Developers who build and sell software platforms that handle credit card and debit card payments must partner with a payment processor or payment gateway to facilitate payments for their merchant-clients through the payment processor's API. There are a few types of payment models that such software companies can use to accomplish this. This article will describe the advantages and disadvantages of the PayFac, Payments-as-a-Service, and ISO models, and explain which provides more control over the client payment experience with minimal risk and investment.

An Independent Software Vendor (ISV) is a company that builds software which is sold to large customer bases, as opposed to software that is developed internally within a company and is not used or sold elsewhere. ISVs may staff their own Sales Agents or work with an Independent Sales Organization (ISO) like North to expand the distribution of their software.

Payment facilitators, or PayFacs, enable merchants to make credit card and debit card payments by acting as an intermediary between the payment processor and the merchant. PayFacs are responsible for underwriting and onboarding processes, meeting U.S. government-mandated Know Your Customer (KYC) requirements, and performing ongoing merchant monitoring to maintain compliance with Payment Card Industry (PCI) regulations after merchants are boarded.

Payments-as-a-Service is another related model, which can be thought of as a sub-PayFac structure where ISVs operate under a traditional PayFac. For software companies that just need to take payments, this setup enables you to get started quickly, since the PayFac owns the risk, infrastructure development, and other hefty responsibilities. However, the major drawback is that, in general, costing structures are higher and revenue share is lower, so this model typically doesn’t add much to a business’s bottom line. What’s more, PayFacs typically don’t view those engaging in this Payments-as-a-Service setup from a partnership perspective, meaning there’s less attention to the unique needs of the ISV and more difficulty implementing solutions to support those needs.

While both Independent Sales Organizations (ISOs) and Payment Facilitators (PayFacs) help merchants accept payments, their operational models differ significantly. ISOs act as sales agents for payment processors, helping to board merchants onto the processor's platform through streamlined onboarding processes. In the ISO model, the processor handles the master merchant account, underwriting, risk management, and compliance.

PayFacs, on the other hand, operate under their own master merchant account and take on significantly more responsibility. They must handle merchant onboarding processes, underwriting, risk management, and ongoing compliance monitoring. PayFacs have more control over the payment system and can integrate payments more deeply into their software platforms, but they also bear greater liability and operational costs as master merchants.

For ISVs evaluating which model to pursue, the choice often comes down to the desired level of control over the payment experience versus the willingness to take on additional responsibility and cost. Many ISVs find that integrating payment capabilities through an established payment gateway or processor allows them to offer integrated payments to their customers without the complexity of becoming a full PayFac.

Payment companies that have a focus on ISV partnerships can provide specialized services and benefits that are designed to meet the unique needs of the ISV business model. These types of payment companies will go the extra mile to support partners in niche or high-risk sectors, such as Telemedicine and CBD.

One advantage you'll likely get from partnering with a payment company that's well-established in the industry is dedicated customer support for ISVs, Sales Partners, and their merchants. For example, North has separate teams in place that provide support specific to the needs of each group — plus North's Sales Engineering team works one-on-one with ISVs to make the initial integration process as smooth as possible.

In addition to getting support from industry experts, payment companies often provide access to a wide variety of payment methodologies, including extensive hardware selections for in-person payments and cutting-edge card-not-present products. They may even have the infrastructure in place to handle L3 data, which can save your merchants money on card network fees.

What's more, some payment companies, such as North, do their own in-house processing, which allows you to partner directly with your credit card processor. With most processors, ISVs would never be in direct contact, but cutting out intermediaries gives North greater agility to develop customized solutions for ISV partners quickly. For example, ISV partners can request customizations to North's payment gateway and API products to support a specific need, and because there are no logistical delays between North and the processor, the development work can be completed in a short timeframe.

The benefit of working with a payment company that specializes in ISV support is evident in the way the business views its partnerships. The best payment company partners are those that want to be flexible in terms of how the partnership works. They take time to learn about the ISVs’ specific needs and invest resources in developing solutions to support them.

For example, North's Merchant Boarding API passes merchant boarding data to ISVs for use within their own dashboards. For ISVs who don’t want to build out and maintain their own dashboards, North also offers full access to whitelabeled versions of a merchant-facing enrollment portal, which is an entry point for merchants to submit their own application data, as well as the Payments Hub Partner Portal, which enables Sales Partners to manage the large numbers of merchant applications and merchant accounts issued. North provides services like these to enable ISVs to take ownership of their users’ experiences without having to take on the responsibility and expense of running a payments company.