Understanding and selecting the right payment platform can be confusing for anyone. Recently, Segpay launched its payment gateway. Since then, we’ve received numerous questions about the difference between a payment facilitator and a payment gateway. Most merchants want to know which type of platform best meets their business needs.
While both are critical parts of the payment ecosystem, each functions differently, offers distinct features and plays a different role. This month, we break down what payment facilitators and payment gateways do, how they support merchants, and the key service-level components of processing with each option.
The best choice for you depends on your business model, level of technical support, and how much control you want over your payment setup.
What Does a Payment Facilitator Do?
A payment facilitator — or PayFac — offers an all-in-one solution for accepting payments. As a merchant, you sign a contract with the PayFac, and they handle the rest: underwriting, onboarding and maintaining the relationship with the acquiring bank. Think of a PayFac as a master merchant that supports individual merchants or sub-merchants.
PayFacs are known for providing faster onboarding, especially when compared to working directly with an acquiring bank. They often specialize in specific verticals, which means they bring experience and insight into both legal and regulatory compliance in the market. PayFacs are PCI Level 1-certified to keep everything secure, and operate on infrastructure that protects card, payment and personal data.
Risk management is a big part of the package. The PayFac takes on liability with the acquirer, so if a merchant runs into issues, the facilitator absorbs that risk. PayFacs have tools in place to add extra layers of authentication to accounts, like device fingerprinting and 3-D Secure, and each PayFac has its own proprietary fraud mitigation tools to limit fraud on the account. PayFacs use various tools such as RDR, Verifi and Ethoca, all bolted onto their platform to help reduce the number of chargebacks a merchant might receive.
In addition to payments, PayFacs typically offer a suite of value-added services. They have hosted payment pages for secure transactions and a robust reporting platform allowing merchants to view sales, reconcile deposits and stay updated on chargeback and refund data. They allow merchants to access and view all this data through an online portal, in post-back data or through an XML pull.
PayFacs offer support for various payment forms, including card brands like Visa, Mastercard, JCB and Discover, as well as alternative payment methods like country-specific bank-to-bank payment options, wallets like PayPal, and cryptocurrencies. It’s typical for PayFacs to handle subscription billing and one-click checkout, along with enabling merchants to present upselling easily. Many also provide consumer support, including handling chargeback disputes and refund requests. Since PayFacs sit in the flow of funds between the acquirer and merchant, they can also offer value-added services like creator payouts. Finally, fees are typically bundled into a single rate structure that includes settlement fees — a percentage of the transaction — plus fixed fees for things like authorization, 3D Secure, chargebacks and refunds.
What About Payment Gateways?
A payment gateway, on the other hand, is a service that authorizes and processes payments for merchants — both ecommerce and brick-and-mortar — transmitting payment data securely from your site or app to a processor. It’s like a bridge that connects your checkout flow to the bank, authorizing the payment and sending it back approved or declined.
Gateways have a network infrastructure to ensure all payments are processed securely. They adhere to PCI Level 1 compliance requirements and deploy security tools to prevent threats like distributed denial-of-service (DDoS) attacks, account enumeration attacks, phishing, ransomware, malware and data breaches.
One major advantage of a gateway is its flexibility. You can connect multiple merchant accounts to a single gateway and set up cascading rules to help maximize approval rates. But unlike with a PayFac, you’ll need to apply separately for a merchant account, though some gateways can help with referrals to their acquiring partners.
Gateways can host a merchant’s payment pages, but most merchants tend to have their own payment pages that post consumer and card data securely to the payment gateway. Gateways provide a “back office” for reporting and can offer post-back data for all transactional events, as well as XML-based reporting. Most integrate with major third-party shopping carts, and while they provide risk tools like RDR and other services from Verifi and Ethoca, it’s usually up to the merchant to configure these settings.
Gateway pricing is usually transaction-based. You’ll be charged a fee for each event, including authorizations, declines, captures, chargebacks and refunds. On top of that, you’ll also be paying your acquirer’s merchant account fees. This setup works best for merchants with experienced development teams and resources to manage more complex operations.
Can You Use Both?
Absolutely. Many merchants do. However, it’s recommended that all gateway merchants have some backup with a PayFac. Most merchants start with a PayFac for quick onboarding, hands-on support and more controls to monitor. Later on, the business will graduate to a gateway once it grows and needs more flexibility. Maintaining both options also lets you tap into a broader range of payment methods, like alternate payments, or use one as a backup during high-volume periods or when testing new programs.
Payment facilitators and gateways both play vital roles in payment processing. The best choice for you depends on your business model, level of technical support, and how much control you want over your payment setup. Understanding the strengths of each type of platform can help you build a payment strategy that supports your growth. If you have questions or need help, reach out to payment services professionals.
Cathy Beardsley is president and CEO of Segpay, a merchant services provider offering a wide range of custom financial solutions including payment facilitator, direct merchant accounts and secure gateway services. Under her direction, Segpay has become one of four companies approved by Visa to operate as a high-risk internet payment services provider. Segpay offers secure turnkey solutions to accept online payments, with a guarantee that funds are kept safe and protected with its proprietary Fraud Mitigation System and customer service and support. For any questions or help, contact sales@segpay.com or compliance@segpay.com.