Types of Payment Processors: ISO vs. PayFac vs. Aggregators

Choosing the best payment processor is paramount for your business. Whether you operate a growing SaaS platform or a local retail store, the way you manage transactions affects your cash flow, customer satisfaction, and ability to scale. With so many options available, it is important to understand the difference between the ISOs, PayFacs and Aggregators to make the decision. 

There are pros and cons to each model, depending on your business type, volume, and risk. This post will detail what each processor does, compare features side by side, and ultimately help you determine which may be best for you. 

What Is a Payment Processor? 

A payment processor does the work of processing the transactions between your business, your customer, and the bank that issued their credit card. It guarantees that money is transferred safely from the customer’s credit or debit card into your “merchant account”. 

The front-end processors and the back-end processors are two major types. Front-end processors link your business to the card networks (like Visa and Mastercard) and facilitate authorization of transactions in real time. What back-end and processing networks handle is the actual movement of money from the customer’s bank to yours. 

For instance, when a customer swipes their card, the payment processor immediately asks their bank to authorize or deny the transaction. If accepted, the funds go into your merchant account upon settlement. The entire process takes place in seconds and banks, card networks, and processors all work together. 

Whether you’re online or selling in person, you need a payment processor to accept fast, secure payments, prevent fraud, and help you meet PCI standards. 

Understanding Independent Sales Organizations (ISOs) 

An Independent Sales Organization (ISO) is a third-party company authorized to sell payment processing services under a bank’s sponsorship. ISOs are intermediaries between acquiring banks and merchants that provide specialized processing solutions, hardware, and service to businesses. 

ISOs are registered with leading card networks, such as Visa and Mastercard, and they are subject to stringent underwriting and compliance requirements. They tend to offer tailor-made merchant accounts for each customer to provide businesses with more control over transaction settings, rates, and integrations. 

How ISOs Work?

ISOs underwrite each merchant independently. That means the onboarding process can be more in-depth and longer, but the result is personalized pricing, fraud management and service levels. ISOs typically serve high-risk companies that would not be approved through conventional means. 

Pros of Using an ISO 

• Custom pricing and service options
   

• Suitable for high-risk businesses
   

• Long-term, scalable relationship
   

• Access to dedicated account reps and support
   

Cons of Using an ISO 

• Longer onboarding time
   

• More complex compliance paperwork
   

• May require more upfront documentation
   

Examples of ISOs 

Companies such as Elavon, FIS, and North American Bancard, serve as big ISOs and work with banks to provide adjustable payment services to merchants across a variety of industries. 

Understanding Payment Facilitators (PayFacs) 

A Payment Facilitator (PayFac) is a business that enables other businesses known as sub-merchants to accept payments through its master merchant account. PayFac, unlike ISOs, helps with the onboard process and does not require an individual merchant account for merchants. 

PayFac assumes the underwriting, risk management, compliance and settlement obligations. This makes it easier for companies to get started accepting payments fast — in as little as a few minutes. It’s a popular model for platforms, marketplaces and SaaS businesses that have a lot of users on boarded inside of it. 

How PayFacs Work?

If you sign up with PayFac, you don’t have your own merchant account. Instead, you are added to the PayFac’s organization as a sub-merchant. The PayFac monitors your transactions, deals with chargebacks, and makes sure you comply with regulations. 

Pros of Using a PayFac 

• Fast onboarding, often instant

• Perfect for platform-based businesses

• Simplified compliance and setup

• Easy to scale with APIs and developer tools
   

Cons of Using a PayFac 

• PayFac assumes liability for sub-merchants

• Risk of account freezes or terminations

• Less pricing flexibility

• Higher burden of regulatory oversight
   

Examples of PayFacs 

Well-known PayFacs are Stripe, Square and PayPal. These companies make dev-friendly tools, fast setup, and modern APIs, making them perfect for innovative, tech-first companies. 

Understanding Aggregators 

A payment aggregator is a form of payment service provider that helps multiple businesses to share a single merchant account. It is commonly mistaken with PayFacs as they both have sub-merchants, however, aggregators have the most streamlined on-boarding and the least control for merchants. 

