How payfacs can simplify and accelerate online card payments

Businesses looking to accept online card payments have a number of options when it comes to the setup of their payments stack. Payment Service Providers (PSPs) like Stitch have dominated the space by offering comprehensive solutions that. However, with so many roles and solutions a PSP can offer in the card-acquiring process, it can be difficult for businesses to identify which solution is best for them.

One type of acquiring solution PSPs offer is payment facilitation or payfac. 

Understanding the role of a merchant account

Card payments are processed through card schemes or card networks such as Visa and Mastercard. They connect the issuing and acquiring banks by authorising, clearing and settling funds, at a fee. The acquiring bank is responsible for settling the final amount into the beneficiary’s account, so businesses need to have a merchant relationship with a bank to support card payments. 

To ensure that all transaction fees are settled before funds are released, acquiring banks require businesses to open a merchant account. The merchant account holds the funds until the transaction is cleared. Once cleared, the funds are settled from the merchant account to the business banking account. 

The process to qualify for a merchant account can be complex if a business is considered high-risk. In addition, the onboarding process and management of the merchant account require time and resources. So businesses may not qualify to support card payments or be ready to commit to maintaining a direct banking relationship. This is where payfacs become useful.

Payment facilitators offer access at speed

Payfacs address the onboarding gaps by removing the need for businesses to open and manage merchant accounts. Instead, they (payfacs) open merchant accounts themselves and use that to facilitate card payments on behalf of their clients. 

Benefits of using payfacs:

• They accelerate speed to market reducing onboarding timeframes.
• The risk and compliance responsibilities for a merchant account are shifted to the payfac.
• Disputes and chargebacks are managed by the payfac, protecting resources.
• Settlements are unified because all transactions are consolidated into a single payout.

Considerations:

• Fees can’t be negotiated with the bank directly.
• Visa and Mastercard limit transaction values at $1 million and $10 million per annum respectively.
• Settlements may take longer as they are completed by the payfac.
• Statements don’t come directly from the bank.
• The solution is standardised for all merchants, limiting interface configurations.

Businesses that want to hit the ground running can use payfacs to speed things up and accept card payments quickly. However, if a more custom solution is needed with greater control of fees and relationships, a system operator model may be more appropriate.

System operators offer control and flexibility

System operators (SOs) process complex and high-volume payments. Businesses use them as technical partners for processing their payments. While they require businesses to have a merchant account with an acquiring bank, they still achieve rapid speed to market compared to the time required to build an in-house payment processing system.

Benefits of using a system operator:

• SOs provide custom payment solutions that strengthen the merchant’s value proposition.
• The merchant contracts directly with the bank and has full control over negotiating acquiring fees.
• Funds are received directly from the acquiring bank.
• Statements are received directly from the acquiring bank.
• Growth is not restricted by network limits. 

Considerations:

• Pricing structures are more complex than flat rates offered by payfacs but may be more cost-effective as the business scales.
• Merchants are responsible for risk and compliance, therefore they must use SOs that are certified and offer sophisticated fraud protection.

Is Stitch a payfac or a system operator?

We offer both. We understand that not all businesses are ready to own their own merchant account, so we prioritise going through the growth journey with them with a first-class payments solution. 

• Enterprise-level white glove customer service. Our 24/7 customer support ensures you never have to worry about competing for attention. 
• We care about conversions. Stitch SafeLink is designed to ensure payment forms are intuitive and easy to complete. 
• We build trust. Payments are safe and secure.
• We’re always on. Our smart routing ensures your payments are always processed. 

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