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Education

other losses caused by mer- late to payments are usually dealt with through the payfac's terms with
chants. Assuming that liabil- its clients. The payments element then becomes an add-on, sometimes
ity obligates the payfac to hire as an addendum to the payfac terms (that is, app terms) and sometimes
personnel who are qualified to as a separate stand-alone agreement. For example, at https://stripe.com/us/
manage merchant risk. legal you can see the separation between Stripe's terms for its services
and those of Stripe's sponsor bank, Wells Fargo & Co., for the payments
• Technology: Banks that spon- terms.
sor payfacs expect the payfac
to have its own systems that Some acquirers let payfacs contract directly with sub-merchants for the
are able to capture and pro- payments element; others require stand-alone terms for the payments el-
cess data related to payfac sub- ement between the acquirer and sub-merchants directly. Payfacs should
merchant transactions. This know the acquirer's requirements in advance so they can plan their
technology is very costly and boarding terms and processes accordingly.
serves as a barrier to entry for
many payfacs. Endeavoring to Payfacs are an excellent innovation well worth investigating, both for new
solve this problem, Payrix.com fintechs and established ISOs. Visa provides useful reading on payfacs here:
provides payfacs with a turn- https://usa.visa.com/dam/VCOM/download/merchants/02-MAY-2014-Visa-Payment-
key solution for the technology FacilitatorModel.pdf .
necessary to run a payfac.
Payfac contracts In publishing The Green Sheet, neither the author nor the publisher is engaged in rendering legal,
accounting or other professional services. If you require legal advice or other expert assistance,
The various payfac business relation- seek the services of a competent professional. For further information on this article, email Adam
ships require distinct contract terms. Atlas, Attorney at Law, at atlas@adamatlas.com or call him at 514-842-0886.

• Payfac-acquirer: The con-
tractual structure between a
payfac and an acquirer is simi-
lar to that of an ISO and ac-
quirer. There is a sponsorship
agreement and a payfac agree-
ment. The sponsorship agree-
ment enables the payfac to be
sponsored by the bank into the
payment networks as a payfac.
The payfac agreement between
the payfac and its acquirer sets
out the terms by which the ac-
quirer will acquire payment
transactions submitted by the
payfac – or more specifically –
its sub-merchants.

• Payfac-sub-merchant: Here
is where it gets interesting.
Payfacs often have a service for
their sub-merchants that is sep-
arate for the payments element.
Consider a payfac focused on
babysitters, for example. Each
babysitter gets an app through
which he or she can schedule
babysitting gigs and then also
accept payments from their cli-
ents.

Scheduling features and other
parts of the app that do not re-

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