Accepting credit card payments requires selecting a provider to do behind the scenes work of processing your payments. The number of options for doing so grows constantly. While choice is a wonderful thing, it can make it difficult to sort through for the best choice. One basic choice, though, is determining whether to use a payment facilitator or a payment processor. Take some time to learn the basic differences and find the right model for you.
What Is a Payment Facilitator?
A payment facilitator, or payfac, has a contract with a financial institution and brings in merchant accounts under a subcontract. This usually means you have a streamlined application process from what you might get with a more robust merchant services provider. You can accept card payments and build your business out sooner and quicker than you would under a payment processor.
In addition, because you are subcontracted with the payfac, you do not usually assume the risk of chargebacks and fraudulent payments. That instead falls to the payfac itself. If you are just getting started, this gives you some protection against early problems with customers either requesting refunds or using stolen payment cards.
On the other hand, there is a cost for the convenience and the risk-shifting. When you work through a payfac, you typically pay higher transaction fees. If you have robust sales, those fees add up quickly and cut into the profit margin you might otherwise earn.
What a Payment Processor Offers
A payment processor, instead of subcontracting you, works as a go-between for you and the financial institution. It typically provides the equipment you will use to take payments and collects and transmits the data involved in each electronic payment. You retain more of the risk of chargebacks, but get a fuller set of services and pay less in fees for transactions.
The key for deciding whether to go with a payment processor over a payfac is your own business structure and needs. Do you have a dependable customer base and strong sales? If so, you are more likely to qualify to work with a payment processor, and less likely to suffer from retaining more of your own default risk. When you run more transactions on a daily or monthly basis, the lower fees per transaction become not only more attractive but critical to your long-term profits.
What Is Right for You?
Your business runs differently from anyone else's. There is not a one-size-fits-all option for taking payments. Instead, you need to look at your business model, your own sales and risks. You may even need to change over time from one model to the other. Consider what your current and future pictures look like, and choose a processing solution that makes sense for your own business.