Who performs KYB when a PayFac onboards sub-merchants?
The PayFac performs KYB on its sub-merchants. It signs them under its own master merchant account and is required by its sponsoring acquirer, through the contract and card scheme rules, to verify each business and its beneficial owners. The acquirer audits the process and stays liable to the schemes. In an ISO model, by contrast, the acquirer runs KYB itself.
In detail
When a payment facilitator (PayFac) onboards sub-merchants, the PayFac performs KYB. It contracts with each sub-merchant under its own master merchant account and acts, for card scheme purposes, on behalf of its sponsoring acquirer.
How the responsibility is shared
- PayFac: collects the data, verifies the business and its beneficial owners, screens them, assigns the MCC and decides within agreed limits.
- Acquirer: sets the onboarding standards in the contract, audits files, approves exceptions and remains liable to Visa and Mastercard for the PayFac’s portfolio.
- Card schemes: register the PayFac and can fine the acquirer if sub-merchants break the rules.
Compared with other models
In an ISO model, the ISO sells but the acquirer runs KYB and signs each merchant. A merchant of record sells in its own name, so there is no sub-merchant to verify.
Learn more in PayFac vs ISO, KYC vs KYB and on the onboarding workflow page.