Key takeaways
- Under the Visa Rules, a payment facilitator (PayFac) contracts with an acquirer to deposit transactions and receive settlement on behalf of sponsored merchants, and each sponsored merchant is treated as a merchant of that acquirer.
- Visa requires a PayFac that receives payment from an acquirer to pay each sponsored merchant promptly, equal to its transaction totals less credits, discounts, disputes and other agreed fees.
- In a Visa clearing record only the PayFac identifier is carried, so the PayFac must use its own authorisation records to split each settlement back to individual sub-merchants.
- Daily PayFac reconciliation proves that one acquirer settlement equals the sum of sub-merchant payouts, reserves held, and the PayFac's own fee margin, and that the bank received that settlement.
- FinCEN excludes a person that only acts as a payment processor for the purchase of goods or services through a clearance and settlement system by agreement with the seller, under 31 CFR 1010.100(ff)(5)(ii)(B); states apply their own tests, such as agent of payee exemptions in Texas and California.
What are the key facts on payment facilitator reconciliation?
A PayFac receives one net settlement for many sub-merchants and must prove, every day, how every dollar of it is owed onward.
| Item | Position |
|---|---|
| Who | A payment facilitator (PayFac): a company that signs up smaller businesses (sub-merchants, called sponsored merchants by Visa) under its own relationship with an acquirer |
| Acquirer | The bank or licensed firm that is a card network member, accepts the card transactions and settles the funds |
| What arrives | One net settlement per currency and cycle, after refunds, chargebacks, interchange, network fees and any acquirer reserve |
| What leaves | Individual payouts to each sub-merchant, after the PayFac's own fees and any reserve it holds |
| Core proof | Acquirer settlement = sub-merchant payouts + reserves held + PayFac fee margin, and that figure matches the bank credit |
| Card network rules | Visa Core Rules and Visa Product and Service Rules, sections 1.5.6 and 5.3 |
| US federal licensing | Payment processor exclusion, 31 CFR 1010.100(ff)(5)(ii)(B), with FinCEN's four conditions |
| US state licensing | State by state, for example the agent of payee exemption in Texas Finance Code 152.004(2) |
| Last checked | 26 October 2026, against eCFR, FinCEN, Visa, Texas and California primary sources |
How do funds flow through a payment facilitator?
Card money moves from the cardholder's bank to the acquirer, from the acquirer to the PayFac as one net amount, and from the PayFac to each sub-merchant as separate payouts.
A cardholder buys from a sub-merchant. The transaction is authorised (approved by the card issuer), then cleared (the detailed record is sent through the card network) and settled (the money moves). The acquirer receives the funds from the network, deducts what it is owed and credits the PayFac's settlement account. That single credit covers every sub-merchant that traded in the cycle. The scheme side of this, including interchange (the fee the acquirer pays the card issuer on each transaction) and network fees, is covered in our guide to card scheme settlement reconciliation.
The PayFac then becomes the paymaster. It allocates the net amount to each sub-merchant using its own records, deducts its own pricing, holds back any reserve, offsets earlier chargebacks and refunds, and pays the balance out, usually by bank transfer. Until those payouts are made, the PayFac is holding money that belongs to its sub-merchants, which is why the reconciliation has to work at sub-merchant level, not just in total.
| Stage | Who acts | Record produced |
|---|---|---|
| Authorisation | Issuer approves the card payment | Authorisation record with PayFac and sub-merchant identifiers |
| Clearing | Acquirer submits the transaction to the network | Clearing record carrying the PayFac identifier |
| Acquirer settlement | Acquirer pays the PayFac net of its deductions | Acquirer settlement or funding file, and a bank credit |
| Allocation | PayFac splits the net amount by sub-merchant | PayFac ledger entries per sub-merchant |
| Payout | PayFac pays each sub-merchant | Payment file to the bank and bank debits |
What do Visa's rules require of payment facilitators?
Visa makes the acquirer liable for its PayFacs, requires the PayFac to pay sponsored merchants promptly and in full less agreed deductions, and fixes how transactions are identified.
The Visa Core Rules and Visa Product and Service Rules define a payment facilitator as an entity that contracts with an acquirer to deposit transactions, receive settlement from, or contract with an acquirer on behalf of a sponsored merchant. A sponsored merchant is an entity that contracts with a PayFac and, under that contract, can accept a card to sell goods or services. The rules that shape reconciliation most directly are these.
