Payments are a huge growth area for SaaS today. And, thanks to the wealth of technology available, the opportunity is no longer restricted to platform giants like Amazon and Shopify. Even small to mid-sized SaaS businesses can benefit from embedded payments.

The challenge is identifying the right payment service provider from amongst the ever-growing list of payment solutions. Before you even get to that, you need to decide which payment model is best for you. You might be asking yourself:

• Should we become a payment facilitator (PayFac)? Or should we stick to a referral model?
• Should we choose a PayFac-as-a-Service or PayFac-in-a-Box solution? What’s the difference between the two?
• How can we ensure the best possible customer experience for both our merchants and their customers?
• How can we maximize the revenue from our payments?

We understand how confusing it can be when faced with so many choices and so many providers. To help you understand the differences between payment models, and guide you towards making the right choice for your software platform, this article will cover:

• PayFac-as-a-service vs PayFac-in-a-Box
• Why speedy merchant onboarding isn’t as important as you think it is
• The downsides of PayFacs
• Why Fiska is an ideal solution for small to mid-sized SaaS companies

Prefer to talk to an integrated payments expert? Get in touch with our CEO.

PayFac as-a-Service vs PayFac-in-a-box

As you start your research into embedded payments for your SaaS, you’ll quickly find references to two popular models: PayFac-as-a-Service and PayFac-in-a-Box. Both options give you access to the benefits of becoming a PayFac, but there are a few fundamental differences.

PayFac-as-a-Service

The PayFac-as-a-Service model is a relatively quick and easy way to embed payments. You don’t become a PayFac yourself; you simply rent a license from the PayFac-as-a-Service provider. This removes a huge amount of overhead from your shoulders. You don’t have to register with Visa and Mastercard, you don’t have to set up an underwriting process or manage ongoing compliance, and you’re not liable in the case of fraud or regulatory requirement issues.

On the flipside, you also don’t have total control over the solution. You don’t own your customer onboarding, and how much revenue you earn will depend on the agreement with your PayFac-as-a-Service provider. However, these restrictions don’t really become an issue unless you’re a large platform, as we’ll explain below.

Read more about why most SaaS platforms shouldn’t become PayFacs

PayFac-in-a-Box

With a PayFac-in-a-Box solution, your business will eventually become its own PayFac. But it will be a lot quicker and cheaper than doing all the regulatory groundwork and development yourself. Having said that, it’s worth flagging that the initial investment will still be within the tens if not hundreds of thousands.

As a PayFac, you will have complete control over your payments. You can set your own pricing strategy, customize the onboarding experience, achieve higher margins, manage your development roadmap, and liaise directly with the card schemes, acquirers, and processors.

This freedom comes with many benefits, but it’s also a lot of hard work. To get the most out of your payment experience using this PayFac solution, you’ll need teams of developers and payment and compliance experts. And unless you’re a large provider, like Shopify, it will take a long time for your volumes to ramp up enough to see a return on your investment.

PayFac-as-a-Service vs PayFac-in-a-Box: Key differences

Feature	PayFac-in-a-Box	PayFac-as-a-Service
Speed to market	Moderate (6–12 months)	Fast (months)
Initial investment	High (hundreds of thousands $)	Low (little or none)
Operational complexity	High (internal staff required)	Low (managed externally)
Revenue margin	Higher (control your own pricing)	Lower (revenue share with provider)
Compliance liability	High (fully responsible internally)	Low (fully managed by provider)
Customization	High (flexible onboarding and systems)	Low/moderate (limited by provider)
Internal expertise	Significant payments expertise required	Minimal payments expertise required
Risk management/exposure	High (merchant underwriting & fraud risk)	Low (risk managed by provider)
Strategic control	High	Low/Moderate
Vendor lock-in	Moderate (possible to switch, difficult)	High (challenging to migrate later)

Alternatives to PayFac-as-a-Service vs PayFac-in-a-Box

Alongside the PayFac model, you could also consider becoming an Independent Sales Organization (ISO). Unlike a PayFac, you don’t function as a merchant of record. Instead, you facilitate access to payment services by reselling solutions from third-party providers. There are three main types of ISOs:

Alongside the payment facilitator model, you could also consider becoming an Independent Sales Organization (ISO). Unlike a PayFac, you don’t function as a merchant of record. Instead, you facilitate access to payment acceptance services by reselling solutions from third-party providers.

One key difference under the ISO model is that each of your users (businesses) will have their own individual merchant account. While onboarding each merchant separately may take a little more time upfront, there are important advantages to this approach. Each merchant is isolated from the others, meaning if one merchant becomes problematic, you can simply close their account without affecting the rest of your portfolio.

By contrast, under a PayFac model, all merchants share the same ‘master merchant account’—so one merchant’s issues can create risks for everyone.

• Referral partner: With this model, you simply direct your merchants to a payment gateway/processor, which then takes control of the relationship and pays you a referral fee.
• Registered ISO: In this case, you officially register with the network of issuing banks and acquiring banks that process payment methods (i.e credit cards and debit cards). In doing so, you can market your payment services under your own brand.
• ISO with liability: This is similar to becoming a PayFac but without the full operational control. You’re responsible for managing financial risk by underwriting merchant accounts.

