In the payments industry, understanding your role is essential for long-term success. Businesses typically follow one of three main paths: independent sales organizations (ISOs), payment facilitators (PayFacs) or software developers. Each of these payment industry roles offers unique opportunities, responsibilities and levels of control.
- ISOs act as sales partners. They connect merchants with payment processing services to build merchant relationships and earn residual income from transaction fees
- PayFacs operate as full payment facilitators, allowing them to onboard merchants directly and control the entire payment experience. Although this path comes with greater revenue potential, it also has higher regulatory responsibility. PayFacs also bear significantly more financial and compliance risk. By managing sub-merchants directly, they assume liability for underwriting, fraud prevention, charge-back handling and adherence to stringent regulations — responsibilities that a traditional ISO might delegate to a processing partner
- Software Developers build and integrate payment solutions into their platforms. They offer embedded payments as part of a broader software service. This model enables developers to add payments as a value-added feature
While many businesses follow these main paths, some operate at a smaller scale as independent agents rather than full-fledged ISOs. Agents often focus on sales and relationships, earning residuals but with fewer overhead responsibilities. ISOs, in contrast, handle a broader scope of operations and often manage compliance and technology more directly.
Decide your path based on your business model, goals and appetite for operational control. Do you prioritize simplicity, revenue growth or product integration? Knowing your role allows you to align your business strategy with industry demands.
The Role of an Independent Sales Organization
An ISO bridges the gap between payment processors and merchants. ISOs connect businesses with payment processing services by handling various tasks. The most common tasks are merchant acquisition, onboarding and ongoing support. By helping merchants set up payment systems, ISOs earn residual income from transaction fees.
For ISOs, growth opportunities include expanding their merchant base, offering value-added services and diversifying revenue streams. To succeed as an ISO, you need strong sales, relationship management skills and a deep understanding of ISO payment solutions.
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What is an ISO?
ISOs help merchants access payment solutions, such as credit card processing, point-of-sale (POS) systems and payment gateways. By partnering with payment processors, ISOs enable businesses to accept customer payments. Here are a few ways ISOs play a key role in the payments ecosystem:
- Connecting Merchants to Payment Processors: ISOs set merchants up with the payment services they need to accept credit cards, debit cards and other payment methods
- Providing Merchant Support: ISOs assist with onboarding, troubleshooting and customer service to ensure merchants have a positive payment experience
- Earning Residual Income: ISOs earn a share of transaction fees for every payment their merchants process
With this role, ISOs help businesses access secure, efficient payment tools. All the while, they help build a reliable source of ongoing revenue.
An ISO’s Key Responsibilities and Opportunities
An ISO’s role comes with both essential responsibilities and significant growth potential. ISOs play a hands-on role in ensuring merchants have what they need for payment processing. At the same time, they position themselves for long-term revenue growth.
The core responsibilities of an ISO include:
- Business Growth Strategy: ISOs identify opportunities to attract high-quality merchants that drive consistent, long-term revenue
- Technology Enablement: ISOs facilitate access to payment technology, such as payment gateways, POS systems and ecommerce integrations
- Compliance Oversight: ISOs help ensure merchants meet industry standards like the Payment Card Industry Data Security Standard (PCI DSS), reducing the risk of fines and service disruptions
These responsibilities provide many growth opportunities for ISOs as well, including:
- Revenue Expansion: ISOs can increase their earning potential by supporting merchants in high-volume industries or offering custom payment solutions
- Merchant Retention: Offering tools like analytics dashboards, fraud detection or payment insights helps ISOs stand out and retain merchants longer
- Broader Market Reach: By partnering with multiple payment providers, ISOs can tap into new markets, diversify their merchant base and reduce dependency on a single processor
For ISOs, growth comes from more than just signing new merchants. If you operate as an independent agent rather than a full ISO, many of these growth strategies still apply: improving your service offerings (like consulting or better support), collaborating with larger ISOs or processors for compliance resources, and enhancing your technology stack. By improving their service offerings, supporting compliance and leveraging payment technology, ISOs can create steady, scalable revenue streams.
The Path of a Payment Facilitator (PayFac)
What is a PayFac?
A PayFac enables other merchants to process payments under a single master account. Instead of requiring each merchant to set up their own account, a PayFac allows sub-merchants to be onboarded quickly under its umbrella. This model simplifies payment processing while giving the PayFac more control over the risk, compliance and payment operations. Here are the basics of the PayFac path:
- Master Account Model: PayFacs create a single master merchant account. That allows them to onboard sub-merchants under that account instead of opening individual merchant accounts
- Faster Merchant Onboarding: PayFacs can approve sub-merchants and begin processing payments quickly, often within hours, thanks to the PayFac’s streamlined onboarding process
- Control Over Payment Flow: PayFacs manage payment acceptance, settlement and risk for their sub-merchants, giving them greater oversight of payment operations
This model creates a more seamless experience for sub-merchants. At the same time, it increases the PayFac’s control, revenue potential and influence within the industry.