| Visa rule | What it says | Why it matters for reconciliation |
|---|---|---|
| 1.5.6.2 | An acquirer may pay a PayFac on behalf of a sponsored merchant. A PayFac that receives payment must pay or credit its sponsored merchant promptly after deposit, equal to transaction totals less credits, applicable discounts, disputes or other agreed fees. | Every deduction from a sub-merchant payout must trace to a credit, a dispute, an agreed fee or an agreed reserve. |
| 1.5.6.2 | Acquirer payments may be reduced by merchant reserve funds accumulated to guarantee payment system obligations to the acquirer. | An acquirer reserve reduces the PayFac's settlement and must be tracked as an asset of the PayFac. |
| 5.3.1.1 | The PayFac is responsible and financially liable for each transaction processed for a sponsored merchant and for any disputed transaction or credit, and must not deposit transactions for another PayFac. | Chargebacks the PayFac cannot recover from a sub-merchant become the PayFac's loss. |
| 5.3.1.2 | A sponsored merchant is treated as a merchant of the PayFac's acquirer, and the acquirer is liable for the PayFac and its sponsored merchants, including settlement to them. | The acquirer will expect sub-merchant level reporting and reconciled figures. |
| 5.3.1.3 | Authorisation records carry both the PayFac and sponsored merchant identifiers; clearing records carry only the PayFac identifier. Proceeds settled for sponsored merchants are paid into a bank account in the acquirer's jurisdiction. | The PayFac must link cleared and settled items back to sub-merchants through its own authorisation data. |
| 5.3.1.3 | On Visa's request the acquirer reports, per sponsored merchant, monthly transaction count and amount and monthly dispute count and amount. | Sub-merchant totals must be reproducible from the ledger. |
| 5.3.1.4 | A sponsored merchant above USD 1 million in annual transaction volume generally needs a direct merchant agreement with the acquirer, though the PayFac may continue to settle it; exceptions apply. | Large sub-merchants may move to tri-party or direct terms, changing who is owed what. |
These rules cover Visa transactions; the acquirer's agreement with the PayFac sets the reserve, settlement timing and fee terms the reconciliation tests against.
What does daily PayFac reconciliation match?
Four layers: the PayFac's transaction records to the acquirer's file, the file to the bank credit, the net settlement to sub-merchant balances, and the payouts to the bank debits.
The third layer is the one specific to PayFacs: proving that the single net amount, once split, gives every sub-merchant exactly what it is owed, with nothing left unallocated. The general method for processor files is set out in our guide to PSP reconciliation.
| Layer | Compare | Typical break |
|---|---|---|
| 1. Transactions | PayFac authorisations and sales by sub-merchant against acquirer clearing and settlement detail | Sale captured but not settled; settled item with no sub-merchant match |
| 2. Settlement | Acquirer settlement total against the bank credit for the same cycle and currency | Fee or reserve taken outside the file; credit on a different day |
| 3. Allocation | Net settlement against the sum of sub-merchant payable balances, reserves and PayFac fee margin | Unallocated amount; interchange higher than the PayFac priced in |
| 4. Payouts | Payout file against bank debits, and payout amounts against sub-merchant balances | Payout rejected and returned; payout made to a frozen sub-merchant |
Fees deserve their own test. Most PayFacs are charged interchange, network fees and an acquirer margin, but charge sub-merchants a blended rate. Recalculating the acquirer's fees from the transaction detail each day shows whether the margin earned is the margin expected, and whether a change in card mix or a downgraded interchange rate is eroding it.
What does a sub-merchant settlement batch look like?
In this example one acquirer settlement of USD 94,900.00 is fully explained by three sub-merchant payouts, two reserves and the PayFac's fee margin.
Worked example. Nexus Payments, a US PayFac, has three sub-merchants trading on 25 October: a café group, an online tutor and a furniture retailer. The acquirer settles the day's Visa activity in one credit on 26 October. The acquirer charges Nexus interchange, network fees and its margin, totalling 1.9% of gross sales. Nexus charges sub-merchants 2.9% of gross sales plus USD 15 per chargeback, and holds a rolling reserve (a share of each day's sales kept back for a set period to cover future chargebacks) of 5% for the tutor and 10% for the retailer.
| USD | Café group | Online tutor | Furniture retailer | Total |
|---|---|---|---|---|
| Gross card sales | 48,000.00 | 12,500.00 | 39,500.00 | 100,000.00 |
| Refunds | 0.00 | (500.00) | (1,500.00) | (2,000.00) |
| Chargebacks | 0.00 | 0.00 | (1,200.00) | (1,200.00) |
| Nexus fee at 2.9% of gross sales | (1,392.00) | (362.50) | (1,145.50) | (2,900.00) |
| Chargeback fee | 0.00 | 0.00 | (15.00) | (15.00) |
| Rolling reserve held | 0.00 | (625.00) | (3,950.00) | (4,575.00) |
| Payout due | 46,608.00 | 11,012.50 | 31,689.50 | 89,310.00 |
The acquirer's settlement is gross sales of 100,000.00, less refunds of 2,000.00, chargebacks of 1,200.00 and acquirer fees of 1,900.00, which is 94,900.00. Nexus's fee margin is its sub-merchant fees of 2,915.00 less the acquirer's 1,900.00, which is 1,015.00. The batch then proves as follows.
