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Choosing A PayFac Model: Key Considerations For Your Startup



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Are you a startup founder looking for ways to streamline your payment processes? If so, you may have come across the Payment Facilitator, or PayFac, model. This model could transform how you handle transactions, ultimately enhancing your customer service.

However, there’s more than one way to be a PayFac. From full PayFac to hybrid models, or even the ‘PayFac Lite’ approach, each offers unique benefits and challenges. So, how do you determine which model is the right fit for your startup?

Making this strategic choice requires a deep understanding of your startup’s goals and capabilities. Let’s explore these options and discuss the key considerations that could guide your decision.

Understanding Different PayFac Models

One of the first questions you might ask is: What is a PayFac model? Simply put, it’s a business model that allows your startup to process payments on behalf of your sub-merchants. However, there’s more to the story. 

There are three main PayFac models, and understanding these can help you navigate the world of PayFac more easily.

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  • Full PayFac: As a full PayFac, your startup would assume all responsibilities related to payment processing. This includes setting up merchant accounts for your sub-merchants, managing transaction risks, and handling all compliance requirements.
  • Hybrid PayFac: This model strikes a balance. Your startup would manage the onboarding process for sub-merchants, but you’d share risk management and compliance responsibilities with a partner payment processor.
  • PayFac Lite: This is the leanest model. Your startup’s focus would be onboarding sub-merchants, while a partner payment processor would take care of most of the transaction processing, risk management, and compliance duties.

In choosing between these models, it’s essential to weigh your startup’s resources, risk tolerance, and long-term strategy. Additionally, it’s crucial to evaluate key considerations that can guide your choice.

Key Considerations In Choosing A PayFac Model

The decision to adopt a PayFac model is not one to be taken lightly. It requires a thorough examination of your startup’s goals, capacities, and broader business environment. Let’s unpack these considerations a little further:

  • Business Needs And Capabilities

This is about analyzing your startup’s needs and matching them with your available resources. For instance, if your business model involves managing a high volume of small merchants, becoming a full PayFac could streamline the merchant onboarding process. 

However, you would need to ensure that your team has the expertise and capacity to manage the complexities that come with it.

  • Financial Implications

Each PayFac model comes with its own cost structure. Full PayFac requires a substantial upfront investment for payment infrastructure and compliance, but it may result in lower transaction fees in the long run. 

On the other hand, PayFac Lite requires less upfront investment but could come with higher per-transaction costs. Detailed cost-benefit analysis is crucial to avoid any unpleasant financial surprises.

  • Regulatory And Compliance Requirements

Becoming a full PayFac means taking on a high level of regulatory responsibility, including compliance with payment card industry (PCI) standards and possibly even money transmitter licensing, depending on your jurisdiction. 

If you choose a hybrid or PayFac Lite model, some of these responsibilities would be shared with your partner payment processor. It’s important to understand these obligations and to make sure you’re equipped to handle them.

  • Market Positioning And Competitive Advantage

The choice of PayFac model can influence how you position your startup in the marketplace. For example, being a full PayFac might allow you greater control over your payment experience, which could become a key differentiator in a competitive market.

Meanwhile, a PayFac Lite model might allow you to get to market faster by leveraging the infrastructure of an established payment processor.

  • Scalability And Future Growth

The PayFac model you choose should align with your startup’s growth trajectory. If you foresee rapid expansion, becoming a full PayFac might provide the necessary flexibility to onboard new merchants quickly and efficiently. However, it’s worth noting that this model demands significant resources for infrastructure and compliance. 

On the other hand, if your growth is steady and manageable, a Hybrid or PayFac Lite model might suffice. These models allow you to scale up your operations without substantial upfront investment, although they offer less control and flexibility.

In the end, choosing the right PayFac model involves a careful balance of these considerations. It’s not just about the model that looks the most attractive on paper, but also about what fits best with your startup’s unique circumstances and strategic vision.


As you chart your startup’s path in the complex landscape of payment processing, understanding and selecting the right PayFac model becomes crucial. Each model—be it Full PayFac, Hybrid PayFac, or PayFac Lite—carries its unique benefits and challenges, from financial implications to regulatory requirements. The ideal fit for your startup hinges on a thorough evaluation of your business needs, market positioning, and scalability considerations.

Making a strategic decision about your PayFac model is not merely about today’s convenience. It’s about laying the foundation for future growth and sustained success. 

By making a well-informed choice, you can ensure that your payment processing strategy propels your startup forward, helping you carve a niche in your industry and beyond. Choose wisely, and you’ll be well on your way.


Jean-Pierre is a polyglot communication specialist, freelance journalist, and writer for with over two decades of experience in media and public relations. He creates engaging content, manages communication campaigns, and attends conferences to stay up-to-date with the latest trends. He brings his wealth of experience and expertise to provide insightful analysis and engaging content for's audience.

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