In this system all businesses operate under one main account and all transactions flow through this account. You’re not given a unique merchant ID, so aggregators are perfect for very small businesses or startups that must immediately accept payments. 

How Aggregators Work? 

Your business becomes a part of the aggregator’s entire merchant profile once you’ve signed up with an aggregator. They handle everything from underwriting, processing and settlement. That’s why account approvals are generally instant. 

Pros of Using an Aggregator 

• Instant access to payment processing 

• No setup or documentation needed 

• Great for the micro business or side hustle 

• No merchant account is necessary 

Cons of Using an Aggregator 

• Higher transaction fees 

• Limited control over disputes and chargebacks 

• Higher risk of abrupt account suspensions 

• Not for high volume or high risk businesses 

Examples of Aggregators 

Venmo for Business, Shopify Payments, Cash App, and Google Pay are some examples. These systems promote simplicity over customization or control. 

ISO vs. PayFac vs. Aggregator: Key Differences 

Understanding how ISOs, PayFacs, and Aggregators compare is essential before choosing the right fit. Here’s a breakdown of their main differences across critical factors: 

How to Choose the Right Payment Processing for Your Business? 

Selecting the proper payment processing type for your business is just as critical for a seamless operation, lower cost, and eliminate unnecessary risk. Your choice will be determined by a variety of factors. So this includes your company size, sales volume, risk profile of your industry, the scalability you need from your platform, and where you fall on the spectrum of control vs simplicity. Here’s a review of what you need to know when choosing the best payment processing model for your business. 

1. Business Size

The size of your business is a major factor in which payment model will be the right fit. For small business or a start-up with lower volumes of transaction – then an aggregator such as PayPal or Square might be appropriate. These models provide fast, no-fuss setup and do not require a specific merchant account. Hence, they make a great choice for small businesses new to accepting credit cards. 

For mid-sized businesses and companies in a growth stage, partnering with a Payment Facilitator (PayFac) can offer greater flexibility and more scalability. PayFacs simplify the onboarding and compliance process but provide more control over the transaction process settings. However, if you run a high-volume business, you might need to consider something more tailor-made, like an Independent Sales Organization (ISO), that offers custom benefits and lower transaction fees for bigger operations. 

2. Sales Volume

Your sales volume plays a large factor and it will have a direct effect on what payment model will be most cost-effective. Low volume merchants (e.g., small shops or online vendors) may find an aggregator suitable for their payment needs due to the aggregator’s simple pricing with few barriers to entry, ease of integration, and ease of use. Aggregators are ideal for businesses with uncertain or low numbers of transactions. 

If your business handles more transactions, you might benefit from an ISO. ISOs may have better prices for high volume and custom solutions including the ability to negotiate price. PayFacs also cater well to medium-sized businesses that need scalability but don’t yet require a fully customized solution. 

3. Industry Risk Level

Some industries are riskier for payment processor because of the potential for fraud or chargebacks. If your business operates in a high-risk industry (such as adult content, travel, CBD), ISOs typically have more expertise in businesses of these types and they can provide specialized underwriting and support. 

On the other hand, aggregators are typically not the best fit for high-risk businesses, since they do not offer the level of support or risk management needed. PayFacs provide some protection but can choose not to offer services to high-risk industries at all, or may limit them. 

4. Need for Platform Scalability

If you’re a growing company and are looking for something truly scalable, a PayFac is typically your best bet. Their systems can process many sub-merchants at once, so they are excellent for SaaS businesses, marketplaces or platforms that need to onboard several users. 

ISOs offer scalability as well, except they tend to be better suited to businesses that need more personalized solutions and/or higher transaction amounts. They might have more advanced tools to handle fraud, chargebacks and compliance, but onboarding is likely to be more protracted. 

5. Control vs. Simplicity

There are businesses who like to maintain control over their payment processing versus a business that wants simplicity. If you want to have full control over your payment system – like your personal rates, reporting, and managing of fraud – an ISO will be the solution for you. 

