Philip Harding, Commercial Director, Cashflows
For years, the ISO model worked because scale and complexity sat elsewhere. Acquirers handled onboarding, underwriting, compliance and risk, while ISOs focused on sales. That division of labour made sense in a slower, less competitive market, but today less so.Payments are now shaped by instant onboarding, embedded finance and vertical software platforms and the expectation that payments feel native, not bolted on. Growth is increasingly driven by software-driven distribution and value-added services rather than pure transaction margin. In that environment, limited control over the payment stack becomes a structural disadvantage.The ISO ceiling is real. When onboarding rules are owned by the acquiring bank, speed is constrained by someone else’s risk appetite, and when pricing architecture is fixed upstream, margin expansion becomes incremental. If underwriting sits outside your control, tailored flows for the specific needs of a vertical becomes difficult.ISVs face similar friction. They want seamless merchant activation and revenue models that reflect their value but inherit fragmented processes instead, leading to lower attachment rates and lost lifetime value.
Rethinking the case for full PayFacThe obvious reaction is to ask whether becoming a PayFac is the solution. Popularised by Stripe, the model shows the power of owning onboarding and merchant relationships. It allows a platform to board sub-merchants under its own master MID, speeding up activation and capturing more of the economics.Full PayFac status is not a simple upgrade, however. It bring a fundamental shift in regulatory exposure and operational responsibility, requiring bank sponsorship, robust KYC and AML processes, ongoing transaction monitoring and comprehensive chargeback management. In markets shaped by regulatory frameworks like PSD2, these obligations are only intensifying.The costs are significant. Licensing can take years and demands substantial capital. Building in-house risk and underwriting teams across multiple verticals is expensive. Supporting sub-merchant structures, reconciliation and disputes requires ongoing engineering investment. For many ISOs, moving to full PayFac is less of a step forward and more a regulatory cliff-edge.
PayFac-as-a-Service: Where Control Meets PracticalityPFaaS offers a more balanced route. Rather than forcing a binary choice between the traditional ISO and full PayFac status, it provides modular access to core PayFac capabilities through an established platform.In practice, that means faster onboarding without taking on the full regulatory burden along with greater control over the merchant experience. Pricing can be tailored to specific verticals while ownership of the merchant relationship improves without the need to build a full compliance function.Crucially, PFaaS can remove the need for direct licensing. ISOs operate within an existing regulated framework, avoiding lengthy and costly approval processes and reducing time to market from years to months. Technology barriers are lower too; embedded risk and compliance expertise reduce operational overhead, and ISOs leverage proven onboarding, ledgering and payout capabilities.The commercial upside is clear – improved margins, higher conversion and vertical differentiation all becomes achievable. New bundled models combining software and payments can be tested safely within a structured environment.
A Strategic Path to ControlPFaaS should not be seen as a shortcut around regulation but a structured path to growth. It gives ISOs and ISVs a way to build capability, confidence and scale before deciding whether full PayFac status is necessary.This agility matters as embedded payments become standard and platforms seek to control more of the value chain. Remaining within the traditional ISO model is increasingly a competitive constraint.Success ultimately depends on choosing the right partner, whether they can deliver scalable onboarding, sophisticated risk tooling, and expertise needed to support the ISO or ISC on their journey.The ISO model still has value but for ambitious players, it can be a ceiling. PFaaS delivers control without pushing companies over the regulatory edge, striking a balance between growth and governance that modern payments businesses can no longer ignore.
About Us
Philip Harding, Commercial Director, Cashflows
Storyteller, Novelist, Visionary Strategist, Charismatic Leader, Self Starter, Resilient and Analytic ResearcherA leader needs to be multi-faceted, and Philip Harding is just that, having dipped his toes into law, sports management, music and novel writing before helping to shape Cashflows.
Phil also leans on 20 years of global sales and payments expertise—from FedEx client negotiations, to end-to-end issuing and acquiring at Barclaycard, to helping to shape strategic initiatives like Cashflows’ Licensed Services looking at payment facilitation and acquiring BIN sponsorship, which has been a career highlight for him.
