What is a PayFac? — Understanding the Differences with ISOs

What is a PayFac? -- Understanding the Differences with ISOs

A Payment Facilitator, or PayFac, is a company that provides payment processing services to merchants looking to accept credit and debit cards. PayFacs work under one or more payment processors, operating in a layer of the industry between processors and merchants. They offer merchants a variety of services, including merchant accounts, ongoing support, payment hardware and software, and more. 

You may be looking at that description and thinking, “Isn’t that an independent sales organization?” There are many similarities between PayFacs and ISOs, and the two types of companies operate in the same space within the industry and compete directly with each other for merchants. However, PayFacs are a distinct type of business, different from ISOs, and the differences are significant. 


How are PayFacs Similar to ISOs?

First, let’s start with the similarities. From a merchant’s perspective, ISOs and PayFacs are very similar, at least on a practical level, because the two types of companies fill the same need and offer nearly identical services. 

Filling the Middle

Both ISOs and PayFacs act as a middle layer in the payments ecosystem that sits between payment processors and end merchants. In both cases, the existence of that layer allows payment processors to access far more merchants than they could if they were forced to handle marketing, sales, and ongoing support on their own. However, there are some key differences in how ISOs and PayFacs interact with processors that we’ll delve into more in a later section. 

Services Offered

Payment facilitators offer effectively the exact same services independent sales organizations do. A PayFac’s core offering is credit and debit card transaction processing, both online and in-store, and they provide merchants with access to special accounts that enable them to accept both types of electronic payments. Payment facilitators also offer ongoing customer service and support, and a host of value-added features like hardware, gateways, and more, just like ISOs. 


How are PayFacs Different from ISOs?

The similarities between PayFacs and ISOs are large-scale in nature, making the two seem almost identical on the surface. But when you get into the details, the differences start to emerge, and those differences are extremely significant — if not for merchants, for the companies themselves and their processing partners. 


To start with, PayFacs operate on a very different partnership model than ISOs. They still partner with payment processors, but while ISOs are primarily middlemen that pass merchants through to their partners, PayFacs actually sign their own merchants in-house and process all of their transactions internally. When an ISO’s merchant makes a sale, the ISO has effectively nothing to do with the processing itself. When a PayFac’s merchant makes a sale, the PayFac processes the sale themselves, with all of their merchants’ transactions being handled in aggregate. 


As pass-throughs, ISOs don’t actually have to be involved in a merchant’s processing agreement at all. In many cases, merchants sign contracts directly with the payment processor, and the ISO merely acts as an intermediary that receives compensation in exchange for recruiting and ongoing service. ISOs also can’t sign merchants to a contract without a payment processor involved. PayFacs, on the other hand, have a stand-alone contract with their processing partner and can sign merchants to their own contracts directly, with no connection between the merchant and the processor. 

Underwriting Responsibility

Since PayFacs sign their own merchants directly, with no relationship between the merchant and the processor, the PayFac is entirely responsible for the underwriting process. That represents a lot of work and a lot of risk that independent sales organizations — even wholesale ISOs– don’t have exposure to, and PayFacs often earn a larger portion of the transaction fee as a result. 


Payment facilitators also take on complete responsibility for boarding merchants. When an ISO boards a merchant, they forward the key data and merchant processing agreement to one of their processing partners, who then handle the rest from there. Because PayFacs are boarding merchants to their own aggregate processing systems, they don’t pass off MPAs, but instead, handle them internally. Sole responsibility for boarding gives PayFacs a level of freedom ISOs don’t enjoy, but also introduces more risk and logistical issues that ISOs don’t need to worry about. 


While a payment facilitator’s responsibility for things like onboarding and underwriting may differ significantly from an independent sales organization’s, PayFacs and ISOs can still utilize many of the same modern payments systems to streamline and enhance their businesses — including customer resource management software. 

PayFacs looking to get an edge on ISOs and other payment facilitators need to look no further than IRIS CRM, the payments industry’s top customer resource management (CRM) platform. IRIS CRM offers PayFacs the ability to automate and improve many of their most important tasks — like lead management, sales calling, underwriting, agent payouts, customer service, and more — while eliminating wasted time and resources. 

To find out more about everything IRIS CRM can do for your PayFac, schedule a free guided demonstration of the system today.

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