I've been reading about the payments industry and am curious about payfacs. It seems the lines between entities are constantly blurring. And payfacs and other fintech companies that provide new technology are shifting boundaries further. I'd like to know more about the distinction between traditional processors and payfacs.
Sally Arnold, MBA student
Sally,
Thank you for your question. It is true our industry is dynamic, with new technology being introduced routinely. The main differences between payfacs, which are now well entrenched in the payments ecosystem, and traditional processors are in the areas of onboarding and underwriting, aggregation versus individual merchant accounts, and pricing structure. Traditional payment processors usually undertake a detailed underwriting process to establish a merchant account. Payfacs use simplified onboarding: businesses can sign up and start accepting payments quickly without going through individual underwriting.
Payfacs use aggregation, meaning multiple businesses share a single merchant account; traditional processors create and manage individual merchant accounts for each business they serve. When it comes to pricing, traditional processors typically charge interchange fees, processing fees, and additional charges for such services as chargeback mitigation and PCI compliance, often making individual merchant bills difficult to understand. Payfacs usually have a much simpler pricing model featuring flat-rate fees or simple tiered pricing based on volume, which tends to be much easier for merchants to understand.
Both traditional processors and payfacs offer merchants the ability to accept payments from a range of sources. They both also integrate with POS systems, ecommerce platforms and emerging payment acceptance channels. They also both are expected to adhere to PCI standards, as well as employ encryption, tokenization and other schemes to protect sensitive data. Plus, they both offer such added business services as analytics, invoicing, recurring billing and more. For more information about payfacs, enter "payfac" in the search function on our homepage, www.greensheet.com, and you'll see a list of relevant articles going back several years.
Editor
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