Small business

The PayFac advantage: empowering SMEs to compete

August 2026

woman in green apron smiling at person in shop

The scale of the global small and medium enterprise (SME) economy is hard to overstate. Together, these SMEs make up roughly nine in ten global businesses and up to 60% of employment^[1]. Yet despite their sheer number, the level of service many SMEs receive from financial institutions has fallen short compared to what’s on offer for large businesses.

Much of the discussion around this gap focuses on the cost-to-serve and heightened risk aversion, but a challenge for providers is keeping pace with the expectations of modern SMEs.

Today’s SMEs increasingly expect the same tools that larger enterprises rely on – from seamless digital payments to AI-driven insights and faster access to working capital. Yet many still struggle to access these capabilities through traditional financial institutions.

“It’s important to remember that SME owners are also consumers,” explains Don Apgar, Director of Merchant Payments at Javelin Research. “As a result, they expect financial services for their business to be just as fast, frictionless and easy as they are for consumers. But they also need more features than a consumer and don’t want to step up to an expensive business account, so they end up juggling multiple providers.”

“The question ultimately becomes how a single provider can facilitate this convergence and bring all these tools to the table.”

The hidden complexity facing SMEs

Despite their smaller size, SMEs often face greater operational complexity than larger organizations. Many need to source services from multiple providers for payments, accounting, capital, payroll, and tax.

This fragmentation increases costs and administrative burdens, while also disrupting cash flow when settlement times are slow or access to funds is delayed.

Because each provider sees only part of an SME’s activity, traditional financial institutions often struggle to understand these businesses. Research from EY found that, as a result, fewer than a fifth (18%) of SMEs and self-employed individuals say their bank truly understands them.^[2]

“SME as a label is a very broad category,” adds Apgar. “They’re not a homogenous group. Access to capital is crucial for all, but for different reasons. In B2B, suppliers face slow-paying customers that delay receivables, while in B2C there is sales volatility and seasonal swings.”

At the same time, SMEs want increasingly integrated services, with more than half (56%) saying they want tools for tax, accounting, and financial management capabilities in a single, integrated service.^[3]

How PayFacs are moving the dial

Payment facilitators, or PayFacs, are intermediaries that simplify payments processing for businesses, including SMEs, by handling onboarding, underwriting and compliance, allowing them to start taking payments quickly without needing their own merchant account.

As a result, they have emerged over the past decade as key enablers of digital commerce, helping small businesses overcome existing shortcomings and access capabilities that were once only available to larger organizations.

Platforms such as Square have simplified merchant onboarding. Instead of lengthy underwriting processes and paperwork associated with traditional merchant accounts, SMEs can join as sub-merchants and quickly begin accepting payments, often within minutes.

This model also allows payments, accounts, and spending tools to operate within a single ecosystem. John O’Beirne, CEO of Square, explains: “Our partnership with Mastercard lets us do what small businesses actually need – one platform where everything just works together. A restaurant owner accepts a payment through our hardware, sees those funds instantly in their account and can spend them immediately on their card.”

Beyond convenience, the real strength of the PayFac is how it often sits within a broader vertical SaaS platform that runs the merchant’s day-to-day operations. This combination brings payments and operational data together in one place, creating a far more complete view of business performance. As a result, PayFacs can unlock more advanced embedded financial services, including tailored lending, AI-driven insights and smarter payment orchestration.

“One of the biggest pain points for SMEs is the exchange of data,” says Apgar. “That’s where PayFacs have an advantage; everything operates off a single set of data.

“We know some SMEs are spending around 25 hours a week moving numbers around a spreadsheet, burning valuable time. If instead you had one single source of truth, you can effectively take reconciliation out the equation."

Accelerating access from PayFac-as-a-Service

While the PayFac model has gained momentum, building a full operation can be complex, with costs often reaching $2-3 million.^[4]

As the market matures, PayFac-as-a-Service (PFaaS) has emerged and is lowering these barriers. By partnering on the infrastructure and regulatory framework, PFaaS providers enable fintech platforms to more quickly and cost-effectively embed payments and financial services into their services.

“Mastercard sits at the heart of the PFaaS movement,” says Mark Barnett, Global Head of Small and Medium Enterprises at Mastercard. “We work closely with partners, providing the technology for platforms to help merchants accept secure, instant payments while also benefiting from financial tools to scale their business.”

Leveling the playing field

PayFacs are helping remove many of the structural disadvantages SMEs have traditionally faced, and PFaaS is now making it easier for technology platforms to offer a full suite of financial tools to small businesses.

Instead of relying on multiple disconnected providers, SMEs can access integrated tools that improve cash flow visibility, automate administrative tasks and unlock faster access to capital.

As these capabilities evolve, they are helping SMEs compete more effectively with larger enterprises — ensuring businesses are defined not by their size but by their ability to innovate and grow.