With so many options for processing payments, it’s indispensable to understand the difference between a payment facilitator vs. payment gateway when deciding how to manage transactions. Both play unique roles in helping businesses accept payments, but they do so in very different ways. Selecting the right one can impact your operations, from customer satisfaction to transaction speed and security. In this article, we’ll break down the core functions of payment facilitators and payment gateways to help you make an informed choice that meets your business needs.
What is a Payment Facilitator?
A payment facilitator, often called a “payfac,” acts as an intermediary that allows businesses to process payments without needing individual merchant accounts. When a business partners with a payment facilitator, it essentially operates under the payfac’s larger merchant account, eliminating the need for each business to go through the setup process of a separate account. This setup speeds up onboarding for smaller businesses, startups, and companies that need a quick payment solution.
What is a Payment Gateway?
A payment gateway serves a different function by acting as a bridge between a business’s website and the payment processor. When a customer initiates a transaction, the gateway securely transmits the payment information to the processor for validation. Unlike payment facilitators, payment gateways do not handle the full transaction cycle. Instead, they focus solely on collecting and encrypting payment data before sending it off for processing.
Comparing Their Roles in the Payment Process
The main distinction between payment facilitators and gateways lies in their roles within the payment cycle. Payment facilitators operate as an all-in-one solution, managing the entire transaction flow. They allow businesses to bypass individual merchant accounts and directly access the payment process by using the payfac’s master account. Payment gateways, on the other hand, act as a data transmission tool, securely moving payment information from the business to the processor without directly handling or completing the transaction.
Onboarding And Setup Speed
When considering setup speed, payment facilitators have a clear advantage. They simplify the process, allowing businesses to start accepting payments quickly. Since the business operates under the payfac’s master account, it avoids the longer application process typically required for individual merchant accounts. This rapid onboarding is especially valuable for businesses that need to begin processing payments immediately, such as pop-up stores or new online shops.
Risk Management and Compliance
Risk management is another area where payment facilitators offer a distinct advantage. A payment facilitator manages underwriting and compliance on behalf of its sub-merchants, making it a valuable option for businesses that want to avoid these responsibilities. This includes monitoring transactions for potential fraud, handling chargebacks, and ensuring compliance with industry standards. By centralizing these tasks, a payment facilitator allows businesses to focus on customer engagement rather than administrative processes.
Payment gateways, however, place the responsibility of compliance and risk management on the business itself. While gateways offer encryption and tokenization to secure transactions, the business must still comply with regulations and manage risks. This setup gives the business greater control but requires more effort to maintain compliance with standards, such as the Payment Card Industry Data Security Standard (PCI DSS). Choosing between these two options depends on whether a business prefers to manage security internally or rely on a facilitator to handle these tasks.
Control And Flexibility
A payment gateway offers higher levels of customization, allowing businesses to tailor the payment process to fit their brand. Businesses can embed payment forms on their websites, design custom checkout pages, or redirect users to a secure page managed by the gateway provider. This control can be important for brands that prioritize a consistent customer experience. By customizing the gateway, businesses can create a seamless payment experience that builds trust and encourages repeat visits.
On the other hand, payment facilitators operate with less flexibility, as businesses must follow the facilitator’s processes and guidelines. This streamlined structure means that customization options may be limited, but the trade-off is ease of use and quick access to payment processing. For businesses looking for simplicity and low management requirements, a payment facilitator provides the basic tools needed to accept payments without extensive setup.
Cost Considerations
Cost structures differ significantly between payment facilitators and gateways. Payment facilitators typically charge a flat transaction fee, which is straightforward and predictable, making it easy for businesses to calculate costs. However, flat rates can be higher than those of traditional payment processors, so businesses with high transaction volumes might find this model less cost-effective. Payment facilitators are generally a better option for smaller businesses that benefit from simplified, all-in-one pricing.
Payment gateways, in contrast, often operate on a more complex fee structure. In addition to a gateway fee, businesses might pay fees to a separate processor, which can include transaction and service charges. While this may seem more complex, larger businesses with high transaction volumes might find this model advantageous, as traditional processors may offer lower rates based on volume. Choosing between these pricing structures depends on your business size, transaction volume, and preference for simplicity or cost savings.
Choosing The Right Option for Your Business
Deciding between a payment facilitator and a gateway comes down to your business’s unique needs and goals. A payment facilitator suits businesses that value simplicity, speed, and a hands-off approach to managing compliance and risk. This option is especially appealing for startups or small businesses with lower transaction volumes, as it removes the complexities of setting up a merchant account and managing security. By working with AVP Solutions, businesses gain access to secure, reliable payment processing solutions that streamline the transaction experience.
A payment gateway, however, is ideal for businesses that want more control and customization. If you prioritize a tailored checkout experience and have the resources to manage compliance and security internally, a gateway might be a better fit. Businesses with higher transaction volumes or complex needs may find the gateway model’s cost structure advantageous over time. Each option provides unique benefits, so evaluating your business’s requirements will help determine the most effective choice.
Understanding the difference between a payment facilitator vs. payment gateway helps businesses select the right option for their transaction needs. A payment facilitator offers simplicity and speed, making it ideal for small or new businesses looking to get up and running quickly. A payment gateway provides customization and control, which is appealing to established businesses that want a consistent and secure customer experience. By choosing the right solution, your business can improve operational efficiency, reduce administrative burdens, and create a seamless checkout process that meets customer expectations.
