A payment facilitator (payfac) is a type of payment service provider that aggregates multiple sub-merchants under a single master merchant account. Square, Stripe, PayPal, and Shopify Payments are all payment facilitators. They allow merchants to begin accepting payments almost instantly with no traditional merchant underwriting.
How payfacs work: 1. The payfac applies for and holds a master merchant account 2. Merchants sign up as "sub-merchants" under the payfac 3. The payfac handles underwriting, compliance, and settlement 4. All transactions flow through the payfac's master account 5. The payfac pays out to sub-merchants after deducting their fees
The advantages of using a payfac: - Instant or same-day account setup - No complex underwriting process - Predictable flat-rate pricing - Simple, user-friendly interfaces
The disadvantages: - Higher rates (the payfac charges a premium for the ease and risk management) - Account instability (your sub-merchant account can be suspended or terminated quickly) - Less negotiating power - One-size-fits-all pricing doesn't favor high-volume or diverse merchants - Customer service issues are common at scale
Payment facilitators are excellent for startup businesses and those with very low volume. As your processing volume grows, the premium you pay for instant setup and simplicity becomes increasingly expensive.
The biggest operational risk with payfacs: account freezes. Square and Stripe are known to freeze accounts without notice when their algorithms flag unusual activity. For an established business, a processing freeze can be catastrophic.
Two e-commerce businesses, both processing $100,000/month: - Business using Stripe (payfac): 2.9% + $0.30 = $2,900 + $600 = $3,500/month in fees - Business with dedicated merchant account (interchange plus + 0.30%): ~1.9% effective = $1,900/month - Monthly savings from dedicated account: $1,600 - Annual savings: $19,200
Yes. Square, Stripe, PayPal, and Shopify Payments are all payment facilitators. They aggregate merchants under their master accounts. This enables quick setup but comes with different terms than dedicated merchant accounts.
Yes. Payment facilitators retain the right to freeze or terminate sub-merchant accounts at any time for suspected fraud, unusual activity, chargeback spikes, or policy violations. This is a significant operational risk for established businesses.
If you're currently using Square, Stripe, or PayPal and processing over $30,000/month, switching to a Liberty Bancard dedicated merchant account will almost certainly save you money — and give you more account stability. We can show you the math before you switch.
Continue learning: Browse all 60 payment processing terms in our Payment Processing Glossary, or upload your statement for a free analysis of your current processing costs.