If you’re all about keeping things easy and want payment processing to happen with little to no effort on your part, then aggregators are perfect. PayFacs allow you to have just enough control and require very little in terms of compliance and integration. 

Benefits and Risks of Each Model 

Each payment processing model comes with unique advantages and trade-offs. Understanding these will help you weigh your options more clearly. 

ISO: Benefits and Risks 

Benefits: 

• Lower transaction fees for high-volume businesses
   

• Tailored services for specific industries
   

• Access to high-risk merchant accounts
   

• Direct relationships with acquiring banks
   

Risks: 

• Longer onboarding process
   

• More paperwork and documentation required
   

• May involve monthly minimums and contracts
   

• Support quality varies across providers
   

PayFac: Benefits and Risks 

Benefits: 

• Quick merchant onboarding
   

• Easy API integration for SaaS or marketplaces
   

• Centralized fraud prevention and compliance
   

• Simple, predictable pricing models
   

Risks: 

• Higher per-transaction costs than ISOs
   

• May not support high-risk businesses
   

• Potential for account holds and fund delays
   

• Less room for rate negotiation
   

Aggregator: Benefits and Risks 

Benefits: 

• Instant setup, no underwriting
   

• Best for low-volume or new merchants
   

• No long-term contracts
   

• All-in-one platforms often include ecommerce or POS
   

Risks: 

• High fees, especially for volume
   

• Limited customer support
   

• Greater risk of sudden account freezes
   

• Minimal customization or reporting tools
   

Compliance, Risk, and Underwriting Considerations 

Each payment processing model carries different compliance requirements and levels of underwriting scrutiny. Here’s what you should know: 

ISOs 

• In-depth underwriting: ISOs thoroughly vet your business, including credit checks, business licenses, bank statements, and sometimes tax returns.
   

• PCI Compliance: You must ensure full compliance with PCI DSS standards, often with guidance from the ISO.
   

• Ongoing monitoring: ISOs monitor chargebacks, suspicious activity, and maintain compliance with card brand regulations.
   

PayFacs 

• Streamlined underwriting: Minimal documentation upfront, but they may request more details post-onboarding.
   

• Shared liability: PayFacs assume most compliance responsibilities, including PCI and KYC (Know Your Customer).
   

• Quick fraud response: They monitor transactions in real-time and can hold funds or freeze accounts.
   

Aggregators 

• Light or no underwriting: Very fast approval process but includes continuous algorithm-based monitoring.
   

• Higher compliance risk: Since you share a merchant account, one merchant’s issues can affect others.
   

• Automated fraud detection: But limited human review, which can sometimes trigger false flags. 

Conclusion  

Choosing the right type of payment processor—whether an ISO, PayFac, or aggregator—can dramatically impact your business operations, costs, and risk exposure. Each model serves a different business need. ISOs offer the most flexibility and are ideal for high-volume or high-risk businesses. PayFacs are great for SaaS platforms and growing startups that need fast onboarding with manageable risk. Aggregators serve small merchants well with minimal setup, but they come with limited control and higher risk of account issues. 

Make the choice that supports your long-term goals, not just immediate convenience. 

Frequently Asked Questions 

1. What is the main difference between an ISO and a PayFac?
   An ISO gives you a dedicated merchant account with more control and customized pricing. PayFac offers sub-merchant accounts for faster onboarding but with less flexibility.
2. Are aggregators safe for small businesses?
   Yes, aggregators are safe for low-risk, small-volume businesses, but they have stricter fraud detection systems, which may cause sudden account holds or terminations.
3. Which option offers the lowest transaction fees?
   Typically, ISOs offer the lowest fees for high-volume merchants, while PayFacs and aggregators charge flat or higher percentage-based fees.
4. Can I switch from an aggregator to an ISO later?
   Yes, many businesses start with an aggregator for quick setup and later switch to an ISO for better control and cost savings as they grow.
5. What’s better for SaaS businesses—PayFac or ISO?
   PayFacs are generally better for SaaS companies due to fast sub-merchant onboarding, integrated APIs, and built-in compliance tools.