The history of payments can be separated into two eras: before the payment facilitator and after the payment facilitator.
Known in the industry as a PayFac, this model has transformed from a niche operational convenience into a global infrastructure trend by streamlining merchant onboarding, embedding payment capabilities into software and clearing away many of the complexities that once slowed commerce.
“Merchants are busy. They want certain things to be easy, right? And I think that would include payment experiences,” Dave Dew, senior manager of U.S. acquiring and digital payments at Discover® Network, told PYMNTS.
PayFacs shift payments from being a back-office necessity into a front-line enabler. Instead of forcing merchants to stitch together contracts, accounts and gateways, PayFacs allow software companies to embed payments directly into their platforms.
“What I think the PayFac model does very well is that it not only streamlines the payments piece, but also the inner workings of a merchant’s business,” Dew said. “What the software is doing is unlocking vast possibilities for tailored payment experiences and allowing merchants to focus more on their core business rather than the payments piece itself.”
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While its appeal is undeniable, the path to becoming a PayFac can often be anything but simple.
From choosing the right acquiring bank to mitigating risk and navigating card network registrations, the early decisions can determine whether a PayFac thrives or stalls before launch.
The promise of speed, control and revenue opportunity is real, but so too are the costs, compliance obligations and forks in the road.
Embracing the PayFac Model for Business Transformation
The challenge starts with self-assessment. Companies must determine whether the financial, operational and regulatory demands align with their business objectives.
Do they have the appetite for building compliance programs, managing underwriting processes and handling customer support for merchants? Or is the opportunity simply to generate incremental revenue without overhauling core operations?
“PayFac is a very intricate space, has many layers, and there are many, many options,” Dew said.
Discover Network, for instance, launched its PayFac registration program two years ago and already counts hundreds of registered PayFacs.
Perhaps the most consequential decision is choosing between becoming a registered PayFac or opting for the managed option, sometimes called PayFac-as-a-Service.
A registered PayFac has maximum control but is subject to longer timelines and uses more resources. Meanwhile, PayFac-as-a-Service offers speed and simplicity. Providers handle much of the operational heavy lifting, from onboarding to compliance.
“It could take as little as four weeks because of the lighter technology lift and these plug-and-play solutions,” Dew said.
Even for those with clear intent around their business transformation goals, the early PayFac decisions can be make-or-break. Choosing the right acquiring partner, navigating card network registrations and managing risk infrastructure are formidable undertakings.
Building for the Future in a Crowded Market
For PayFacs that succeed domestically, the next logical question is scale. Yet scaling internationally reveals another layer of complexity. Vertical specialization, which is often the key to early success, can later become a barrier to broader expansion.
To break out of niche markets, companies must lean heavily on technology and partnerships, and here providers like Discover Network play a role.
“We are a global payments network supporting PayFac with dedicated teams, not only in the U.S. and Canada, but across the globe, including APAC, EMEA and LatAm,” Dew said
The operational mechanics of such relationships are not trivial. Dew pointed to the importance of enabling full Discover Network acceptance by integrating all issuer identification number (IIN) ranges, ensuring transactions from network alliances can ride on the network’s rails seamlessly.
The vision? A PayFac in Chicago should be able to support a merchant with customers in Tokyo or São Paulo without the merchant realizing the complexity behind the scenes.
The Bigger Picture
For all the focus on infrastructure, PayFac success ultimately comes down to the merchant experience.
“For the simple answer, it’s pivotal,” Dew said. “The merchant experience is pivotal to a PayFac’s success. It really goes without saying that a PayFac should act as a partner to their merchants, working closely with them to enhance their business, rather than just providing the payments processing piece.”
That means more seamless onboarding, transparent pricing, responsive multichannel support and robust dashboards for real-time analytics. These elements may sound like table stakes, but Dew said they are what separate thriving PayFacs from struggling ones.
“Successful PayFacs will leverage those strategic partnerships that they already have and make and forge new ones,” he said. “…They should also think about offering embedded financial services.”
“The PayFac model has and continues to evolve, and I think we all know that it’s moving beyond just payments,” he added.
Ultimately, the PayFac model is not simply about making payments easier. It is about reimagining how payments function within business models. As the market matures, differentiation may hinge less on whether a company can become a PayFac and more on what it can do with that capability.
“Investing in emerging technology like digital wallets, real-time payments and also AI-driven fraud detection is very important,” Dew said. “Do your research and leverage connections. At Discover [Network], we provide dedicated support and integrated options to help PayFacs grow, streamline processes and build trust.”
