Choosing a payment processing provider has become more challenging in recent years, due to the growing number of providers in this space. By 2025, the global gross payment volume processed by payment facilitators is expected to reach over $4 trillion. In this increasingly crowded market, businesses must take a thoughtful approach to choosing the right provider.

Two common payment processing models that companies encounter are payment facilitators (payfacs) and independent sales organizations (ISOs). An ISO acts as a middleman, connecting a business to a bank for their own dedicated account, while a payfac allows businesses to process immediately under the payfac’s master account. Understanding the differences between these models and choosing the best approach can help businesses build a well-functioning payment system. Below, we’ll cover the differences between payfacs and ISOs, empowering businesses to make informed decisions about their payment processing solutions.

What’s in this article?

• What is a payment facilitator (payfac)?
  
• What is an independent sales organization (ISO)?
  
• ISO vs. payment processor vs. payfac
  
• What are the differences between ISOs and payfacs?
  
• Do I need an ISO or a payfac for my business?
  
• Is Stripe an ISO or a payfac?
  
• How Stripe Payments can help
  

What is a payment facilitator (payfac)?

A payment facilitator (payfac) is a company that simplifies the process of accepting electronic payments for other businesses. Payfacs often offer an all-in-one payment solution that includes payment processing, risk management, fraud detection and prevention, and merchant account services.

Payfacs eliminate the need for individual businesses to set up their own merchant accounts with a bank or a card network. Instead, a payfac aggregates many businesses under one master merchant account. Businesses that choose to work with a payfac are essentially submerchants under this master account.

There are several benefits to this model. Businesses do not have to spend time setting up a merchant account, making it particularly useful for smaller businesses that might lack the resources to go through this process. Generally, payfacs also offer straightforward fee structures, which can be helpful for new businesses or those with a lower transaction volume.

What is an independent sales organization (ISO)?

An ISO is a third-party company that is authorized to extend credit card processing services to businesses. ISOs work on behalf of banks and card networks to set up new merchant accounts, acting as an intermediary between these entities and businesses that want to accept card payments.

ISOs often provide a range of services, including equipment sales or leasing (for example, point-of-sale (POS) terminals), transaction processing, and customer service. Unlike payfacs, ISOs set up individual merchant accounts for each business they service. Well-known ISOs include takepayments, Retail Merchant Services (RMS), and United Trust Pay (UTP).

Generally, ISOs are better suited to larger businesses with high transaction volumes. Since ISOs set up individual merchant accounts for businesses they work with, these businesses often have more control over their agreement terms and may be able to negotiate lower rates than they would with a payfac.

ISO vs. payment processor vs. payfac

While ISOs and payfacs are both intermediaries that help businesses accept payments, they occupy different roles relative to the payment processor, which is the entity that provides the technical backbone for the entire system.

Here’s how they break down:

• ISO:
  An ISO focuses on selling and supporting payment services. They act as a bridge, setting up individual merchant accounts for businesses through their established relationships with banks and processors. In this model, the business receives its own dedicated merchant ID, while the ISO provides the ongoing service, sales support, and hardware.

• Payment processor:
  A payment processor provides the underlying technical infrastructure that authorizes, routes, and settles transactions. It is the engine that communicates between the merchant, the banks, and the card networks to ensure that funds move from the customer to the business.

• Payfac:
  A payfac sits between merchants and the processor, aggregating many businesses under a single master merchant account. By acting as the primary account holder, the payfac handles onboarding, risk, and compliance on behalf of its submerchants. This simplifies the acceptance process, allowing businesses to sign up and start processing almost instantly without needing their own dedicated MID.

What are the differences between ISOs and payfacs?

Here’s an overview of the key differences between ISOs and payfacs, broken down by how they operate and which services they provide:

Individual merchant accounts vs. subaccounts

• ISO: An ISO sets up individual merchant accounts for each business. For example, imagine a midsized clothing retailer that processes high volumes of credit card transactions monthly. By setting up its own merchant account via an ISO, the retailer can negotiate specific terms and rates, potentially saving money in the long run. However, the setup process might be complex and time-consuming.

• Payfac: A payfac operates under a master merchant account, and creates subaccounts for each business it services. For example, an artisan who sells handmade jewelry online may find the process of setting up their own merchant account daunting or unnecessary, given their lower transaction volume. By using a payfac, they can quickly and easily start accepting electronic payments without their own merchant account.

Target customer base and scope of services

• ISO: ISOs often provide a range of services that cater to the unique requirements of larger businesses or those with more complex needs. For example, if a large restaurant chain wants to integrate a new POS system across all its locations, an ISO might provide it with the necessary hardware, installation, training, and ongoing customer service support. While ISOs provide merchant account services, they may also facilitate the setup of a standalone payment gateway, which securely transmits data from the point of sale to the processing network.

