Payment Facilitator Paradigm and Beyond: VAR, ISV, Next-generation ISO

on Jun12
payment facilitator
Written by
James Davis
Written by James Davis
Senior Technical Writer at United Thinkers
Author of the Paylosophy blog, a veteran writer, and a stock analyst with extensive knowledge and experience in the financial services industry that allows me to cover the latest payment industry news, developments, and insights. Read more
payment facilitator
Reviewed by
Kathrine Pensatori
Product Specialist at United Thinkers
Product specialist with more than 10 years of experience in the Payment Processing Industry. I help payment facilitators and PSPs solve their various payment processing issues. Read more

In many articles we described various aspects of payment facilitator model and its implementation by different types of companies. Examples include SaaS platform providers, franchisors, and others. It is no secret that payment facilitators represent a large and important segment of our UniPay platform users. So, we are constantly working to improve customer experience for them, provide targeted advice and guidance. From the standpoint of UniPay technology, it looks like PayFac model is the most viable one in the present-day payment services market environment.

Is there no alternative to payment facilitator model?

The general trend towards payment facilitator model expansion is confirmed by statistics. Analytical reports and publications by competent payment experts also speak in favor of the model. However, besides PayFac, other operation models of payment and referral services still remain popular. These include value-added-reseller (VAR), independent software vendor (ISV), as well as several ISO modifications. So, in this article we have decided to provide a brief outline of each one of them.


The concept of a value-added reseller or a VAR emerged in the IT industry. A VAR is an entity that enhances the value of some third-party core product or service. It additionally customizes the product according to the user’s needs. In the payment services universe, VAR model became a stage of evolution of a traditional ISO. Initially ISOs just referred merchants to acquiring banks they had partnerships with. That is, they resold merchant accounts, issued by acquirers to the applicants.

Around 2011 card networks defined the PayFac model and set the rules of the game for PayFacs. At that same time, percentage of US merchants that signed acquiring contracts through VAR started to grow rapidly. Particular add-ons, which a VAR can offer, usually, concern troubleshooting, consulting services, and, occasionally, hardware. Some analysts consider the VAR as an intermediary evolution link between ISO and SaaS/ISV.

Is an ISV a future payment facilitator?

In the context of payment services industry, an independent software vendor (ISV) is a company that develops and provides specific technological solutions. These solutions’ main purpose is to make merchant lifecycle and customer’s payment experience smooth and seamless.

An ISV can be selling its software to beauty salons, restaurants, fitness centres, e-Commerce websites, and POS companies. But it does not take active part in merchant lifecycle (from underwriting to funding to chargeback management). And this is, probably, the main difference between an ISV and a PayFac.
An ISV can choose to become a payment facilitator and take charge of the payment experience. But for this purpose, it needs to build a strong relationship with an acquirer that will underwrite it as a PayFac. If necessary, it should also enhance its KYC logic a bit.

ISO prospects (beside payment facilitator model)

As one of our articles shows, traditional ISO model is unable to compete with PayFac model in terms of value-for-money. However, modifications of the model allow ISOs to survive and retain their profits even as competitive environment becomes harsher. Here are some options an ISO can resort to in order to stay afloat.

Wholesale ISO

Wholesale ISOs have large and widely diversified customer bases and multiple acquirer relationships. Thanks to large numbers of referrals and merchants in their portfolios, they keep their profits steady. Moreover, a wholesale ISO provides a handy loophole for high-risk merchants. Chargeback rates in high-risk industries are, usually, high. So, these merchants are under constant threat of getting their accounts terminated due to exceeding of 1% chargeback threshold. However, in the case of a wholesale ISO, chargeback rates are calculated as average across all the merchants from its portfolio, including high-risk ones.

Next-generation ISO

Some analysts and companies single out the next-gen ISO concept as a separate phase of referral relationship evolution. A traditional ISO is a payment expert, and a lead reseller of merchant services. In addition to that, a next-generation ISO is offering its own value-added payment technology (which, technically, makes it a VAR). Besides knowledge of the market, it has a deep understanding of software and payment integration technologies. Depending on a specific business case, it assumes a certain degree of responsibility and risks associated with sub-merchants’ operations.

Merchant solutions consultant

In order to become a PayFac, a VAR, or a next-gen ISO, the company, usually, needs to implement lots of technical solutions and build new partnerships. Not every ISO can afford these steps, especially, in view of unfavorable market conditions, fierce competition, and pandemic-induced economic recession. However, according to the analysts, ISOs can capitalize on the asset that they already have. We are talking about their payment expertise and in-depth knowledge of the market.

Startup merchants will be more than happy to use this knowledge and consulting services, in order to avoid costly mistakes. Moreover, ISVs and SaaS platform owners, while being technologically-savvy, often lack the understanding of market realities as well. So, many of them might be willing to use the services of an ISO as a payment consultant. And who knows, maybe for some of them the formula ISO+ISV=PayFac might work.


Judging from our experience, if you want to provide merchant (or merchant referral) services of some sort, the most lucrative option for you is becoming a white-label or a full-fledged payment facilitator. It will allow you to satisfy the widest spectrum of your customers’ needs and maximize the residual revenue share you are entitled to. However, other models, such as VAR, ISV, modified ISO, or merchant services consultant still remain relevant.
Feel free to contact our payment experts at to learn, which model of referral services is the most suitable one for your specific use case.

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