Payfac vs Marketplace: Understanding The Differences

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There are two models that have taken the online commerce world by storm in recent years: payment facilitators (PayFacs) and marketplaces.

Unfortunately, the differences between the two aren't always immediately obvious. If you’re a business owner considering pursuing one of these models, it's important to understand what each offers. That’s true both operationally and in terms of customer experience.

The payment facilitator vs. marketplace debate can quickly become confusing. In this article, I'll explain a bit about both models. That includes what they are, how they might affect your business, and how you can start your own.

Payment Facilitators and Marketplaces: What Are They?

Before we can explain how these different models will affect your business, we need to cover some definitions. Let’s get started with clear descriptions of exactly what these terms mean for enabling and accepting payments:

  • Payment Facilitator: Any software that facilitates payments from one person or business to another.
  • Marketplace: A platform that allows customers to complete transactions with many retailers on a single website or application.

In reading these two definitions, it may not be immediately clear how these payment solutions are different. Many large companies you think about -- Amazon, Etsy, or Uber -- could fit either description. That's a problem, though, as it's impossible for one merchant platform to be both a marketplace and a PayFac.

The most important difference between PayFacs and marketplaces is the number of retailers a customer transacts with through the platform. Payment facilitators connect one customer to one merchant, while marketplaces connect one customer to many merchants.

Amazon users can make purchases from multiple vendors in a single transaction, which makes it a marketplace. Uber, on the other hand, only allows you to take a ride with one driver at a time. That makes it a payment facilitator.

Just because there are multiple sellers on a single platform, that doesn't necessarily make it a marketplace

Uber users can request rides from hundreds of drivers. However, the transaction itself is only between the user and a single driver. The participants in the transaction itself -- not on the platform -- are what distinguish PayFacs vs. marketplaces.

Just to clarify the PayFac vs. payment processor question, in case anyone is wondering. The terms aren’t quite directly comparable or opposable. A payment processor is a company that works with a merchant to facilitate transactions. PayFac is software that enables payments from one vendor to one merchant.

How Will My Customers See a PayFac vs. a Marketplace?

Think about the last time you purchased something through a third-party seller on Do you remember the name of that seller? Would you recognize the business if you walked past it on the street?

Probably not.

This is because, as a customer of a marketplace, the marketplace is your destination. As a result, things like customer service and returns will be worked out directly with the marketplace.

Customers of payment facilitators, on the other hand, never view the facilitator as their shopping destination. The facilitator is simply the vehicle by which their payment is processed.

 In many cases, the customer won't even recognize that the facilitator was involved. Their destination is the merchant itself. Any questions regarding the purchase will be directed toward the merchant rather than the facilitator.

Operational Differences Between a Payment Facilitators and a Marketplace

Are you considering adopting a payment facilitator or marketplace model for your business? There are a few behind-the-scenes differences between PayFacs and marketplaces that you should be aware of:

Infographic on the differences of using payment facilitators and marketplaces

If you're looking for a payments solution for your marketplace or payment facilitator platform, Swipesum would love to help! We have helped over 1,300 businesses find their perfect payment processing solutions. Book a consultation!

Taft Anderson

Taft Anderson

Taft Anderson is the former Product Marketing Manager of Swipesum. A graduate of Washington University in St. Louis' Olin Business School, Taft is a content and branding expert.

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