Payment Facilitator vs Payment Service Provider

The main difference between a payment facilitator vs payment service provider is that facilitators streamline onboarding by registering sub-merchants directly, while PSPs act more like intermediaries. Both simplify payment acceptance, making it easier for businesses of all sizes to start processing transactions. Read on to discover more.

What Is a Payment Facilitator (PayFac)?

A payment facilitator (PayFac) is a company that enables other businesses to accept digital payments by handling the payment infrastructure on their behalf. Instead of requiring each business to apply for its own merchant account, the PayFac creates sub-merchant accounts under its own master merchant account. This model allows for a faster and more flexible onboarding process, often taking just minutes instead of days or weeks. The PayFac also takes on the responsibilities of underwriting, compliance, and centralized risk management, reducing the burden on individual merchants. By managing the full payment flow, including straight through processing, PayFacs help businesses start accepting payments quickly. Well-known examples operating as payment facilitators include Square, Stripe (when acting as a PayFac), and Toast.

What Is a Payment Service Provider (PSP)?

A payment service provider (PSP) is a company that enables businesses to accept online and in-store payments by connecting them with banks, card networks, and processors. It operates within the four party payment process model, which includes the cardholder, merchant, acquiring bank, and issuing bank. PSPs give merchants access to payment acceptance either through individual merchant accounts or shared arrangements, depending on the provider’s structure. They work with partner acquirers to handle authorization, settlement, and fund transfers on the merchant’s behalf. In addition to core payment processing, PSPs typically offer features like multi-currency support, recurring billing, real-time reporting, and fraud detection tools. These services are especially useful for businesses that sell internationally or manage subscriptions. Well-known PSPs include Adyen, Worldpay, and PayPal (when not acting as a payment facilitator), each offering flexible tools for a wide range of business types.

Key Differences Between Payment Facilitators and PSPs

While both payment facilitators and PSPs help businesses accept payments, they differ in structure, speed, and control. A payment facilitator creates sub-merchant accounts under its master account, allowing for near-instant onboarding. In contrast, a PSP typically requires each business to go through a full merchant account setup, which involves more due diligence.

Facilitators take on more responsibility for risk, compliance, and KYC checks, making the process easier for the business but adding liability to the platform. PSPs shift that burden to the acquiring bank and the merchant. In terms of control, PayFacs manage the entire infrastructure, giving platforms more flexibility, while PSPs offer a more outsourced solution. For platforms looking to offer the best payment processing solutions with speed and control, PayFacs are often preferred. For more clearance and comparison, take a look at the following table: 

Feature	Payment Facilitator	Payment Service Provider
Account Setup	Sub-merchant under master ID	Individual merchant account
Onboarding Speed	Instant or same-day	Several days to weeks
Risk & Compliance	Handled by facilitator	Shared with acquirer/merchant
Control	Full platform control	Outsourced to provider

Pros and Cons of Each Model

Payment Facilitators (PayFacs): This model is ideal for platforms that want fast onboarding and greater control over the user payment experience.

Pros:

• Faster Setup: Sub-merchants can be onboarded almost instantly under the facilitator’s master account. This is ideal for platforms or marketplaces that want to get users accepting payments quickly without complex paperwork.
  
• Unified Experience: Since the PayFac manages the entire payment stack, onboarding, processing, reporting, and compliance, it delivers a seamless and consistent experience for both the business and its customers.
  
• Better Control: PayFacs own the relationship with their sub-merchants and can customize the payment flow, pricing, and features to fit their platform’s needs. This flexibility is key for platforms looking to scale with tight integration.
  

Cons:

• Higher Compliance Burden: The PayFac is legally responsible for KYC, AML, and ongoing monitoring of all sub-merchants. This demands a solid compliance infrastructure and internal processes.
  
• Complex Risk Management: Since the facilitator takes on financial liability for its sub-merchants, it must actively manage fraud, chargebacks, and credit risk, which can become resource-intensive as volume grows.

