PG vs PSP vs ISO vs PayFac vs Payment Aggregator

Payment Gateway

• a payment gateway means just a technological platform, while a payment aggregator usually means a company, that conducts management of its portfolio of sub-merchants (including onboarding, risk monitoring, and subsequent funding).
• Payment Gateways  encrypts  the details you enter about your credit or debit card while making a purchase. PG identify the payment processors (Visa,Master Card) sends this encrypted info to them and get the message back ( After balance checking,deducting the money from customer account etc). 
• A payment aggregator might offer a payment gateway, but a payment gateway cannot offer a payment aggregator.

Payment System Provider

• Payment service provider – PSP is a corporation that offers merchants assistance in getting the merchant accounts, simplifying transaction processing, etc.
• However, PSPs don’t fund their merchants – funding is done by the acquiring bankAcquirer (or Acquiring bank) Acquirer (or Acquiring bank) A bank or a financial institute, which acquires funds for its merchant from a shopper. To accept card payments, an acquirer should be licensed by corresponding card networks and either partner with a payment processor, or be a payment processor itself. .
• Contrary to PSPs, payment aggregator funds merchants, as payment aggregator has many merchants in its customer base and uses a single MID to pay them.
• A PSP facilitates merchant underwriting and payment processing, but merchant funding is, generally, done directly by the acquirerAcquirer (or Acquiring bank) Acquirer (or Acquiring bank) A bank or a financial institute, which acquires funds for its merchant from a shopper. To accept card payments, an acquirer should be licensed by corresponding card networks and either partner with a payment processor, or be a payment processor itself. . Subsequently, a payment service provider can derive certain residual revenue only from the processing fees collected by the acquirer.

Payment Aggregators

• To simplify the task of acquirers, at some point a new type of intermediary entities emerged. These were called payment aggregators. They went through underwriting process with the acquiring bank and processed payments for many smaller sub-merchants (usually, under the same MID). However, with time, this arrangement led to problems, related to violation of legal regulations (not all activities and respective MCCMCC MCCs are determined by card networks like Visa, MasterCard and American Express, who use it to decide how much to charge the businesses for accepting credit card payments (interchange fee). MCC Codes (or merchant category codes) are assigned to merchant accounts during the set up process and are used to differentiate between types of business & industries. Each industry has different transaction patterns and differing levels of risk (potential for fraud). MCC codes are used by issuing bank to determine if they will except the transaction. For example online gambling is only permitted in the states of Delaware, New Jersey and Nevada. The code 7995 can be used to prevent transactions coming from states that don’t allow online gaming. MCC codes can also effect the merchants processing rates. An improper classification could cause a merchant to pay higher than necessary processing fees. The are approximately 500 different MCC Codes used by Visa and it is important for a merchant to make sure they are assigned to the appropriate code.   Here is a handy list of all MCCs coders of sub-merchants were formally allowed for processing).
• The main difference between payment aggregator and a payment facilitators is that their sub-merchants all have different MIDs in a PayFac. Under umbrella of PayFacs merchants process their transactions. PayFacs take care of merchant onboarding and subsequent funding.

ISO

• An ISO works as the Agent of the PSP. The Job of ISO is to get merchants connected to the PSP. The PSP in return offers commissions to the ISO. In almost every case the Payments are sent to the Merchant directly from the PSP. ISO does not send the payments to the merchant. 
• ISOs are basically in the business of selling merchant accounts to merchants,” “And the problem is, merchants aren’t buying merchant accounts anymore – they are buying solutions

PayFac

• Payment Facilitator (PayFac) is actually a master merchant account MID to which the backend processor allows the PayFac to board sub merchant accounts under the main account. There are a few ways this can be arranged. Traditionally the processed funds were all sent to the PayFac minus the processor and interchange/assessment fees and they fund to the merchant and keep their cut. Recently there have been some avenues to become a PayFac that functions more like an ISO but there is usually still a PayFac at a tier above.
• All funds are sent to merchants via ACH direct deposits. Depending on billing arrangement, the merchant may have all processing fees removed before they are paid or in less common cases, they have a debit on their account for the fees on a monthly basis.
• So, in essence, aggregators (and PayFacs) simplify the processes of onboarding and funding and provide a unified channel for the acquiring bank, allowing to smoothly onboard new merchants and allocate respective payment amounts to them.
• PayFac also takes active part in merchant life-cycle. The key aspects, delegated (fully or partially) to a PayFac by an acquirer include underwriting, onboarding, payment processing, funding, reconciliation, settlement, chargeback handling, reporting, and others.
• Payment facilitators are responsible for the day-to-day management of payment processing which is why it’s necessary to have the infrastructure and support in place. This means they need to hire payment professionals and technical experts to help. P
• Payfacs are responsible for the underwriting process for each sub-merchant and must complete Know Your Customer (KYC) checks, Anti-Money Laundering (AML) and Sanctions check. They also assume all financial and scheme risk for their accounts and must handle chargebacks, fraud and data breaches. 
• PCI compliance is also a requirement to maintain and payfacs must abide by the government regulations in the regions they operate in. As you can see, payment facilitators have a lot of additional responsibility adding operation overhead beyond their core business.