A PayFac’s Key Responsibilities and Opportunities
Unlike ISOs, PayFacs manage critical aspects of payments directly. This added responsibility allows PayFacs to streamline the payment experience for sub-merchants and open up new revenue opportunities.
A PayFac’s responsibilities include:
- Compliance Management: PayFacs ensure sub-merchants follow industry regulations. This helps them protect payment data and avoid regulatory penalties
- Risk Management: PayFacs assess and monitor sub-merchant activity. They reduce exposure to financial loss by looking for signs of fraud, charge-backs or unusual transaction patterns
- Onboarding and Underwriting: PayFacs handle sub-merchant onboarding. This process involves performing risk assessments and streamlining approvals so merchants can start processing payments quickly
- Payment Processing and Settlement: PayFacs oversee the payment flow from acceptance to settlement, ensuring sub-merchants receive timely payouts
There are plenty of growth opportunities for PayFacs, such as:
- Scale Operations: As a PayFac grows its sub-merchant base, it generates more revenue from processing fees. This creates a scalable income stream
- Expand Into New Markets: Supporting sub-merchants in new industries or geographic regions helps PayFacs diversify their revenue. It also reduces their reliance on specific markets
- Offer Value-Added Services: PayFacs can increase revenue by offering additional services like reporting tools, fraud prevention and payment analytics
PayFacs are well-positioned for growth due to their control over the payment process and their ability to scale quickly.
Still, with greater control comes greater exposure. PayFacs must manage sub-merchant underwriting, regulatory compliance and charge-back disputes in-house. While this comprehensive control can yield higher revenue share, it also brings heightened financial and operational risks. Balancing these factors is critical to long-term PayFac success.
Becoming a Payment-Enabled Software Developer
What Does a Software Developer Do in Payments?
Payment-enabled software vendors embed payments into their applications to provide a more seamless and convenient user experience. This approach is common in Software-as-a-Service (SaaS) and ecommerce platforms.
Here’s what software developers offer the payments industry:
- Payment Gateway Integration: Developers connect their platform to a payment gateway to securely transfer payment data between merchants, customers and payment processors
- API-driven Payment Features: Developers use payment APIs to add essential features like one-click checkout, recurring billing and multi-currency payments directly into their software
- Data Security and Compliance: Developers ensure the platform follows industry standards to protect customer payment data and stay compliant with regulations
Key Responsibilities and Opportunities
Becoming a software vendor allows businesses to offer more value to users while creating new revenue opportunities. Some responsibilities of this path include:
- API Integration: Developers use PIs to connect payment gateways to the platform. This enables features like in-app payments, recurring billing and subscription management
- Payment Gateway Setup: Developers establish secure connections between the platform and payment processors. This allows them to support multi-currency payments, refunds and transaction tracking
Meanwhile, there are many growth opportunities for software companies as well, including:
- Embedded Payments: By embedding payments directly into their software, SaaS providers create a more complete product experience that keeps users engaged
- New Revenue Streams: Application providers can generate revenue from payment processing fees, subscription upgrades or added payment features
- Stronger Customer Retention: Platforms with built-in payments become essential tools for users, increasing customer stickiness and reducing churn
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Comparing the Paths: Which One is Right for You?
Choosing whether to become an ISO, PayFac or software provider depends on your goals, resources and desired level of control. Each path offers unique opportunities, but they come with different levels of complexity and responsibility. Here is a breakdown:
- Level of Control
- ISO: Limited Control — ISOs connect merchants to payment processors but do not manage payment operations
- PayFac: Full Control — PayFacs act as payment providers, controlling onboarding, compliance, risk and settlement for sub-merchants
- Software Provider: Control Over User Experience — Software companies control how they integrate payments into their platform, but they often share payment processing with a payment partner
- Revenue Potential
- ISO: Earn residual income from merchant transactions
- PayFac: Collect a larger share of processing fees, but they take on greater financial and regulatory risk. This risk includes overseeing sub-merchants, handling disputes firsthand and maintaining direct compliance with the card networks. If you don’t have the infrastructure for underwriting, risk management and monitoring, a PayFac model can become costly and complex
- Software Provider: Earn revenue from payment processing fees, subscriptions and premium features
- Operational Complexity
- ISO: Low — Primary focus is on sales and merchant support
- PayFac: High — Requires managing compliance, risk, onboarding and settlement
- Software Provider: Medium — Involves API integration, payment gateway setup and ongoing compliance
If you prioritize simplicity and fast revenue, the ISO path is ideal. If you want full control and higher revenue potential, consider becoming a PayFac. For those who already offer software or SaaS platforms, embedding payments as a software provider can increase customer value, boost retention and open new revenue streams.
Getting Started With NMI
Are you ready to take the next step on your payments journey? No matter what path you’re exploring, our tools and support will help you succeed. With NMI payment solutions, you can streamline merchant onboarding, manage compliance, reduce risk and enable secure payment processing. It all takes place on one powerful platform.
Explore how NMI can help you succeed in the payments industry. Contact us to discuss your business needs and learn how our solutions can support your goals. We’re here to help you grow with confidence.
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