Payment Service Providers (PSPs): On the other hand, this model suits businesses that prefer a ready-made payment setup with strong infrastructure and global reach.

Pros:

• Scalability: PSPs are built to support merchants of all sizes across various industries. They handle the technical and regulatory heavy lifting, making it easy for businesses to scale across regions and markets.
  
• Built-in Fraud Protection: PSPs typically offer advanced fraud screening tools, 3D Secure, and chargeback management, which reduces risk for merchants without requiring them to build those systems internally.
  
• Support Infrastructure: PSPs offer dedicated customer support, onboarding help, and technical resources, making them a strong option for businesses that prefer a hands-off approach to payment management.

Cons:

• Slower Onboarding:
  Merchants often need to submit detailed documentation and undergo underwriting, which can delay their ability to start accepting payments.
  
• Less Operational Control:
  Businesses rely on the PSP’s system, roadmap, and rules. Customizing payment flows, pricing structures, or reporting features is limited compared to the flexibility PayFacs offer.

When to Choose a Payment Facilitator vs PSP

Choosing between a payment facilitator and a PSP depends on your business model, growth plans, and operational needs. Payment facilitators are ideal for platforms, SaaS companies, and marketplaces that need fast, seamless onboarding for multiple users. They offer greater control over the payment experience and work well for businesses prioritizing speed and customization. On the other hand, PSPs are better suited for international merchants, enterprise-level businesses, or companies with complex payment flows and high compliance demands. They provide strong infrastructure, fraud tools, and support across regions. To decide, evaluate your expected transaction volume, how much compliance responsibility you’re willing to manage, and whether you need fast scaling or broader global support. Matching these factors to your payment strategy will help determine whether a facilitator or PSP offers the better fit for your business.

Industry Trends and Hybrid Approaches

Industry trends show a growing shift toward hybrid payment models that blend the benefits of both PSPs and payment facilitators. Some providers start as traditional PSPs but evolve into PayFacs to offer faster onboarding, greater control, and more seamless merchant experiences. This evolution responds to rising demand for embedded finance, where payment services are integrated directly into platforms, apps, or marketplaces. Faster integrations through embedded onboarding APIs enable businesses to start accepting payments almost instantly, improving user experience and reducing friction. Additionally, straight through processing is becoming a standard feature, automating payment flows end-to-end without manual intervention. These hybrid approaches allow companies to combine the scalability and global reach of PSPs with the speed and control of PayFacs, addressing diverse business needs. As payment technology advances, more providers will likely adopt flexible models to support both fast growth and complex compliance requirements.

FAQs

Is a payment facilitator the same as a PSP?

No, facilitators register sub-merchants directly, while PSPs offer indirect access through acquiring banks.

Can a business act as its own payment facilitator?

Yes, a business can act as its own payment facilitator, but doing so requires thorough registration with payment networks, strong underwriting capabilities, a robust compliance infrastructure, and the ability to manage risk and fraud effectively.

Which option is better for SaaS companies?

Payment facilitators often provide more control and faster onboarding for SaaS platforms.

What are the regulatory requirements for PayFacs?

They must comply with KYC, AML, and often register with card networks.

Can a company switch from PSP to PayFac later?

Yes, businesses can evolve their infrastructure and relationships as they scale.

References

Checkout: What is a PayFac & what are the benefits of becoming one?

https://www.checkout.com/blog/what-is-a-payfac

Clearent: Payment Processor vs Payment Facilitator: Understanding the Differences
https://xplorpay.com/blog/payment-processor-vs-payment-facilitator/

Stripe: Payment processor vs. payment facilitator: How they’re different and how to choose one

https://stripe.com/resources/more/payment-processor-vs-payment-facilitator-how-they-are-different-and-how-to-choose-one

NMI: PayFacs: The Ins and Outs of The Payment Facilitator Model

https://www.nmi.com/blog/payfacs-the-ins-and-outs-of-the-payment-facilitator-model