When does a sub-merchant need a direct contract with the acquirer?

Under Visa rules, when a sponsored merchant exceeds US$1 million in annual Visa sales, the acquirer must be added to its merchant agreement. The PayFac can continue to process transactions and receive settlement for that merchant.

Why the rule exists

The PayFac model is designed for smaller merchants. As a sub-merchant grows, the schemes want the acquirer, which is ultimately responsible, to have a direct contractual relationship with it.

What changes for the sub-merchant

Usually little in daily operations. The sub-merchant signs an agreement that includes the acquirer, often a three-party contract with the PayFac. Processing, settlement and support can stay with the PayFac.

Other schemes

Mastercard and other schemes have their own thresholds and rules for large sub-merchants. The details vary, so PayFacs need to track volumes per scheme.

What PayFacs must do

• Monitor annual volume per sub-merchant and per scheme.
• Trigger the contract update before the threshold is crossed.
• Keep records of agreements for acquirer and scheme reviews.

What it means for payment operators

For you as a PayFac, tracking sub-merchant volumes by scheme is part of compliance. Reporting by merchant and an onboarding workflow that can collect new agreements help you act before a merchant crosses a threshold.