The right payment processing model can make or break your business’s ability to scale, monetize, and deliver value to your customers. As technology evolves, companies in every vertical — from retail to SaaS to healthcare — have multiple options to accept and embed payments into their platforms.
Three popular models are partnerships with independent software vendors (ISVs), independent sales organizations (ISOs), and payment facilitators (PayFacs). But how can you decide which is the right fit for your needs?
This blog outlines the differences between ISVs, ISOs, and PayFacs to help you make an informed decision.
Key takeaways
- ISVs, ISOs, and PayFacs each play distinct roles in enabling businesses to accept and manage payments efficiently.
- Depending on a company’s goals, partnering with an ISV, ISO, or PayFac can offer unique advantages in cost, control, and scalability.
- The best-fit model ultimately depends on a business’s resources, growth strategy, and desired outcomes from the payment experience.
Understanding ISVs, ISOs, and PayFacs
As embedded payments become central to digital platforms’ growth strategies, it’s important to understand the distinct roles of ISVs, PayFacs, and ISOs in the modern payment ecosystem.
ISV (independent software vendor)
ISVs develop specialized software solutions for specific industries or business functions. For example, an ISV might offer software that automates rent collection for property managers or manages scheduling and billing for medical offices.
ISVs can embed payments directly into their software by partnering with payment processors or payment facilitators (PayFacs). This helps ISVs reach new markets and allows businesses to reduce complexity by managing back-end operations and payment acceptance within a single platform.
ISVs typically monetize payments through revenue sharing while outsourcing payment facilitation, underwriting, and compliance responsibilities to their processor or PayFac partners.
ISO (independent sales organization)
An ISO is a third-party company that partners with acquiring banks to resell and support payment processing services and merchant accounts for businesses. Registered ISOs act as the intermediary between merchants and the financial institutions that process electronic payments.
Unlike a PayFac, an ISO does not act as the merchant of record. Instead, ISOs operate under sponsorship from acquiring banks to source, underwrite, and manage relationships with individual merchants that need their own merchant identification numbers (MIDs) and accounts.
In addition to helping businesses set up merchant accounts, many ISOs also provide value-added services such as fraud prevention, payment processing equipment, and hands-on customer support.
PayFac (payment facilitator)
A payment facilitators, or PayFac, holds a master merchant account with a sponsoring bank and extends that access to multiple sub-merchants. This model enables software platforms and businesses to accept payments without each merchant needing their own MID or direct bank relationship.
As the merchant of record with the sponsoring bank, the PayFac manages onboarding, underwriting, compliance, risk management, and settlements on behalf of its sub-merchants. In doing so, it simplifies payment acceptance and reduces operational complexity for businesses.
ISV vs. ISO vs. PayFac: What sets them apart
While ISVs, ISOs, and PayFacs all support businesses in offering seamless payment experiences, they differ in focus, ownership, and operational responsibility.
ISVs:
- Primarily focus on software development, product innovation, and user experience
- Usually specialize in developing platforms for a specific industry
- Typically integrate with established payment processors or gateways to offer embedded financial experiences within their software
- Rely on payment partners for key functions such as risk management, compliance, and merchant onboarding, allowing them to focus on enhancing their software
ISOs:
- Operate as payment resellers and merchant advocates
- Help businesses connect with payment providers, secure merchant accounts, and select the right processing tools for their needs
- Don’t build software or embed payments directly into business platforms, unlike ISVs and PayFacs
- Connect merchants and acquiring banks by managing the relationships and assisting with account setup, but do not act as the merchant of record
PayFacs:
- Take full ownership of the payment process by acting as merchant of record for their sub-merchants
- Partner with sponsoring banks to aggregate and manage payment processing under a master merchant account
- Manage every stage of payment facilitation, including merchant onboarding, underwriting, compliance, risk management, and settlement
- Can capture more revenue and exert control over the payment experience, but they also maintain greater regulatory responsibility
Where ISVs, ISOs, and PayFacs overlap
ISVs, ISOs, and PayFacs serve different functions within the payments ecosystem. However, their roles often intersect as technology and business models evolve.
- Shared goal: All three models help businesses accept payments more efficiently and improve the merchant and customer experience.
