Payment Processor vs. Payment Facilitator | What Are The Differences

Businesses need payment processors to process and accept payments. It makes it easier for customers to safely and securely send and receive payments. It is necessary for businesses of all kinds and sizes. 

Whether you’re an e-commerce entrepreneur, a retailer, or a software-as-a-service (SaaS) provider, choosing the right payment solution can significantly impact your operations and customer experience.

There is a wide debate about whether payment processors or facilitators should be utilized when choosing a way to accept and receive payments. Sometimes, these are even used interchangeably.

While both serve as integral components in the payment ecosystem, their roles, functionalities, and benefits differ. And a business must understand these differences to make informed decisions tailored to their needs.

This article will help you understand the characteristics of payment processors vs payment facilitators and help you choose the best fit for your business. Without further ado, let’s jump right in!

What is a Payment Processor?

A payment processor is a third-party company, business, or entity that handles digital transactions. The transactions can include credit cards, debit cards, digital wallets, and bank transfers. The processor helps with processing from the time the customer makes the payment until the payment is accepted and credited to the merchant’s account.

Also Read: What are Third-Party Payment Processors and How to Choose the Best One.

Here is how the payment processor facilitates the payment process.

• Authenticates the details of the credit or debit card.
• Secures the transactions
• Ensure sufficient funds are there in the merchant account.
• Gets approval from the issuing bank.
• Notifies the business about the status of the transaction (i.e., whether the transaction was a success or not)
• Send the transaction to the merchant’s account.
• Provides POS terminal and card readers.
• Helps manage issues like chargebacks, CNP frauds, and others.

Payment processors like Square also offer dedicated point-of-sale (POS) terminals, card readers, inventory management software, and other amazing features that can be very beneficial for a business.

Also Read: Payment Processing Explained: What is it and How Does it Work?

What is a Payment Facilitator?

A payment facilitator, or PayFac, is not just a payment processor but an additional merchant service provider that enables businesses and their clients to use merchant accounts without having to create their own.

Many businesses that are just starting out and do not have enough volume to request their own personal merchant account, do not want to go through a lengthy process, do not want to wait, or those businesses who want to start instantly can benefit tremendously from this service. 

Usually, upon creating a merchant account, there are certain restrictions like long wait times, minimum transaction volume, and certain other thresholds that only a massive business can fulfill. 

Payfac enables such businesses to significantly speed up the process by creating merchant accounts so that they and their clients can accept payments in no time. 

Payment Processor vs. Payment Facilitator: Key Differences

For a crystal clear difference, please take a look at the table below:

Payment Processor	Payment Facilitator
A company that handles the technical aspects of payment transactions between merchants, acquiring banks, and issuing banks.	An organization that enables merchants to process payments without needing a separate merchant account.
Each merchant is required to have a unique merchant account to process payments.	Provides a sub-merchant account under the facilitator’s master account, eliminating the need for a unique merchant account.
The onboarding process is lengthy. Longer and more detailed verification processes and underwriting processes are required to start.	The onboarding process is relatively simple, faster, and easy, with minimal requirements for onboarding sub-merchants.
Fixed fees and customized pricing models based on the merchant’s volume and needs.	Often charges flat-rate fees, making it easier for smaller businesses to predict costs.

Payment Processor vs Payment Facilitator: Factors to Consider

Selecting any single option requires thorough evaluation. To make decision-making easier for you, we have compiled a list of several factors that you should consider before choosing one.

• Transaction Volume: Payment processors often offer customized pricing for high-volume businesses, making them more cost-effective in the long run. On the other hand, payment facilitators are ideal for smaller businesses with moderate transaction volumes because of their flat-rate pricing.
• Business Model: A payment processor provides advanced features and greater flexibility for large or complex businesses with multiple payment channels. You should evaluate how your business model will allow you to use the payment processor. 
• Compliance Needs: Payment facilitators, being the middleman, handle much of the legal burden, which makes them a convenient option for businesses that are just starting and don’t want to spend time and energy on legalization. On the other hand, payment processors often have tools and resources to help with legal compliance needs, but you are your own.
• Cost and Budget: Payment processors may require upfront investments to set up a merchant account and typically charge variable fees based on transaction volume. Payment facilitators usually charge flat fees, making them more accessible for businesses with limited budgets but less cost-efficient for larger enterprises.

Payment Processor vs. Payment Facilitator: Which is the Best For Your Business?

Choosing between a payment processor and a payment facilitator depends on your business model, size, and specific payment needs. Each option has unique advantages, making it better suited for certain types of businesses.

When to Choose a Payment Processor

A payment processor is the better choice if:

• You process high transaction volumes: Payment processors often offer customized pricing that can result in lower fees for businesses with large transaction volumes.
• You want more control and flexibility: Processors allow businesses to set up dedicated merchant accounts, offering tailored solutions for managing payments and chargebacks.
• Your business has complex needs: If you require advanced integrations, sophisticated reporting tools, or multiple payment methods, a processor provides robust support.
• You have time for onboarding: If your business can accommodate a longer onboarding process, the detailed setup ensures smoother operations in the long term.

When to Choose a Payment Facilitator

A payment facilitator might be the best fit if:

• You’re a small or medium-sized business: Facilitators simplify onboarding and eliminate the need for dedicated merchant accounts, making it easier for smaller businesses to get started.
• You need quick setup: With faster onboarding and simpler verification, payment facilitators are ideal for businesses that need to start processing payments immediately.
• You prefer predictable pricing: Facilitators often charge flat-rate fees, which are easier to manage for businesses with moderate transaction volumes.
• You have a simple business model: A facilitator offers a straightforward, user-friendly solution if your business doesn’t need advanced customizations.

The decision should be based on your business size, transaction volume, budget, and technical requirements. Large-scale operations with complex payments can go with payment processors, while smaller businesses or startups can benefit more from the simplicity of payment facilitators.

Conclusion —Payment Processor vs Payment Facilitator

Choosing between a payment processor and a payment facilitator is a crucial decision that can impact your business’s efficiency, scalability, and customer experience. Both options have their strengths, and the right choice depends on your business model, transaction volume, compliance needs, budget, and technical requirements.

Payment processors are ideal for larger businesses or those with complex payment needs, and payment facilitators are ideal for smaller or emerging businesses because they simplify the onboarding process and provide fast solutions to problems related to accepting payments.

To connect the payment processor and facilitator, such as Square, to your WordPress, download WP EasyPay NOW!

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