Payment Facilitator vs. Payment Processor. What’s the Difference?

Understanding and navigating the payments industry, one full of confusing jargon and intimidating terminology, can be a major headache for small and medium-sized businesses or any new entrant into the payments space.

There are many players involved in the acceptance of card and mobile payments. Among them, payment facilitators and payment processors. Both of these entities help enable payments acceptance. So, what’s the difference? 

While the two may seem similar, and they do work hand-in-hand, a closer look at the terminology will help differentiate the role of each.

Payment Processor

Payment processors do exactly what the name says. They provide the systems and technology that process transactions by routing them through the networks. 

When a consumer uses their card to make a purchase, the processor is the entity that receives the initial authorization request and sends that request to the applicable card network, who sends back the authorization response. Once the transaction is completed, the transactions are settled on a daily basis, and then the cardholder’s bank sends the funds to the merchant’s bank (the acquiring bank).

In this way, the technology-heavy processors sit at the center of the payments life cycle, “directing traffic.”

Processors are required to maintain Payment Card Industry Data Security Standard (PCI DSS) compliance, and many also provide payment terminals and various security solutions or other services for merchants.

Payment Facilitator

Payment facilitators (PFs) were created to make a more streamlined path to electronic payment acceptance for small and medium-sized businesses. They offer payments to their merchant customers, known as submerchants, through their own links with payment processors. In essence, PFs serve as an intermediary, gathering submerchant transactions and passing them to a payment processor for completion.

Along with a processor, a relationship with an acquiring bank is necessary to operate as a PF. (In fact, it is very common that the acquiring bank and the processor are bundled together. Collectively they are known as the “sponsor.”) PFs simplify payments for their submerchants by establishing a merchant account with an acquiring bank and signing up smaller businesses as submerchants under the same account. 

PFs take on the role of underwriting, onboarding and monitoring these submerchants as well. The PF offers a simplified application process for smaller merchants, which helps the merchants begin taking credit and debit card payments, either online or in person, more quickly. 

The submerchants’ transactions are aggregated under the master account, allowing them to accept electronic payments without the lengthy process of selecting and contracting with an acquirer directly. A setup process that once might have taken days or weeks if a merchant had to contract with the acquiring bank directly can often be completed in a matter of minutes or hours utilizing the services of a PF. 

In many cases, PFs offer these payments services as part of a software platform that provides other business solutions for their merchant customers. Offering these services together allows the smaller business to turn to one vendor to handle their operational needs – including payments – rather than having to contract with acquiring banks and / or processors themselves. 

This streamlined setup – and its resource- and time-saving advantages – is a key factor in the rise of PFs.

As you can see, the roles of payment facilitators and payment processors are very different. While there are many factors and players in the payments industry, working together, PFs and processors are key links in the payments chain for small and medium-sized businesses.