• Payfac: Payfacs tend to be a more appropriate choice for smaller businesses or those with simpler needs, because they provide an all-in-one solution. For example, a freelance graphic designer who wants to accept payments on their website can sign up with a payfac and have access to an integrated payment system, without needing to understand the complexities of payment processing or risk management. Many payfacs include built-in payment gateways, which further simplifies the setup process.

Pricing models

• ISO: ISOs may have a more complex pricing structure, but fees can often be negotiated based on the business’s transaction volume. A large online bookstore, for example, might work with an ISO to negotiate a better per-transaction rate based on its high sales volume, which could result in significant cost savings over time.

• Payfac: Payfacs usually have a straightforward, flat-rate pricing structure. This benefits smaller businesses that have a lower transaction volume, since the cost breakdown is clear and there is no need to negotiate. For example, a small bakery that wants to sell its goods online may not have the transaction volume necessary to negotiate better rates. This type of business may find a payfac’s flat-rate pricing model more appealing.

While ISOs and payfacs both facilitate electronic payments for businesses, they cater to different needs. ISOs offer greater control and potential cost savings for larger businesses with high transaction volumes, while payfacs provide a simpler, all-in-one solution for smaller businesses or those with fewer needs. Some payfacs, however, are designed to work with businesses of all sizes, from small independent retailers to global platform businesses.

Do I need an ISO or a payfac for my business?

Modern payment providers are consistently innovating and incorporating new features for businesses across the SaaS, ecommerce, and retail spaces. Businesses should carefully consider their specific needs and circumstances to determine which option suits them best.

Here are some key factors to consider:

• Business size and transaction volume
  Evaluate the size of your business and the volume of transactions you expect to process. Larger businesses can benefit from an ISO’s flexibility and potential cost saving, while a payfac’s simplicity and convenience might suit smaller businesses better.
  

• Control and flexibility
  Determine the level of control and customization you require for your payment processing setup. ISOs offer more granularity in specific rates and terms, while payfacs are a streamlined, plug-and-play solution.

• Complexity of payment processing
  Consider the complexity of your business’s payment processing requirements. ISOs often offer a wider range of services beyond payment processing, such as equipment sales or leasing, additional software integrations, or dedicated customer support. However, if your needs are straightforward and you prioritize simplicity, a payfac can offer an all-in-one solution that covers the essentials.

• Setup time and effort
  Evaluate the time and effort required to set up and start accepting payments. ISOs typically have a more complicated setup process, since each business needs its own merchant account. This process can take longer and involve more paperwork. Payfacs offer a streamlined onboarding experience, allowing businesses to start accepting payments faster.

• Cost structure
  Consider the pricing models of ISOs and payfacs. ISOs often provide more flexibility in pricing, with the potential to negotiate rates based on transaction volume. Payfacs generally offer more straightforward and transparent pricing structures.

• Risk and liability
  Evaluate the distribution of financial risk and the depth of the underwriting process required for your business. ISOs typically have more rigorous underwriting and credit check obligations, while payfacs provide faster onboarding and assume more risk.

While these guidelines are helpful when comparing payfacs and ISOs, they are not true in every case. For example, in some ways Stripe is closer to the payfac model, offering easy, out-of-the-box solutions for businesses with straightforward requirements. Yet Stripe also offers an extensive degree of customization for businesses with complex needs or high transaction volumes. It’s important to look at each potential provider to see what they offer and how they support businesses, and then decide which one is the best fit.

Is Stripe an ISO or a payfac?

Stripe is a payfac and payments provider that offers a comprehensive suite of services for businesses of all sizes. When businesses sign up with Stripe, they become submerchants under Stripe’s master merchant account. This means that they do not need to set up their own individual merchant accounts with banks or card associations.

How Stripe’s payfac model simplifies onboarding and compliance

Stripe's payfac model allows businesses to quickly and easily start accepting electronic payments without working through the complex, lengthy process to set up a merchant account. By aggregating businesses under its master account, Stripe handles the technical aspects of payment processing, risk management, and compliance, making it convenient for businesses to integrate payment capabilities into their platforms or websites.

Beyond a traditional payfac: Stripe’s expanded product ecosystem

Stripe also offers additional features and services beyond payment processing, such as tools for managing subscriptions, processing international payments, preventing fraud, and accessing detailed analytics and reporting. Stripe’s user-friendly interface, developer-friendly APIs, and extensive documentation make it an appealing choice for many businesses and industries. The variety of Stripe solutions, the degree of customization it offers, and its unified approach to operations and reporting go beyond what is typically thought of as the payfac model.

A simpler approach and comprehensive suite of services makes Stripe a popular choice for startups, small businesses, and larger enterprises.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business—from scaling startups to global enterprises—accept payments online, in person, and around the world.

Stripe Payments can help you:

• Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods, and Link, a wallet built by Stripe.
  
• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.
  
• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalize interactions, reward loyalty, and grow revenue.
  
• Improve payments performance: Increase revenue with a range of customizable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorization rates.
  
• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% historical uptime and industry-leading reliability.
  

Learn more about how Stripe Payments can power your online and in-person payments, or get started today.