I overhead a conversation about payfacs the other day. What are they? I'm new to merchant processing, and there's nothing about payfacs in my training materials.
Lydia Nybourg, Customer service rep
Payfac is short for payment facilitator, and we've published articles on payfacs in the past year that will fill you in fully on what they do. In "Payfac: Fad or new norm?" The Green Sheet, Sept. 12, 2016, issue 16:09:01, Adam Atlas defined payfac as follows:
"A payfac, also known as a payment facilitator or payment services provider (PSP), is an aggregated merchant account serving multiple merchants," he wrote. "Usually, a payfac assumes liability for chargebacks and other losses related to its sub-merchants. The acquirer or processor for a payfac looks exclusively to the payfac for all legal liabilities related to the sub-merchants under it.
"The payfac has its own merchant agreement with each sub-merchant and makes underwriting decisions, such as what merchants to board, settlement amounts, reserve accounts, etc. Not all payfacs are the same. Some sub-merchant agreements are tri-party agreements, with the acquirer or processor being parties together with the payfac and the sub-merchant."
Atlas went on to say that a payfac is basically a legal aggregator. "For a long time, aggregation was taboo in merchant services," he noted. "Aggregation means using a single merchant account to process for multiple merchants. High-risk processors have been doing this for decades, but normal ISOs and processors have avoided it because it results in the acquirer processing transactions for merchants with which it has no direct connection."
You'll find the rest of Atlas' article at www.greensheet.com/emagazine.php?story_id=5086&search_string=payfac. Another article containing useful information on payfacs is "The changing face of merchant acquiring," by Patti Murphy, The Green Sheet, April 25, 2016, issue 16:04:02, www.greensheet.com/emagazine.php?story_id=4876.It delves into a paper issued by Visa on the payment facilitator model and identifies key responsibilities of payfacs.
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