- Partnership synergy: ISVs frequently partner with ISOs or PayFacs to embed payment capabilities into their software, while ISOs may collaborate with ISVs to reach merchants in specialized industries.
- Shifting roles: As embedded payments evolve, many ISVs are now turning to PayFac-as-a-Service solutions to quickly embed payments and capture payment revenue without becoming full PayFacs themselves. Likewise, some PayFacs are expanding into software development, creating end-to-end platforms that resemble ISV ecosystems.
How to choose between ISV, ISO, and PayFac models
Deciding to work with an ISV, ISO, or PayFac is a strategic choice.
Your business goals, resources, and partnership needs play a role in determining which model best aligns with your long-term growth strategy. In some cases, businesses may work with more than one type of partner or shift between models as their payment needs evolve.
When to choose the ISV or ISO model
Business type and goals
- ISV: Ideal for businesses that want to simplify operations by combining business management and payments in one software.
- ISO: Best for businesses that want hands-on support setting up and managing merchant accounts and guidance on securing favorable processing terms.
Resources and infrastructure
- ISV: A good option for businesses that want to minimize handling technical infrastructure in-house. The ISV handles the integration and ongoing maintenance of payment technology in partnership with a payment provider.
- ISO: A good choice for businesses that want access to expertise and infrastructure for onboarding, compliance, and customer support but don’t mind taking on more operational coordination.
Compliance and risk management
- ISV: Best for businesses that want built-in compliance and security. Because payment processing is embedded directly into the software, ISVs typically handle PCI compliance, data protection, and other regulatory requirements on behalf of users.
- ISO: A better fit for merchants that prefer direct oversight and personalized guidance. ISOs offer one-on-one support through onboarding and compliance processes, though merchants remain more involved in meeting regulatory standards.
Time to market
- ISV: Ideal for companies that need to launch quickly. Payment capabilities are already integrated into the platform, minimizing setup time and allowing transactions to begin almost immediately.
- ISO: Suited to businesses that don’t mind a longer setup period in exchange for tailored support. Because ISOs coordinate between merchants and processors, onboarding can take more time but often results in a more customized configuration.
Cost considerations
- ISV: A good choice for businesses that value operational efficiency and simplicity over the lowest per-transaction rate. Bundled or subscription pricing combines software and payments, streamlining management and reducing administrative overhead.
- ISO: More cost-effective for high-volume or cost-sensitive merchants. Transaction-based pricing allows larger businesses to negotiate favorable rates, while smaller merchants with straightforward needs can keep costs predictable without paying for full software integration.
When to choose the PayFac model
Business types and goals
Partnering with a PayFac is ideal for new or smaller businesses with lower transaction volumes, as well as platforms or marketplaces that want to begin accepting payments quickly without the need to open and manage individual merchant accounts.
Resources and infrastructure
Businesses operate as sub-merchants under a PayFac’s master merchant account, eliminating the need to establish separate accounts. This makes PayFac partnerships beneficial for businesses seeking streamlined onboarding and reduced administrative overhead.
Compliance and risk management
A PayFac model makes sense for businesses looking to simplify compliance and risk oversight. By acting as the merchant of record, the PayFac handles underwriting, chargebacks, disputes, and regulatory obligations, freeing businesses to concentrate on scaling their core operations.
Time to market
A PayFac model suits businesses that need to get to market fast. With the PayFac managing onboarding and approvals, merchants can begin accepting electronic payments right away without the delays typical of traditional merchant account setups.
Cost considerations
PayFacs often charge a simple flat rate per transaction, which can be higher than traditional processor fees. However, they offer value through faster onboarding and simplified payment management, especially for smaller businesses that may not process enough volume to justify opening their own merchant account.
Partner with Priority
Whether you choose to partner with an ISV, ISO, or PayFac, each path offers opportunities to unlock new revenue and deliver seamless, embedded financial experiences for your users.
As a leading fintech, Priority provides the infrastructure that powers all three models. We help merchants and SMBs simplify payments while also enabling ISVs and ISOs to embed and scale payment capabilities within their own platforms.
With our suite of merchant services, you can manage payments, track sales, and streamline operations in one place, allowing your business to focus on what matters most: your customers.
Ready to take control of your payment processing? Get in touch to learn how Priority can help.