| Proof line | USD |
|---|---|
| Sub-merchant payouts | 89,310.00 |
| Add reserves held for sub-merchants | 4,575.00 |
| Add Nexus fee margin | 1,015.00 |
| Equals acquirer settlement | 94,900.00 |
| Bank credit received 26 October | 94,900.00 |
| Difference | 0.00 |
Three points matter. First, the reserve of 4,575.00 is not Nexus's money: it is a liability owed to the tutor and the retailer, and must be released or applied against their chargebacks on schedule. Second, the retailer's chargeback is matched through the original transaction reference, because the clearing record carries only Nexus's PayFac identifier. Third, if the acquirer's file had charged 1,930.00 in fees instead of 1,900.00, settlement would be 94,870.00, payouts would not change, and the 30.00 difference would be a fee break reducing Nexus's margin, to be investigated with the acquirer the same day.
How should reserves, chargebacks and negative balances be handled?
Each needs its own balance per sub-merchant, so that what is held, what is recovered and what is lost are visible every day.
Reserves come in two layers. The acquirer may hold a reserve against the PayFac, which reduces settlement and is an amount the acquirer owes the PayFac. The PayFac may hold reserves against its sub-merchants, rolling (a percentage of each day's sales released after a fixed period), fixed (a set sum held for the life of the contract) or upfront. Both should be ledger balances with release dates, reconciled to the acquirer's reserve statement and to the PayFac's own bank account.
Chargebacks and refunds can exceed a sub-merchant's sales for the day. When they do, the sub-merchant's balance goes negative. The PayFac can net the shortfall against future sales, draw on that sub-merchant's reserve, or collect it by direct debit, as its contract allows. Under Visa rule 5.3.1.1 the PayFac stays financially liable for disputed transactions, so a negative balance that is never recovered is the PayFac's loss. Ageing negative balances by sub-merchant, and never netting one sub-merchant's reserve against another's shortfall unless the contract allows it, keeps that loss measurable.
Where reserves and unpaid balances sit in a bank account opened for the benefit of sub-merchants, the account itself must also agree to the sum of individual balances; our guide to FBO account reconciliation covers that test.
When does a payment facilitator need a US money transmitter licence?
Federally, a PayFac that only processes payments for goods or services through regulated clearance and settlement systems under an agreement with the seller falls outside the money transmitter definition; each state then applies its own law.
Under 31 CFR 1010.100(ff)(5)(ii), whether a person is a money transmitter is a matter of facts and circumstances, and the term does not include a person that only "acts as a payment processor to facilitate the purchase of, or payment of a bill for, a good or service through a clearance and settlement system by agreement with the creditor or seller". In FIN-2014-R009 FinCEN restated four conditions: the service must facilitate the purchase of goods or services, or payment of bills for them, other than money transmission itself; it must operate through clearance and settlement systems that admit only BSA-regulated financial institutions; it must be provided under a formal agreement; and the agreement must be at least with the seller or creditor that receives the funds.
The second condition reaches the payout. FinCEN said that if disbursements to merchants are made outside such a system, giving monetary instruments as the example, the exemption cannot be claimed, so a change in how sub-merchants are paid means checking the exemption again.
States decide licensing for themselves. Texas Finance Code Chapter 152, enacted by Senate Bill 895, exempts in section 152.004(2) a person appointed as an agent of a payee to collect and process payments for goods or services, provided there is a written agreement directing the agent to collect payments for the payee, the payee holds the agent out to the public as accepting payments on its behalf, and payment is treated as received by the payee when the agent receives it, so the payor's obligation is extinguished and the payor bears no loss if the agent fails to remit. In October 2026 the Texas Department of Banking fined a debt-relief payment processor for unlicensed money transmission; the consent order records that it later changed its model to qualify for an exemption under section 152.004.
California's Money Transmission Act, at Financial Code section 2010(l), exempts a transaction where the recipient is an agent of the payee under a preexisting written contract and delivery to the agent satisfies the payor's obligation. In a January 2020 opinion letter the regulator found a payment processor for online merchants exempt after its merchant agreement appointed it as the merchant's agent and treated customer payment to it as payment to the merchant; further letters are listed on the DFPI's agent of payee page. Not every state has the same exemption, so PayFacs with sub-merchants nationwide map the test state by state.
What should a PayFac's daily reconciliation checklist include?
These checks follow the four layers and the Visa rules above.
- Load every acquirer settlement and funding file each cycle, by currency, and match it to the bank credit.
- Match each settled transaction to a PayFac authorisation and sub-merchant, using the transaction reference where the clearing data carries only the PayFac identifier.
