Does a PayFac need its own payment license?
It depends on the country and on how funds flow. In Europe, an operator that holds merchants' funds generally needs a payment institution license or must operate under a licensed partner's arrangement. The sponsor acquirer's legal team and local counsel decide which model applies before the PayFac registers with the card schemes.
In detail
It depends on the country and on how funds flow. In Europe, an operator that holds merchants' funds generally needs a payment institution license or must operate under a licensed partner's arrangement. The sponsor acquirer's legal team and local counsel decide which model applies before the PayFac registers with the card schemes.
It depends on the funds
A payment facilitator onboards sub-merchants and typically receives their funds before paying them out. In most jurisdictions, holding funds on behalf of others is a regulated activity. In Europe, it generally requires a payment institution or e-money institution license, or an arrangement under which a licensed partner holds the funds and the PayFac operates the program.
Models in practice
- Licensed PayFac: the operator holds the license and the funds, with full regulatory obligations.
- Managed PayFac: a licensed partner, often the sponsor acquirer, holds the funds and settles to sub-merchants on the PayFac's instructions.
- Hybrid: the PayFac holds a license in one market and uses partners elsewhere.
Who decides
The sponsor acquirer's legal team and local counsel, market by market, before the PayFac registers with the card schemes. The answer differs between the EU, the UK, the US and Asia, and within the EU by the exact flow of funds. NORBr's partnership with Payplug illustrates the managed model: the PayFac runs onboarding, routing and reporting on the platform, while the licensed partner carries the regulated role. The platform supports both models, so a PayFac can start managed and move to its own license later.