How to Fast Track Becoming a PayFac

PayFac-as-a-Service (PFaaS) allows software providers to reap the rewards of becoming a PayFac without the upfront investment of time and capital.

Partnering with a payment processor is an effective way for Independent Software Vendors (ISVs) and Software-as-a-Service (SaaS) businesses to boost revenues, increase valuations, and catapult to the high-growth stage. Growing your payment revenue, however, isn’t always as easy. Between set interchange rates and processing agreements, it’s traditionally been difficult to grow margins, leading many businesses to consider bringing payment operations in-house. One method that has grown in popularity is the payment facilitator (PayFac) model. With a lucrative opportunity to multiply revenue by as much as fourteen times, it’s no surprise that non-payment businesses are taking note and implementing this model as a part of their overall business strategy.[1] Conservative projections estimate that by 2025, the number of PayFacs will have increased over 91% since 2020.[2]

What is a PayFac?

A PayFac is a merchant-facing provider that enables its merchant customers to accept payments on its platform. By using a simplified onboarding process, PayFacs allow merchants to set up their payment systems faster than the processes common to traditional payment models such as ISOs and Merchant Service Providers (MSP). An ISV or SaaS business acting as a PayFac embeds payment processing capability into their software by building out their own payment infrastructure — including partnering with an acquiring processor, building gateway integrations, earning security certifications, hiring payment experts, and more. PayFacs assume all the costs and risks associated with accepting payments on behalf of their merchants. However, they also enjoy complete control over their earning potential and user experience.

The Traditional Path to PayFac

The traditional path to becoming a PayFac is complex, costly, and risky — requiring significant overhead costs and years of work before the investment pays off. For larger, more mature businesses with millions to invest and years of lead time, the traditional PayFac model may make sense. But for ISV and SaaS businesses looking to scale quickly, this option is not always feasible. An endeavor of this size is equivalent to starting and managing a second business. In the software world, it’s either grow fast or die slow.

Fast Track to PayFac with PFaaS

Today’s payment solution providers have developed methods to simplify this journey, allowing ISVs and SaaS businesses to fast-track their way to becoming a PayFac. Solutions known as PayFac-as-a-Service (PFaaS) are leveling the playing field, allowing software providers to reap the rewards of becoming a PayFac without the upfront investment of time and capital. PFaaS products are out-of-box solutions that equip businesses with everything they need to become PayFacs while earning a percentage of the payment processing profits.

Instead of building and maintaining a payments infrastructure from the ground up, PFaaS solutions allow software businesses to start onboarding merchant clients in months versus years. While keeping upfront costs low, these solutions come ready-to-go with support staff, onboarding processes that assess risk, customer management tools, and built-in security compliance — with minimized resource requirements.

With a PFaaS solution, ISVs and SaaS businesses share in the risks and rewards that come with processing payments — instead of taking on the level of responsibility associated with a full-fledged PayFac model. For example, with a PFaaS solution, software businesses share the liability of chargebacks and the risk of insolvent merchants with the payment provider.

PFaaS Pays Off

Aluvii, a cloud-based amusement management software, uses a PFaaS provider as a part of its offering for amusement parks. “Embedded payments have become a strategic part of our business, accounting for 30-40% of our overall revenue,” says Robert Brinton, CEO of Aluvii. “The onboarding process is quick and gives our customers the ability to start accepting payments faster than with other payment models. In an industry where user experience is everything, we appreciate having complete control so we can ensure our customers’ experience is always in line with our standards,” he said.

Aluvii isn’t alone when it comes to utilizing payments as a strategic initiative. A recent survey cited that 72% of C-suite respondents think that modernizing payment infrastructure — such as adding new payment gateways or processing capabilities — will have a highly transformative impact on their business over the next three years.[3]

As ISVs and SaaS businesses strive to grow and increase valuations, payments will inevitably become a part of the conversation. Those that best leverage their resources to create optimal customer experiences and maximize earning potential will be positioned for success. The traditional PayFac model offers ISVs and SaaS businesses the opportunity to do both but requires a large initial investment and many years to realize a payoff. PFaaS solutions help software businesses reduce costs and risks, deliver exceptional user experiences, and increase payment revenues to ultimately achieve growth faster.






Blake Rouse is Sr. Director of Business Development at Cardknox, a leading payment technology provider. With over 14 years in the fintech space, Blake is an expert in the payment industry and enjoys helping people implement technology to improve their businesses.