per merchant
Risk Monitoring and Mitigation ongoing $250,000 + (1 FTE at $150,000 per year and 1 risk analyst at $100,000 per year)
Fraud Prevention ongoing $0.04 – $0.10 per transaction
Chargeback Management ongoing $15 per dispute
Funds Routing and Payout ongoing $0.25 per transaction
Reconciliation/Reporting ongoing $5 – $225 per form + $100,000 per year 1 Finance FTE
Annual PCI Validation ongoing $200,00 per year
Renew PayFac Registration ongoing $10,000 + per year

There’s an Alternative Solution!

Now that you know the significant amount of time and money needed to become a PayFac, with our partner (PayFac-In-A-Box™), software companies can receive the benefits and functionality of being a PayFac without taking on the responsibilities attached to being a PayFac.

Whether your application demands a hosted pay page or you require the flexibility of taking payments mobile, we have a solution for that! We are innovators of cutting-edge payment applications and technologies. Gain access to SDKs written for each API in the newest and most common coding languages.

PayTech Partners Making Payments Simple.

Automated enrollment tools eliminate the onerous process required to set up your customers. Access a unique boarding API to help you board one customer at a time or millions. You won’t see this elsewhere!

There’s More.

Like every business out there, software companies are always trying to find ways to earn incremental new streams of recurring revenue. 

Even if you currently have a payments solution in place, how many of your customers are actively using it? To put that in perspective, let’s assume that you have 1,000 customers using your software, chances are you are not earning any residual income on even 10% of them. What if there is a simple way to move that 10% to 80%, or more?Would that be of value to you?

Below is a realistic example of how our partner’s (PayFac-In-A-Box™) will dramatically impact your bottom line simply by partnering with us. We do all of the heavy lifting, directly increasing your net income. Take a look for yourself:

Your Annual Take-Home Revenue.

Let’s say you have 1,000 customers currently using your software and 80% start processing payments (800 customers.)

Those 800 customers process $20,000 each per month for a total of $16MM in processing volume every month.

That $16MM turns into a net take-home income of $64,000 per month, or
$768,000 per year for you. That is right, we said $786,000 per year in your pocket.