Payment Facilitators and Payment Aggregators: What’s the Difference?

First things first. To understand how any payment model works, you need a basic understanding of how payments processing works behind the scenes. Here’s a look at the key entities involved when someone uses a credit or debit card to make a purchase:

1. Cardholder (customer): The cardholder is who initiates the payment process by making a purchase with their card or alternative payment method.

2. Issuer: The issuer is the bank that extended (issued) a credit or debit card to a person or business.

3. Issuer processor: An issuer processor is what transmits information such as whether a transaction was approved or declined. They act as a go-between for acquirers and issuers as they have a direct connection to the card networks.

4. Card networks: The card networks (also called card brands) represent the four major credit card payment systems: Visa, Mastercard, American Express, and Discover.

5. Acquirer: An acquirer is an institution that processes a credit or debit transaction for merchants and is what enables them to accept digital payments.

6. Merchant: This term refers to a business that provides goods and services in exchange for payment and that accepts digital and in-person payments.

Below is a simple breakdown of what we like to call the payments layer cake, which shows you where each of these entities fits.

A payment facilitator or PayFac for short is a service provider that allows businesses to accept digital and in-person payments. You can think of them as mini payment processors as they play an integral role in managing online and in-person payment transactions, underwriting, compliance, and onboarding merchants—basically the whole shebang!

Of course, there’s a lot more to PayFacs that we won’t get into here. For a deeper dive, see our Guide to Payment Facilitators.

So, how is a payment aggregator different than a facilitator? We’ll let you in on a little secret…dun da dun… it’s not. Yep, that’s right, they are basically the same thing [insert your favorite mind-blown gif here]. PayFacs are just what payment aggregators have evolved into.

The payment facilitator model was created by the card networks (i.e. Visa, Mastercard) around 2011 as a way for aggregators to provide more transparency into who their sub-merchants were.

Here’s how Visa defines payment facilitators and sponsored merchants:

“PayFac or merchant aggregator, a payment facilitator is a third party agent that contracts with an acquirer to provide payment services and solutions on its behalf.”

If you want to dig into the payments days of old, we got the perfect blog for you: The History of Payment Facilitation.

As you can see, comparing these services is like comparing tomayto, tomahto—they’re said differently, but they both still mean tomato—or in this case, they both let you accept payments. They also share common responsibilities. How these responsibilities are handled, however, varies by provider.

Merchant identification number (MID)

A MID is a unique identifier provided to merchants by a payment processor. Some payment aggregators and facilitators register their customers (your platform) under their own merchant identification number (less common), while others assign them their own.

Whether a sub-merchant (your customer) receives a separate MID is entirely up to the payments processor(s) your provider is connected to. However, they’ll still be given some type of unique identifier for reconciliation and payout purposes.

Control over your payments experience

The biggest aspect of the customer experience that payment facilitators can help with is merchant onboarding. Of course, customization options vary widely among providers, but with a PayFac like Finix, you can choose what your customers see at checkout, as well as the look and feel of their experience when onboarding to your platform.

This, in turn, lets your customers provide a better experience for their buyers. It’s like the circle of life but of payments—because everyone wants their experience to be “hakuna matata.”

Learn more about customizing Finix’s dashboard.

Underwriting process

With this payment model, each business is fully underwritten by the PayFac, which typically conducts background checks (like KYC, MATCHtm, and OFAC) and compliance checks on its customers. This helps payfacs comply with government regulations, protect against fraud, and ensures merchants aren’t hit with unexpected account troubles later on.

Some providers collect minimal customer data and run basic checks upfront to speed up the sub-merchant onboarding process. Others require more data and thorough compliance checks upon sign-up, which helps to minimize problems down the road.

While account freezes or closures can occur with any payments provider due to excessive chargebacks or other serious issues that may arise, it’s more likely to happen with the minimalist approach, as less bases were covered during the initial onboarding process.

At Finix, even though we require more data upfront, our onboarding process is still fast and seamless for your customers. Learn more about Finix’s onboarding process.

Payment processing fees

Some aggregators charge flat or blended pricing regardless of merchant type or transaction volume. Payment facilitators (like Finix) offer more competitive rate structures. This is because you often have a choice between blended and interchange+ pricing and can also take advantage of Level 2 and Level 3 (L2/L3) processing if you meet the qualifications.

This can save you a significant amount in fees, but does make fee profiles more complex. The increase to your bottom line, however, outweighs the cons of more complicated pricing for most businesses.

That said, it’s simple and easy to understand your fees with a flat rate structure. You’ll always know how much you’ll pay for a transaction as the fees are always the same. So in this case, you’re trading revenue for simplicity.

Check out our blog Understanding Payment Processing Fees for a deeper dive into the fee arena.

Though every PayFac lets companies accept payments, they each have their own technologies and features. Partnering with the right one is crucial to having the best experience for you and your merchants. There are hundreds of payment facilitators out there, but here are a few of the most known:

• Adyen

• Agile Payments

• Bambora

• Braintree

• Finix (we're also a processor)

• Infinicept

• PayPal

• Payrix

• Square

• Stax Payments

• Stripe

• Tilled

• WePay

Tip: Considering using an ISO or PayFac instead? We got that covered too. Check out our blog PayFac vs ISO: Weighing Your Payment Options.

Because how we work and communicate is becoming increasingly virtual, more and more businesses are turning to software platforms to meet workplace and consumer demand. This is especially true for small to mid-sized businesses (SMBs)—56% of which claim to use at least five SaaS applications.

This demand for online software is not only driving the need for businesses to accept digital payments—it’s also fueling new and lucrative earning opportunities for SaaS platforms. When adding payments into the mix, platforms are able to create new revenue opportunities out of what used to be only a cost center.

SaaS platforms are almost always better off with an embedded payment solution from a PayFac like Finix—especially as your payments volume increases. You’ll have opportunities to get lower payment processing rates for qualifying merchants/transactions and you won’t have to worry about an increase in your processing volume. You’ll also own more of your payments experience, which will help you attract and retain more customers in the long run.