Insights

When a software company decides to integrate payments, one of the first strategic questions is whether to become a Payment Facilitator, commonly called a PayFac, or work with a payment provider as an Independent Software Vendor, or ISV.

The right answer depends on how much control the software company wants over payments, how much responsibility it is prepared to assume, and how central payments will become to its business model.

Becoming a PayFac can provide greater control over the payment experience and merchant relationship, but it also introduces responsibilities that extend well beyond building an integration.

An ISV model allows a software company to offer integrated payments while relying on an experienced payment provider for much of the underwriting, compliance, risk management, and payment infrastructure.

PayFac vs ISV: Start With the Business Objective

Before discussing APIs, revenue share, or technical architecture, start with a simpler question:

What does the software company actually want from payments?

Some platforms primarily want to improve the customer experience. Their merchants already need payment acceptance, so integrating payments removes friction and makes the software more valuable.

Others see payments as a major future revenue stream and want greater control over merchant onboarding, pricing, payment functionality, and the overall customer relationship.

Those are very different objectives.

The amount of control a company wants should be weighed against the operational responsibility it is prepared to accept.

This is where the PayFac vs ISV decision begins.

What Does the ISV Model Look Like?

Under an ISV partnership, the software company integrates payment capabilities into its platform while a payment provider manages much of the underlying payments infrastructure.

The merchant still receives an integrated experience through the software, but responsibilities such as merchant underwriting and ongoing payment risk remain largely with the payments provider, depending on how the program is structured.

This can allow the software company to concentrate on its core product.

For many platforms, that is an attractive trade-off. They can create a better payment experience, participate economically in the payments generated through their software, and strengthen their relationship with customers without building an entire payments organization internally.

It can also provide a faster path to market than developing the operational capabilities required for a more complex model.

What Changes When You Become a PayFac?

A Payment Facilitator takes a more active role in providing payment services to businesses operating through its platform.

That additional control can be valuable.

A software company may want greater influence over onboarding, the merchant experience, payment economics and how payments are presented within its product.

But becoming a PayFac is not simply a different commercial agreement.

Payments now become a much more significant operational responsibility.

Risk management, compliance, merchant monitoring, onboarding processes, fraud controls, operational procedures and financial obligations all become more important parts of the software company’s business.

For a platform accustomed to building software, that can represent a significant change.

The question is therefore not simply whether becoming a PayFac offers more control. It is whether the business is prepared to operate the infrastructure and processes that come with that control.

Revenue Should Not Be the Only Reason to Choose a Model

Payments can create a meaningful new revenue stream for software companies.

But evaluating a PayFac strategy solely through projected payment revenue can lead to an incomplete business case.

The software company should also consider the resources required to support the model, including internal payments expertise, compliance, risk operations, customer support, technology development and ongoing program management.

An ISV structure may produce different economics, but it can also allow the company to rely more heavily on its payment partner’s existing capabilities.

The better comparison is not simply which model generates more payment revenue.

It is which model creates the strongest return after considering the responsibilities, investment and operational complexity required to support it.

Merchant Onboarding Is a Major Part of the Decision

For software companies, payments are ultimately part of the customer experience. That makes merchant onboarding particularly important.

How quickly can a new customer apply for payments? What information needs to be provided? What happens when underwriting requires additional documentation? Who communicates with the merchant? How are exceptions handled?

Under an ISV model, much of that process may depend on the payment partner.

Under a PayFac structure, the software company can have greater influence over the experience, but it also assumes additional responsibility for ensuring the process operates correctly.

Neither approach automatically produces a better experience.

A well-designed ISV program can provide efficient onboarding and strong support. A poorly designed PayFac program can create significant friction despite offering more control.

Consider What Happens After the Integration Goes Live

It is easy to focus on launching payments. The more important question is what happens afterward.

A successful software platform may expand into new industries, add thousands of customers, introduce card-present payments after initially supporting e-commerce or enter new geographic markets.

Merchant profiles may also become more complex as the platform grows. The payments model selected today needs to support where the software company intends to go tomorrow.

Understanding the platform’s customer base, current payment volume, growth plans, verticals served, payment channels and future product strategy can help determine what type of payments relationship makes sense.

The best solution may also change over time.

The Payments Partner Matters Under Either Model

Choosing between PayFac and ISV is only part of the decision.

The capabilities of the underlying payment partner can have just as much impact on the program’s success.

Software companies should understand how a prospective partner approaches technical integration, merchant underwriting, onboarding, reporting, support, risk management and future product development.

An experienced payments partner can help the software company define its requirements and identify potential operational challenges before development begins.

That moves the conversation away from selling merchant accounts and toward building a payments strategy.

Choosing the Model That Fits the Platform

There is no universal answer to the PayFac vs ISV question.

For some software companies, greater control over payments may justify the investment and responsibility associated with a PayFac model.

For others, an ISV partnership can deliver the integrated experience and additional revenue they want without requiring the organization to take on responsibilities that sit outside its core expertise.

What matters is making the decision based on the platform’s actual objectives rather than assuming that becoming a PayFac is automatically the more advanced option.

At KORT Payments, we work with ISOs, agents, and software companies to evaluate integrated payment opportunities and determine the structure that best fits the platform. That includes understanding the software company’s customer base, payment requirements, technical needs and long-term objectives before determining how the payments program should be built.

The goal is not to choose the most complex model. It is to choose the model that allows the software company and its payments partners to grow successfully together.