Sub-Merchant
A sub-merchant is a business that processes payments under a PayFac's master merchant account rather than having its own direct relationship with an acquiring bank.
In a PayFac model, the PayFac aggregates multiple businesses (sub-merchants) under its own master merchant account. The PayFac is responsible for onboarding, underwriting, and monitoring sub-merchants — and bears chargeback liability for their transactions.
Sub-merchant relationship economics: the PayFac charges sub-merchants a processing rate and retains the spread between that rate and its own acquiring cost. A PayFac charging 2.5% to sub-merchants while paying 1.6% in blended acquiring cost retains 90 basis points on all sub-merchant volume.
Sub-merchant onboarding speed is the primary advantage of PayFac over direct bank relationships for merchant-facing platforms — a sub-merchant can be approved and processing in minutes rather than the days or weeks required for direct merchant accounts.
Card network requirements: Visa and Mastercard have specific PayFac registration requirements, including sub-merchant due diligence standards, transaction monitoring obligations, and volume limits above which sub-merchants must obtain their own merchant accounts.