June 12, 2020
Written by
James Davis
Written by James Davis
Senior Technical Writer at United Thinkers

Author of the Paylosophy blog, a veteran writer, and a stock analyst with extensive knowledge and experience in the financial services industry that allows me to cover the latest payment industry news, developments, and insights. Read more

Reviewed by
Kathrine Pensatori
Product Specialist at United Thinkers

Product specialist with more than 10 years of experience in the Payment Processing Industry. I help payment facilitators and PSPs solve their various payment processing issues. Read more

Payment Facilitator model for SaaS, ISOs, and ISV

Payment facilitator model is becoming increasingly popular among many types of companies. These include SaaS providers, investment firms, franchise owners, online marketplaces, and others. Thanks to its flexibility and profitability, PayFac model seems to perfectly adjust to the present-day market requirements. However, other models of merchant and referral services provision still remain relevant. We ae talking about value-added reseller (VAR), independent software vendor (ISV), and several kinds of ISO modifications.

Key alternatives to payment facilitator model

Within the payment industry, VAR model emerged as the product of ISO evolution. Beside simply reselling merchant accounts and serviced (as ordinary ISOs do), VARs provided consulting services, technical support, and even hardware solutions. This made them more viable and attractive option than traditional ISOs.


An independent software vendor (or ISV), usually, focuses on the technical side of electronic payment acceptance process and merchant solution provision. It does not participate in merchant underwriting and other merchant-specific tasks itself. However, it surely knows how to organize them smoothly from software perspective. An ISV, usually, has an option of getting underwritten as a regular payment facilitator by an authorized acquiring bank.

For a traditional ISO the only option to stay afloat in the present-day market situation is to become something else. The types of new entities an ordinary ISO can turn into include a PayFac, a wholesale ISO, a next-generation ISO, or a merchant services consultant.

Can an ISO survive without becoming a PayFac?

Becoming a PayFac (i.e. implementation of a payment facilitator model) calls for getting certified as one by the respective acquirer, and for implementation of a technical solution. Both these steps are costly and unacceptable for many ISOs.

Becoming a wholesale ISO is an option for companies with large merchant portfolios, especially, those including different high-risk merchant types. Wholesale ISO’s revenues come from diversification of customer base and large numbers of merchants they service. Additionally, a high-risk merchant, working under the umbrella of a wholesale ISO, is better protected against high chargeback rates, because these rates are calculated as average across the whole ISO’s portfolio members.

A next-generation ISO is, technically, a kind of a value-added reseller, because, in addition to merchant services, it, usually, offers an original merchant technology, and knows a lot about integration and certification processes.

If an ISO is a market expert, it can switch to merchant services consultancy mode. This step does not require any investments and allows the ISO to benefit from the expertise it already has.

So, yes, there is some light at the end of the tunnel for ISOs. Moreover, there are several “tunnels” they can successfully follow.

Learn more about different referral and merchant services models (payment facilitator model incuded) from the respective article on Paylosophy.

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