This blog is originally published at GETTRX on May 23, 2022.  

Payment facilitation is an important piece of the puzzle for any SaaS platform or ISV. The payments arena is complicated, and the jargon can intimidate new entrants. Add to this the opaque approval processes and lengthy timelines, and it’s easy to see why choosing PayFac-as-a-service is essential for most companies.

Despite the prevalence of this option, you should understand the industry’s terms. Learning the meaning of the following terms will help you evaluate PayFac-as-a-service providers and choose the one best suited to your needs.

1. Acquiring Bank

An acquiring bank funds the payment facilitator accounts and holds its deposits. A payment facilitator must open a merchant account (defined later in this article) to deposit funds received from clients. Acquiring banks might bundle payment processing services when establishing relationships with a PayFac.

2. Anti-Money Laundering or AML

The payments industry is governed by a vast set of rules and regulations. AML laws form one of the regulatory frameworks to which every stakeholder in the payment process is subject. These laws ensure all merchant transactions do not fund or enable illegal activities. Penalties for violating these laws are stringent.

3. Bank Identification Number or BIN

Acquiring banks have unique six-digit identifiers called BIN. The first six numbers on a credit or debit card issued by the bank are its BIN. BINs are essential for processing transactions and establishing an easy audit trail for future reference.

4. Card Network Exception List

Card networks such as Visa and Mastercard maintain a list of merchants whose credit card processing privileges they have revoked. 

Card companies regularly inspect transactions to ensure merchants comply with their terms of use. Violating these conditions land a merchant on an exception list. Mastercard’s Match List is a comprehensive database of merchants that cannot use credit card processing services.

5. Card Network Operators or PCNOs

Card network operators, also called Payment Card Network Operators or PCNOs, handle the infrastructure, services, and software to process debit and credit card transactions. PCNOs usually work with payment processors to ensure merchant card transactions function smoothly.

6. Fraud Monitoring

Payment stakeholders, from the customer to the acquiring bank, must adhere to laws governing the payment industry. Fraud monitoring is a part of this activity and occurs at multiple levels. Acquiring banks screen merchant transactions for fraud while payment facilitators validate sub-merchant transactions. 

Payment facilitators use robust fraud monitoring software to flag suspicious transactions. PayFac’s sub-merchants can use this software to monitor their clients’ transactions and prevent chargeback fraud and other scams.

7. Gateway

Also called a payment gateway, these companies offer payment processing services to merchants. They integrate with a merchant’s platform seamlessly and process their payments via a payment processor. Payment gateways might come bundled with a payment processor and acquiring bank and offer a range of payment-related reports to merchants.

8. Independent Sales Organization or ISO

ISOs act as acquiring bank agents and sell credit card processing services. They earn revenue by taking a cut of the revenue their merchants generate. An ISO typically works with a payment processor and depends on the latter to mitigate payment risks.

Make sure you check whether a payment processor or facilitator owns their technology before working with them.

9. Know Your Client or KYC

KYC, like AML, falls under the regulatory umbrella that all payment stakeholders must adhere to. Banks and financial institutions must gather client data to validate transaction legality. PayFacs must do the same to comply with legal norms governing the payments industry.

10. Merchant Account

Payment facilitators must apply for and operate a merchant account with an acquiring bank before they can accept payments. Applying for a merchant account is a lengthy process. 

The payment facilitator must achieve systems compliance and implement risk underwriting measures. The acquiring bank will screen the PayFac for risk through a separate underwriting process before approving an account.

11. Merchant/sub-merchant Onboarding

Acquiring banks and PayFacs must onboard merchants and sub-merchants, respectively, to begin earning revenue. The onboarding process is critical for an ISV looking to offer payment acceptance to its clients. A bad experience will likely result in the client choosing another platform.

One of the biggest benefits of PayFac as a service is the smooth onboarding process that delivers a great customer experience.

12. Office of Foreign Asset Control or OFAC

OFAC maintains a list of high-risk individuals and companies not authorized to conduct business in the United States. All merchants are screened against the OFAC list by acquiring banks. All PayFacs must verify their sub-merchants do not belong on OFAC’s lists.

Processing or facilitating payments for an entity on the list is a serious crime that attracts heavy penalties from the authorities.

13. Payment facilitation or PayFac as a service

Payment facilitation as a service or PayFac as a service is the ideal solution for ISVs and SaaS platforms to offer payment acceptance to their clients. PayFac as a service helps you avoid lengthy application and approval processes. The solution also helps you achieve compliance via an out-of-the-box solution.

You won’t have to worry about installing costly compliance processes or monitoring for fraud. The service provider takes care of everything, and you can lean on their expertise to help you achieve best practices.

14. Payment Processor

Payment processors manage credit card transaction processing for their merchants and ISOs. Payment processing lies in between the PayFac and its acquiring bank. As such, a payment processor can be bundled with either service.

For instance, acquiring banks can offer payment processing services to PayFacs, or a payment processor could launch its PayFac. Processors are responsible for security, compliance, and operations related to all the payments they process. 

Note: This doesn’t mean the PayFac can leverage the processor’s services to monitor fraud. The processor validates all transactions separately to mitigate their risk.

Compliance is central to payment processing. PCI Level 1 compliance is standard for payment processors, as is compliance with various Federal and State payment laws.

15. PCI Compliance

Also referred to as Payment Card Industry Data Security Standard (PCI DSS,) these standards apply to organizations that handle credit card processing. PCI DSS standards apply to PayFacs, and achieving compliance is a resource-intensive task.

All PayFacs must achieve Level 1 compliance which means the entity must document all compliance processes and meet stringent standards. In addition, the entity must also install processes that demonstrate ongoing efforts to maintain compliance and monitor customer transactions.

Here is a comprehensive guide to what PCI DSS compliance entails and how to go about achieving it.

16. Sub-merchant

PayFacs onboard customers onto their platforms. These customers are called sub-merchants (since the PayFac is a Merchant from the acquiring bank and payment processor’s perspective.) Sub-merchants are usually ISVs or SaaS platforms’ customers that want to accept payments through the ISVs or SaaS platforms.

For instance, a SaaS platform that helps to build contractors manage all portions of their business, including the ability to accept payments, can sign up with a PayFac as a service provider and onboard all their customers as sub-merchants.

The platform could apply for a merchant account and become its own PayFac, but that is a resource-intensive process. Becoming your own payment facilitator versus choosing PayFac as a service is a tough choice, and much depends on the payment volumes you expect to process annually.

17. Transaction Settlement

Settlement is a process where money flows from the customer to the merchant. The customer’s bank approves the transaction and directs funds through the payments infrastructure to the merchant’s acquiring bank. In turn, the acquiring bank validates the transaction and deposits funds into the merchant’s account.

18. Underwriting

Payments are fraught with risk. Underwriting is the process by which payment stakeholders mitigate risk. For instance, acquiring banks underwrite PayFacs for the potential risk they might expose the bank to. PayFacs must underwrite sub-merchants for the possibility of the latter being involved in fraudulent transactions.

The stronger your underwriting process is, the lower your risk of fraud.


Payment facilitation is a complex process, and the terms can spin your head. Use this handy guide the next time you need to understand a payments-related term you’re struggling to understand.