Independent sales organizations (ISOs) and payment facilitators (PayFacs) both act as intermediaries between merchants and payment processors, making them parallel channels in the overall payments ecosystem. However, despite their high-level similarities, there are some major operational differences between how ISOs and PayFacs operate. These include the responsibilities they carry out, their relationships with payment processors, the risk they take on, the technology they utilize, and more. The differences are important to understand, both for merchants looking to engage a partner for processing services, and for new entrants to the payments industry trying to decide which organizational form is right for them. 


One major difference between ISOs and payment facilitators is who the merchant is contractually linked to. In the case of ISOs, the merchant’s contract must include the payment processor whose services they’re using. The ISO can be included in the contract as a third party, but it isn’t necessary, and many ISOs choose not to be a part of the merchant’s agreement, opting instead to deal only with the processor once a merchant has been signed. 

PayFacs, on the other hand, are often solely responsible for their sub-merchant portfolio. Merchants enter into an agreement directly with the PayFac, completely separate from the PayFac’s agreement with their payment processing partner. The processor can be a party to the contract between a merchant and a PayFac, but it is not a requirement. Having a two-party agreement with their merchants offers PayFacs a level of portability and control over their portfolios that goes beyond what most ISOs enjoy.


Because of the greater level of ownership they have over their merchants, PayFacs take on a variety of responsibilities that most ISOs don’t. Merchants apply directly to PayFacs, making the PayFac responsible for the entire application and onboarding process, in contrast to ISOs, who generally pass merchant information on through their processing partners’ boarding portals and are hands-off from there. PayFacs are also responsible for most, if not all of the underwriting required for each merchant – something only wholesale ISOs take on, and even then, generally as a shared responsibility with the processor. 


Handing off underwriting, whether to a wholesale ISO or a PayFac, means payment processors are trusting a third-party to perform consistent and thorough due diligence on merchants. The additional risk that creates isn’t something most processors are willing to absorb, so a greater level of responsibility for losses must be accepted by the PayFac or ISO. In the case of PayFacs, that responsibility could be 100%. There are benefits to taking on that risk, like greater flexibility and portfolio control, but there are costs as well. PayFacs need to be extremely diligent with their underwriting – even more so than wholesale ISOs – and that means both more frequent risk analysis and more robust, and therefore costly, underwriting departments. In contrast, retail ISOs generally have zero responsibility for underwriting and little to no responsibility for merchant losses beyond the loss of their own residuals on fraudulent sales. 

Processor Relationships

ISOs act primarily as resellers, and the more products they have to resell, the more options they can offer to merchants, the more flexibility they have with applications, the more rates they have access to, and on and on. Access to a wider range of products requires more partners, and, as a result, most top ISOs have relationships with half a dozen payment processors or more. PayFacs are the exact opposite. Because they process all their sub-merchants’ transactions centrally in aggregate, there is no benefit to having a large number of partners. Most PayFacs have no more than two processing partners, and many work with only one in order to keep their operations as simple and streamlined as possible. 


A major difference between PayFacs and ISOs is how funding is handled. Sub-merchants operating under a PayFac do not have their own MIDs, and all transactions are processed through the facilitator’s master merchant account. Aggregate processing means the funds from transactions are paid out to the PayFac first, who then distribute them to merchants, in essence acting as the funding organization as far as the merchant is concerned. ISOs, on the other hand, never touch a merchant’s money, which passes directly from the payment processor to the receiving merchant account. 


There are certain activities performed by PayFacs that require them to engage technology solutions ISOs don’t have to worry about. Application and boarding, for instance, requires PayFacs to develop their own in-house systems to perform a task that ISOs pass on to the processor. ISOs often have to build their own in-house systems to connect with their processing partners’ boarding portals, but those are less complex projects than building an entire boarding system in-house. 

There are also some common technologies that both ISOs and PayFacs use to generate competitive advantage, cut costs, and improve merchant acquisition. One of the most popular and impactful of those shared technologies is customer resource management software – platforms that offer the prospecting, sales, and service delivery tools ISOs and PayFacs need to stand out in a crowded and competitive industry. IRIS CRM, the payments industry’s top CRM, includes advanced lead management tools, an automated onboarding system, integrated portfolio-wide reporting, automatic residuals calculations, a built-in power dialer, a helpdesk, and much more. 

To find out how customer resource management can help your ISO or PayFac take your merchant acquisition to the next level while saving you time on your most frequent daily tasks, schedule your free demonstration of IRIS CRM today.