PayFacs: A Guide to Payment Facilitation

December 19, 2025

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Rather than requiring each seller to set up a direct relationship with an acquiring bank or gateway, the PayFac acts as an intermediary, streamlining onboarding, underwriting, transaction processing, and payouts.

Understanding PayFacs

Technology continues to reshape how Canadian businesses, acquirers, and financial networks collaborate. As more software platforms, retail marketplaces, and vertical SaaS tools expand, so does the demand for embedded financial solutions. These businesses are not just connecting buyers and sellers; they are becoming financial facilitators themselves, offering payments, financing, and value-added services directly inside their platforms.

One model that’s enabling this transformation is the Payment Facilitator (PayFac) model. In this guide, we explore what a PayFac is, how it works in the Canadian and global context, and the key considerations for platforms looking to bring payments in-house with AlphaPay.

What is a Payment Facilitator (PayFac)?

A PayFac (short for payment facilitator) is a business that simplifies payment acceptance for sub-merchants under its own master merchant account. Rather than requiring each seller to set up a direct relationship with an acquiring bank or gateway, the PayFac acts as an intermediary, streamlining onboarding, underwriting, transaction processing, and payouts.

This approach is especially valuable for platforms serving many small businesses, such as:

Retail platforms like marketplaces and POS systems
Online booking tools for services and events
Educational software supporting tuition or class payments
B2B tools with integrated invoicing or subscription billing
Travel and tourism apps targeting global users

By embedding payments directly into the user experience, these platforms gain control, speed, and flexibility.

Traditional vs. Modern PayFac Models

There are two driving forces behind the rising importance of PayFacs in Canada:

The growth of cross-border commerce, especially with an increase in spending by Chinese tourists, students, and shoppers.
The need for Canadian platforms to offer localized payment experiences that are fast, compliant, and trusted by international users.

For Canadian businesses, embedding payments is no longer just a technical feature—it’s a competitive advantage.

There are two main ways Canadian platforms can support modern payments:

Traditional Payfac Solutions

A traditional PayFac partners directly with an acquiring bank and builds the infrastructure needed to support sub‑merchants on its platform. Under this model, the PayFac:

Boards sub‑merchants under its master merchant account: Sub‑merchants operate under the PayFac’s merchant ID (MID), which enables them to process payments without individually applying for and managing their own MID.
Handles compliance and risk: Traditional PayFacs manage Know Your Customer (KYC), anti‑money‑laundering (AML) checks, fraud prevention, and ongoing monitoring — helping protect both the platform and its sub‑merchants.
Manages onboarding and underwriting systems: From identity verification to financial risk assessment, these systems ensure only compliant businesses process payments.
Administers settlements and payouts: Funds are collected under the PayFac’s master MID and distributed to sub-merchants based on platform-defined schedules.

How the Merchant ID (MID) Works:

In the traditional PayFac model, the facilitator registers a master MID with the acquiring bank. All sub-merchants onboarded to the platform transact under this single umbrella account. This simplifies setup for smaller merchants who would otherwise need to go through a lengthy, expensive application process to obtain their own MID.

The PayFac assumes liability and compliance responsibilities for its sub-merchants, meaning it must:

Monitor transactions for fraud or irregular activity
Maintain PCI DSS compliance
Ensure each sub-merchant operates within the card network’s rules
Conduct ongoing due diligence as required by card brands and financial regulators

This model allows for faster merchant onboarding, unified reporting, and consolidated risk controls. It also enables the PayFac to provide a consistent branded payment experience across its platform.

The strengths of the traditional PayFac model include:

Full control over compliance and risk management, tailored to specific industries and regulatory environments
Direct integration with global and local payment systems, which is especially valuable for platforms that must support international payment methods or cross‑border transactions
Transparency and ownership of the payments stack, enabling platforms to build customized features, pricing, and reporting
Scalability for complex business models, such as marketplaces, SaaS platforms, or vertical‑specific ecosystems

For Canadian platforms that want long‑term control, deeper banking relationships, and robust compliance support, the traditional PayFac model provides a solid foundation — particularly when handling international payment flows or diverse merchant needs.

Modern Embedded PayFac Model

A growing number of newer commerce platforms offer a modern embedded payfac model that lets businesses embed payments through a third-party provider using pre-built APIs and UI components. While this method accelerates speed to market, it often trades off control and flexibility for convenience.

Common trade-offs include:

Limited ability to customize the onboarding or payout experience
Less visibility into risk and compliance decisions
Higher dependency on third-party vendor roadmaps and policies
May not support region-specific payment methods or complex regulatory needs

Questions to Ask Before Choosing a PayFac

What is our long-term goal with payments? Are we aiming for deeper customer relationships, better margins, or international expansion?
Do we need to support specific payment methods or fund flows? Such as mobile wallets popular in Asia, multi-currency settlements, or POS integration?
How much control do we want over risk, compliance, and user experience?
Are we building for scale, compliance, and brand trust or just speed?

Getting Started with AlphaPay

AlphaPay supports platforms with a comprehensive PayFac solution designed for Canadian businesses and cross-border needs:

Unified payment gateway for Chinese wallets, credit cards, and other global and local methods
Flexible integration into websites, apps, or POS terminals
Segregated payout accounts to manage sub-merchant funds
KYC/AML automation built to meet Canadian and international standards
Risk monitoring and chargeback management
Custom branding options for white-labeled payment flows