The benefit of becoming an ISO

In many cases, partnering as an ISO or reseller with a reliable payment technology provider can strike the right balance between ease of entry and revenue growth. For example, you’ll benefit from:

• Flexibility: You can test the model without long-term commitment.
• Minimal initial effort: Becoming an ISO requires less upfront investment and operational complexity.
• Reduced compliance burden: You won’t be responsible for the regulatory and PCI DSS responsibilities; your payment provider will take care of it.

Learn more about different payment models

The speedy onboarding fallacy

One of the most common reasons SaaS businesses want to become a PayFac is that they want to achieve faster onboarding.

But speedy onboarding can be a false friend.

First of all, there’s a popular belief that merchants want to be onboarded in real time. But this isn’t necessarily true. In fact, in our experience, it’s very rare that someone signs up for a merchant account and needs to be live and processing within minutes. In fact, we’d see that demand as a major red flag.

A popular shortcut (used by the likes of Stripe) is to onboard first and then ask questions later. This provides the illusion of instant onboarding, but the merchant still has to undergo the mandatory Know Your Customer (KYC) process at some point. And doing so later can cause more trouble down the line. For example, if a merchant’s account is flagged as high-risk after they’ve started processing and their funds are suddenly frozen, the knock-on effect can be dire for everyone.

And, finally, from a compliance standpoint, you want to avoid the potential disruption of letting bad actors onto your platform. You might have a portfolio of 3000 good merchants, but all it takes is one or two bad ones to compromise the lot. And you could lose your PayFac license.

Do you really need PayFac features? The downsides

While PayFacs offer greater control and revenue potential, they also come with the following challenges:

Monthly fees

PayFac-as-a-Service providers, like Payrails, Tilled, and Stripe Connect, will take on liability and underwriting burden. But you’ll have to pay a monthly fee to manage the portfolio, which varies from provider to provider. Let’s say that it is around $2,500. That might not seem like a lot. But $30,000 a year, plus a share of the margin you earn on every transaction, is a lot of money to commit before you’ve even started.

Commitment

As a SaaS, your focus is your great software. Committing $30,000 a year to something that’s not your core service is a heavy financial burden. And, unless you’re expecting high volumes from the get-go, you won’t see a return on your investment for a while. Plus, if it doesn’t work out or you don’t get the volumes you expect, you have a large loss to write off.

Why Fiska is an ideal solution for small to mid-sized SaaS companies

Choosing the right partner can make all the difference to the success of your payments enterprise. At Fiska, we believe in a true partnership where you get to keep more of what you earn, have full control over your merchant experience, and avoid unnecessary fees. Here’s why small to mid-sized SaaS businesses based in the US and Canada choose to work with us:

You pay no set-up or monthly fees

To us, the correlation between how much you pay per month and your revenue per share percentage goes against our business model, and ultimately, the spirit of partnership..

Instead, we share a percentage of the revenue generated by payments, which is the difference between your price and the base cost or interchange. So, whatever you earn is yours; we’re not interested in skimming the $30,000 in platform fees off the top.

Because our success is tied to yours, we give you the flexibility to set the pricing that aligns with your business needs. This allows you to offer competitive rates to your merchants while keeping a larger share of the payment revenue. So you’re free to explore various pricing models rather than being locked into a standard fee like 2.9% plus 30 cents. For many SaaS, this is essentially opening up an entirely new revenue stream.

Learn more about our revenue-share model and why we don’t charge fees

We do the work; you take the credit with our white-label solution

With Fiska, you retain complete control over the user experience. You can seamlessly integrate our onboarding process into your platform, making it look like a native part of your solution. This ensures compliance while also ensuring you can address any issues merchants may encounter along the way.

Your payments have all the appearance of a proprietary solution without the headache of managing licenses, liability, and compliance.

Built to help software companies grow

Fiska was created by a team of SaaS and payment experts who have designed a payment service solution specifically to meet the needs of software providers. We understand that every platform and vertical is different, so we collaborate closely with our clients to tailor our solution to them.

We like to think of ourselves as an extension of your team, acting as your Fractional Head of Payments. We offer workshops and provide expert advice when key decisions need to be made. In this way, you can be sure your payments are set up for success from day one.

With Fiska as your partner, you don’t need to worry about becoming a payment industry expert. We’ll handle the heavy lifting of both in-person and online payments, so you can focus on innovating with your software.

We offer level 1 support to your team (through regular calls or even through Slack), and level 2 customer support to your merchants (if you can’t solve the issue yourself).

Realize your payments potential without the heavy lift

Payments carry huge potential for small to mid-sized SaaS businesses. But with so many providers, solution types, and conflicting advice out there, it can be hard to know where to start.

The good news is that payments don’t require a hefty upfront investment. If you don’t go down the PayFac route, you won’t need to hire teams of experts or commit to ongoing fees. With the right partner, you can make the ISO model work for you. You can start small, test different approaches, and refine your strategy. All the while, your partner should work alongside you, offer support at every step, and share in your success.

If you’re looking to integrate payments into SaaS or ISV, we’d love to support you. Contact our CEO to find out more.