- Recalculate interchange, network fees and acquirer margin from transaction detail and raise any variance as a fee break.
- Prove acquirer settlement equals sub-merchant payouts plus reserves held plus PayFac fee margin, with nothing unallocated.
- Keep a reserve balance per sub-merchant with release dates, and reconcile it to the account holding it.
- Reconcile the acquirer's reserve statement against the PayFac as a separate receivable.
- Age negative sub-merchant balances caused by chargebacks and refunds, and record each recovery.
- Match the payout file to bank debits and return any rejected payout to the sub-merchant's balance the same day.
- Produce monthly per-sub-merchant transaction and dispute counts and amounts from the ledger, as the acquirer may need them for Visa.
- Review the payment processor and state agent of payee positions whenever payout methods, contracts or states change.
Platforms that hold balances for sellers, rather than settling them as a PayFac, face safeguarding questions covered in payment aggregator safeguarding.
How does Safeheld help?
Safeheld matches acquirer and processor reports, the PayFac's ledger and bank statements every day, and raises any difference as a break the day it appears, clearing routine timing items by rule and working the rest to a cause with evidence recorded.
Positions are held for each company in the group, in its own currency, and agree back to a group total, with funding needs forecast over 24 hours, 7 days and 30 days and transfers approved by up to three people. Where a PayFac is also licensed, the same reconciled figures feed prepared packs for US states and the NMLS call report. See daily reconciliation in Safeheld and platforms and marketplaces.
Frequently asked questions
What is payment facilitator reconciliation?
It is the daily process of proving that a PayFac's net settlement from its acquirer matches its own transaction records and the bank credit, and that the amount is fully allocated to sub-merchant payouts, reserves and the PayFac's own fee margin.
Why is PayFac reconciliation harder than ordinary merchant reconciliation?
One acquirer settlement covers many sub-merchants. Under the Visa Rules the clearing record carries only the PayFac identifier, so the PayFac must split settlement back to each sub-merchant using its own authorisation records before it can pay anyone.
What must a PayFac pay its sub-merchants under Visa rules?
Visa rule 1.5.6.2 requires a PayFac that receives payment from an acquirer to pay or credit each sponsored merchant promptly after deposit, equal to its transaction totals less credits, applicable discounts, disputes or other agreed fees.
Who is liable for sub-merchant chargebacks?
Under Visa rule 5.3.1.1 the PayFac is responsible and financially liable for each transaction processed for a sponsored merchant and for any disputed transaction or credit, and under rule 5.3.1.2 the acquirer is liable for its PayFacs and their sponsored merchants.
Is a payment facilitator a money transmitter under federal law?
Not if it only acts as a payment processor for the purchase of goods or services through a clearance and settlement system by agreement with the seller, under 31 CFR 1010.100(ff)(5)(ii)(B). FinCEN's four conditions include using systems that admit only BSA-regulated financial institutions, including for payouts.
Do states treat PayFacs the same way as FinCEN?
No. Each state applies its own money transmission law. Texas Finance Code 152.004(2) and California Financial Code 2010(l) both exempt agents of a payee that meet written contract and payment discharge conditions, but other states differ.
How should sub-merchant reserves be recorded?
As a liability owed to each sub-merchant, with its own balance and release dates, reconciled daily to the account holding it. An acquirer's reserve against the PayFac is a separate amount owed to the PayFac.
What happens when a sub-merchant's balance goes negative?
The PayFac recovers the shortfall from future sales, the sub-merchant's reserve or a direct debit, as its contract allows. Because the PayFac is liable for disputed transactions, any amount it cannot recover is its own loss.
References
- Visa, Visa Core Rules and Visa Product and Service Rules, 18 April 2026 edition (PDF)
- eCFR, 31 CFR 1010.100, definitions, including money transmitter at (ff)(5)
- FinCEN, FIN-2014-R009, Application of MSB regulations to a company acting as an ISO and payment processor (27 August 2014, PDF)
- Texas Legislature, Senate Bill 895 (88th Legislature), enrolled text adding Chapter 152 to the Finance Code (PDF)
- Texas Department of Banking, Consent Order 2026-019, Set Forth, LLC (PDF)
- California Department of Business Oversight, opinion letter on agent of payee exemption for a payment processing service (27 January 2020, PDF)
- California DFPI, opinion letters on the agent of payee exemption
About Safeheld
Safeheld is reconciliation and regulatory reporting software for regulated firms that hold client money. For payment facilitators it matches acquirer reports, the ledger and bank statements every day, raises differences as breaks the day they appear, and keeps the evidence each break was resolved. To discuss your sub-merchant settlement and reconciliation, contact us at safeheld.com/contact.
This article is general information on payment facilitator reconciliation and licensing and is not legal or regulatory advice.