What is a PayFac?

A payment facilitator, also known as a PayFac, is a type of service provider that enables businesses to accept electronic payments, including credit card transactions, on behalf of sub-merchants. Visa, as a major payment network, allows payment facilitators to aggregate merchants and streamline the process of accepting payments.

Here’s how the payment facilitator model works with Visa:

  1. Aggregation: A payment facilitator, such as a software platform or a financial institution, aggregates multiple sub-merchants onto their platform. These sub-merchants can be small businesses or individuals who want to accept payments but do not have the capability to establish their own merchant account with a bank.
  2. Underwriting: The payment facilitator performs the underwriting process for each sub-merchant to assess their risk and compliance. This includes verifying their business information, financial stability, and adherence to Visa’s rules and regulations. It helps ensure that sub-merchants meet certain criteria to mitigate fraud and other risks.
  3. Payment Processing: Once a sub-merchant is approved, the payment facilitator provides them with a simplified onboarding process, allowing them to start accepting Visa payments quickly. The payment facilitator acts as an intermediary between the sub-merchant and the acquiring bank or processor.
  4. Settlement: The payment facilitator receives funds from Visa for the transactions processed by the sub-merchants on their platform. They then facilitate the settlement process, disbursing funds to the respective sub-merchants after deducting their fees.

Payment facilitators offer benefits to sub-merchants by simplifying the payment acceptance process and reducing the barriers to entry. They handle compliance, security, and other complexities, allowing sub-merchants to focus on their core business operations.

Becoming a PayFac

Becoming a payment facilitator (PayFac) with Visa or Mastercard involves a thorough application and onboarding process. Each card network has specific guidelines and requirements that need to be met to ensure the integrity and security of the payment ecosystem. Outside of submitting the application and supporting documentation to the card networks, the most notable steps include:

  1. Develop Infrastructure and Technology: Build or acquire the necessary infrastructure and technology to support payment processing operations. This includes developing or integrating with a secure and compliant payment platform that can handle the aggregation, underwriting, and settlement processes.
  2. Partner with an Acquirer: Establish a partnership with an acquiring bank or payment processor that is a member of the Visa network. Payment facilitators rely on these acquirers to connect with the Visa network and process transactions on behalf of their sub-merchants.

Regulation of PayFacs

At the federal level, payment facilitators may need to comply with the regulations and licensing requirements imposed by the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. FinCEN administers the Bank Secrecy Act (BSA) and enforces anti-money laundering (AML) regulations. This requires registration as a Money Services Business (MSB) with FinCEN.

The requirement for payment facilitators (PayFacs) to obtain state money transmitter licenses in the United States can vary depending on the specific circumstances and the regulatory framework of each state. While some states explicitly require PayFacs to obtain money transmitter licenses, others may have exemptions or alternative regulatory approaches in place. In some states, payment facilitators may be able to leverage certain exemptions or alternative licensing frameworks. For example, some states have introduced limited purpose or “agent of the payee” exemptions, which may apply to certain types of PayFacs. These exemptions can provide relief from the full money transmitter license requirements, but they may still have their own set of conditions and limitations.

Under this exemption, a PayFac can operate as an agent of the payee, typically the sub-merchant, rather than as a money transmitter or a traditional payment processor. By acting as an agent of the payee, the PayFac facilitates payments on behalf of the sub-merchant but does not take ownership or control of the funds.


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About Adam Tracy

Adam Tracy is a payments expert and entrepreneur who specializes in payment systems, blockchain technology, digital currencies, and other emerging technologies. He is the founder of Blockrunner, LLC that provides consulting services to clients in the blockchain, payments and cryptocurrency arenas.

Tracy has been involved in the payments industry as an attorney, consultant and entrepreneur since 2005, while he was become an expert in blockchain and cryptocurrency since its advent in 2013. Tracy has worked with a wide range of clients, including startups, established businesses, and investor – both in the United States and worldwide. He has advised clients on a wide range of compliance, legal and operational issues related to payment transfer systems, crypto token generation and architecture, cryptocurrency exchanges, regulatory licensing, smart contracts, and other blockchain applications.

In addition to his consulting work, Tracy has founded several companies in the payments, blockchain and cryptocurrency space, including a digital asset hedge fund, licensed electronic money institution and a blockchain-based tokenization platform. He is also a proponent of decentralized finance (DeFi) and has been involved in various DeFi projects.

Tracy is also a frequent speaker and writer on blockchain and cryptocurrency topics. He has been featured in a wide range of publications, including Forbes, Hollywood Reporters, CNBC, Reuters, CoinDesk, and

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Blockrunner, LLC., is a financial services match-making marketplace and consulting company. We are not a bank, FI/NBFI, Payment Service Provider, deposit taking institution, trust, or money services business of any kind. We are not regulated by any financial regulator. Banking, Payment, Processing, and Licensing services are provided by our participating members. This website is for informational purposes only and does not constitute legal advice. If you need legal advice, please consult a licensed attorney in your jurisdiction.