Payment Facilitators (Pay Facs): What They Are and Should You Use One?

Your guide to understanding key differences

Payment facilitators, or PayFacs, provide instant onboarding and simplified underwriting for businesses needing payment acceptance capabilities without traditional merchant account complexities. This page explains how PayFacs work, the benefits and drawbacks compared to traditional merchant accounts, key considerations for UK and EU businesses, and how to choose the right payment facilitator for your industry and growth stage.

A payment facilitator, or Pay Fac, allows businesses to accept debit and credit card payments without needing their own dedicated merchant account to handle transaction funds. While they bring certain advantages, they’re not always the best choice for most UK small businesses.

In fact, the Payment Systems Regulator (PSR) found that about 25% of small merchants with annual turnovers up to £380,000 use a payment facilitator as their main card-acquiring provider. For businesses with turnovers above £380,000, however, this figure drops to just 2%.

What is a Payment Facilitator (Pay Fac)?

When setting up an account to accept card payments from customers, businesses have two main options:

1. Merchant Account – Set up through a card acquirer or Independent Sales Organisation (ISO), this provides a dedicated account and unique Merchant Identification Number for each business.
2. Payment Facilitator – Also known as a Pay Fac or Payment Service Provider (PSP), this option handles payments on behalf of the business, aggregating accounts and onboarding each business as a sub-merchant under a shared master account. This can streamline the setup process, making it faster and more affordable for businesses to start accepting payments without the usual lengthy application process.

A Brief History of Pay Facs

The Pay Fac model emerged in the late 1990s to support small and medium-sized businesses in accepting online payments more easily. Before then, traditional bank onboarding was complex, costly, and primarily designed for larger businesses. Payment facilitators stepped in to simplify the setup process, offering a way for smaller companies to handle payments without needing in-depth expertise in payment systems.

For customers, the payment process remains seamless, while businesses benefit from flat-rate fees, quick account activation, and flexible contract options.

How Payment Facilitators Actually Work

Here's the flow:

1. Sub-merchant onboarding: Businesses complete a streamlined application with the PayFac.

2. Underwriting and risk evaluation: The PayFac reviews basic business data and risk signals.

3. Transaction processing: Once onboarded, payment flows through the PayFac’s gateway and acquiring bank.

4. Settlement: Funds are collected by the PayFac and distributed to the sub-merchant according to agreed terms.

This structure reduces friction and accelerates time to market but places risk and reserves management with the PayFac.

Payment Facilitator vs Traditional Merchant Account

PayFacs are ideal for marketplaces, platforms and SaaS businesses that need quick access to payment acceptance without lengthy underwriting. Traditional merchant accounts are better suited for individual merchants who require full control of processing rates, reserves and risk profile.

Examples of Popular Payment Facilitators

Some well-known payment facilitators include:

• Square
• SumUp
• Zettle (owned by PayPal)
• Lopay
• PayPal
• Stripe Payments

Key Benefits of Using a PayFac

• Rapid onboarding without individual merchant underwriting
• Centralised risk & compliance management
• Easier integration with a single API or gateway
• Ideal for SaaS, marketplaces and multi-vendor platforms 

Risks and Limitations to Understand

• Higher fees passed on by the PayFac
• Limited control over underwriting and risk policies
• Potential rolling reserves held at the PayFac level
• Dependent on PayFac compliance and stability

Payment Facilitators for UK and EU Businesses

UK and EU businesses looking at payment facilitators should assess:

• Local acquiring bank partnerships
• Compliance with UK FCA regulations and EU PSP rules
• Multi-currency settlement capabilities
• Chargeback and dispute handling procedures

In the UK and EU market, PayFacs must adhere to strong regulatory standards, making compliance documentation essential from the outset. Choosing the right PayFac can reduce operational risk and support cross-border growth.

PayFac Fee Structures and Contract Terms

PayFac pricing often includes:

• Per-transaction fees (often higher than merchant accounts)
• Monthly platform access fees
• Reserve requirements managed by the PayFac
• Aggregator or split settlement fees for multi-merchant platforms

Fees vary by PayFac and processing volume. Businesses should compare effective rates, including split-settlement costs, rather than headline rates alone.

How Do Payment Facilitators Work?

An account with a payment facilitator operates much like a traditional merchant account but with differences in how it’s managed. Payment facilitators handle relationships with card acquirers and process payments through a master merchant account, aggregating funds from all transactions before distributing them to businesses (sub-merchants) after deducting processing fees.

By pooling transactions, Pay Facs receive bulk processing discounts from their merchant banks, which allows them to pass on savings to their customers.

Main tasks of Payment Facilitators:

• Underwriting: Ensuring sub-merchants are legitimate businesses, following Know Your Customer (KYC) guidelines.
• Payment Distribution: Paying out funds to sub-merchants while following legal guidelines.
• Monitoring: Reviewing transactions for suspicious activity, following card scheme and regulatory guidelines.
• Chargeback Management: Handling disputes and chargebacks on behalf of sub-merchants, alongside acquiring banks.

Pay Facs vs. Merchant Account Providers: Key Differences

Advantages of Using a Pay Fac

1. Quick & Easy Setup: Pay Fac accounts can be set up online with minimal wait times.
2. Flexible Contracts: Generally, no long-term contracts, offering flexibility.
3. Transparent Pricing: Flat-rate fees that are easy to understand and compare.
4. Integrated Services: Many Pay Facs provide a centralised solution for payment processing, monitoring, and reporting.
5. Technology-Driven Solutions: Pay Facs are often on the cutting edge of payment technology, which can simplify and enhance the payment process.

Disadvantages of Using a Pay Fac

1. Higher Transaction Fees: Pay Facs tend to have higher fees compared to merchant accounts.
2. Bias in Disputes: Many Pay Facs lean toward the customer’s side in disputes or chargebacks.
3. Processing Delays: Funds may take longer to reach the merchant.
4. Limited Support: Beyond the basics, some Pay Facs lack comprehensive customer support.
5. Account Stability: Pay Fac accounts can face sudden holds or even terminations.
6. Restricted Hardware Choices: Payment terminals and software may be limited to the Pay Fac’s offerings.

When Might a Pay Fac Be Right for You?

Pay Facs can be a helpful option for new businesses or those with lower turnover, as they are quick, simple, and affordable to set up. However, they may not be as suitable for businesses with high card turnover, as Pay Fac fees tend to be higher. Additionally, they limit some control over branding, security, and compliance.

Generally, businesses with annual card turnover under £25,000 may find Pay Facs a convenient option. For larger businesses, a traditional merchant account is likely more cost-effective.

How to Choose the Right Payment Facilitator

When selecting a PayFac for your business:

• Check acquiring bank relationships and settlement options
• Understand onboarding and underwriting timelines
• Review chargeback and dispute policies
• Compare pricing, including split settlement and reserve costs
• Validate compliance with UK and EU regulations

Traditional Acquiring vs. Payment Facilitation

The traditional acquiring model, suited for established businesses with a stable customer base, differs from payment facilitation in several ways. Traditional acquirers offer dedicated accounts, providing better control over transaction monitoring and brand consistency, but are often less agile and may not fit the fast-paced online economy.

Payment facilitators, by contrast, were designed with online businesses and marketplaces in mind. They allow for quick onboarding and convenient payment processing for new or smaller businesses, making them an appealing choice for those prioritising ease of use and speed over customisation and stability.

In summary, choosing between a Pay Fac and a traditional merchant account depends on your business’s needs. For new or small businesses looking to simplify payment processing, a Pay Fac may be ideal. For larger, more established businesses, a traditional account could offer better control and cost savings as your business grows.