Payment Facilitator vs Marketplace Risk
Visa treats payment facilitators and marketplaces as two different models. This guide explains who carries the risk in each.
If you want to put other sellers on your platform, Visa gives you two paths. You can become a payment facilitator or a marketplace. The rules differ on who is liable, who gets paid and who watches the sellers. Your choice decides what you must build before you sign anyone up.
Two models, in Visa's own words
Visa's guide says a payment facilitator is also known as a PayFac or merchant aggregator. It provides payment services to merchants, called sponsored merchants. A sponsored merchant is a merchant whose payment services are provided by a payment facilitator.
A marketplace is different. Visa's guide says a marketplace is a type of agent that brings together buyers and retailers on a common platform. The PayFac model has three key parties. They are the acquirer, the PayFac and each sponsored merchant.
Liability and settlement: the core difference
The two models split on money and blame.
In the PayFac model, the acquirer pays settlement funds straight to the PayFac. The PayFac then pays those funds out to its sponsored merchants.
A marketplace works the other way. Visa's guide says a marketplace submits transactions and receives settlement proceeds on behalf of its underlying retailers. Under this model, Visa considers the marketplace as the merchant.
That makes the marketplace financially liable for all disputes. It must resolve disputes between buyers and sellers. It also administers refunds between the buyer and the retailer.
The PayFac does not take on that merchant role. But it is not free of risk. Visa's guide holds acquirers, PayFacs and marketplaces to account for the illegal acts of the sellers they sign up.
What each model owes the acquirer
Both models are third party agents. Visa's guide says they require sponsorship and registration by an acquirer. Acquirers answer for the acts of both PayFacs and sponsored merchants.
Before it signs a contract, the acquirer must check out the PayFac or marketplace. Visa's guide says the review must include:
- An onsite visit to see how the PayFac runs its business and handles risk.
- A review that the PayFac meets the Visa Rules on sponsored merchants and retailers.
- A review that the entity handles money well and follows good business practices and the law.
- A review of the PayFac's business plan, its sales material, and its website.
- A background check on the owners. It covers their financial and fiduciary record.
The acquirer then signs up the PayFac or marketplace with Visa. It does this through the Visa Program Request Management system. A senior officer of the acquirer must sign all contracts. The acquirer must get Visa's sign-off on the registration before it sends any transactions.
Marketplaces face an extra step. An acquirer can only list a firm as a marketplace if it meets Visa's rules for them. The acquirer must get written word from Visa that the firm qualifies. It must then recertify each year that its approval information stayed the same. If the acquirer does not do this, Visa may pull the marketplace's approval.
Acquirers also have their own bar to clear. Visa's guide says an acquirer must meet the Tier 1 capital floor to back either model. It must be financially sound, as determined by Visa. An acquirer can only work with a PayFac or marketplace in its own licensed area.
Identifiers
Visa gives each PayFac and marketplace an ID. The acquirer must use it before it sends any transactions. PayFacs must then give each sponsored merchant its own unique ID.
Onboarding and underwriting your sellers
Both models must have sound merchant underwriting policies in compliance with the Visa Rules and the GARS. Visa's guide says underwriting must follow the acquirer's own rules. The acquirer sets the bar for which sellers it accepts.
PayFacs and marketplaces guard the gate to the payment system. They must make sure only fit and sound sellers get in. To do that, they must gather public and private data to check that a new seller is real. The data checks must follow the law. This includes Anti-Money Laundering and Know Your Customer rules.
The platform then makes a call on the new seller. It can approve, approve with terms, or turn the seller down.
Visa's guide also describes auto-boarding. That is a way to vet and sign up sellers by machine. It uses rule logic and machine learning. It is a tool, not a pass on the duties above.
Ongoing monitoring
Signing a seller is the start of the work. PayFacs and marketplaces must watch their sellers at all times. They look for risk and for signs of trouble. Visa's guide says this includes:
- Watching the day-to-day sales of each seller.
- Watching how fast sellers grow. This covers monthly sales, average sale size, and returns.
- Watching every seller for fraud and disputes. Visa's guide says to watch for sellers near the limits of its fraud and dispute programs.
- Watching their sellers' web stores all the time.
- Checking seller websites for illegal sales, hidden sales, or false ads.
Platforms must also have a way to act on complaints from rights holders about fake goods. They must not take any illegal sale from a seller and send it into the Visa payment system.
A PayFac or marketplace can hold a seller's funds for a time. It can do this if paying the seller could cause a loss. PayFacs should use merchant reserves the right way. Visa's guide says reserve funds belong to the sponsored merchant and must be held and controlled by the acquirer.
A PayFac must add a sponsored merchant cut off for cause to the Visa Merchant Screening Service.
Acquirers must keep watch over the PayFacs and marketplaces they back. Platforms must keep records for this and give them to their acquirer or Visa when asked.
What each model cannot sign
Visa's guide draws hard lines around both models.
A PayFac cannot serve outbound telemarketers. It cannot serve other PayFacs or marketplaces either. So one PayFac cannot back another. It cannot sponsor a marketplace either.
Marketplaces may not seek out high-brand risk merchants. Only duly registered High-Risk Internet Payment Facilitators may do that. A PayFac must be listed with Visa as a High Risk Internet Payment Facilitator before it signs high-brand risk merchants. High-brand risk merchants need a deeper level of due diligence.
Marketplaces also cannot sign retailers that go past the sales volume limits set in the Visa Rules.
Say a PayFac signs a digital wallet. It must make sure the wallet's end use does not fund a banned type of merchant.
Which model fits which business
Pick the marketplace model if you sit between buyer and seller. You should also handle refunds and be able to carry the disputes. Visa then treats you as the merchant. Visa's guide says a marketplace can be assigned Merchant Category Code 5262, which covers lines of business not classifiable under a single code.
Pick the PayFac model if you want to give payment services to your sellers. You still have to build checks, watch tools and reports.
Either way, the work is real. You need skilled risk staff, sound systems, and reports in place. Have them ready before you start to move payments. Acquirers may give you the power to let sellers take payments. They will check how you use it. That oversight is part of why banks watch payment processor accounts so closely.
If you sell by phone instead, read up on billing authorization before you sign anyone up.