Should Your Software Company Become a PayFac? (Integrating Payments into Your SaaS)

For SaaS companies seeking growth beyond monthly subscriptions, one of the most attractive strategies is payment integration. Many software businesses, especially those in vertical SaaS segments like booking platforms, eCommerce management, or field service tools, are starting to explore embedded payments not just as a convenience, but as a new revenue stream. But how deep should this integration go? Should your software company become a Payment Facilitator (PayFac), or is it better to stick with third-party providers?

The decision to become a PayFac isn’t just about technology—it touches business models, compliance, customer experience, and risk. While companies like Stripe and Square have made it look seamless, the backend operations of becoming a full PayFac require serious consideration. In this article, we explore what the PayFac model really is, the advantages and trade-offs, and the alternative paths for integrating payments into your software without going all-in.

If you’ve ever wondered whether transitioning into the PayFac for SaaS model is right for your business, this breakdown will help you understand the stakes, evaluate the options, and plan strategically for long-term revenue and platform control.

Understanding the PayFac Model

To understand if you should become a PayFac, it’s important to first define what a Payment Facilitator actually is. A PayFac, or Payment Facilitator, acts as a master merchant that is authorized to onboard other sub-merchants under its account. Instead of each customer signing up for a separate merchant account with a bank, they can accept payments almost instantly through your software platform. Your SaaS product becomes both the service and the gateway to accepting transactions.

This model is popularized by platforms like Stripe Connect, Square, and Shopify. They allow businesses and users to accept payments through embedded features without dealing with the traditional underwriting process that banks or processors require. As a PayFac, your company effectively controls the user experience, manages the flow of funds, and often gains more detailed data visibility.

The value proposition is compelling. By becoming a PayFac for SaaS, you control how your customers onboard, process, and track payments—all within your interface. Even more importantly, you generate SaaS payments revenue by earning a small portion of each transaction processed through your platform. In high-volume environments, this can add up significantly, sometimes surpassing your core software revenue.

However, there’s a distinction between being a full-fledged PayFac and using a payment partner like Stripe or Braintree with marketplace tools. Stripe Connect, for instance, allows you to manage user payouts and take a cut of the transaction without assuming all the risk and compliance responsibility. Becoming a full PayFac means taking on those responsibilities yourself.

Companies consider the full PayFac route when they want to fully own the payment experience, increase revenue per transaction, and build deeper loyalty among customers. But this control comes with obligations that go far beyond typical software development.

Pros and Cons of Becoming a PayFac

The payment facilitator model can open up impressive new streams of income for SaaS companies, but it also requires a serious commitment. Weighing the benefits and drawbacks is essential before making a decision.

One of the biggest advantages of becoming a PayFac is monetization. Instead of passing 100% of the transaction fees to a payment processor, you retain a percentage for yourself. Even a small fee on thousands of transactions can generate consistent, compounding income. This SaaS payments revenue becomes an additional MRR layer, sometimes even outpacing your subscription income over time.

Another benefit is improved onboarding speed. As a PayFac, you can enable new users to start accepting payments right away. This seamless onboarding can differentiate your platform, reduce churn, and deliver a more premium user experience. Your brand becomes central to every aspect of your users’ transactions, boosting perceived value and control.

However, the cons are just as real. Becoming a PayFac means stepping into a regulated industry. You’ll need to manage Know Your Customer (KYC) processes, perform underwriting checks, comply with PCI standards, and deal with disputes and fraud. The level of responsibility increases dramatically.

Then there’s the technical side. As a PayFac, you’ll need systems to manage fund flows, settlement timelines, reporting, reconciliation, and compliance audits. Building or maintaining these systems can be complex, resource-heavy, and expensive.

Support is another challenge. You’ll be the first point of contact for payment issues, chargebacks, and failed payouts. This can significantly increase your customer support load and require hiring or training staff with specialized financial knowledge.

There are hybrid approaches to mitigate these challenges. PayFac-as-a-Service providers like Finix, Infinicept, or Tilled offer backend infrastructure and compliance support while allowing your platform to operate like a PayFac. In these models, you still share a portion of revenue but avoid many of the burdens of becoming a full facilitator.

So while the rewards can be high, the risks and operational demands are not minor. A realistic evaluation of your internal capabilities, capital, and long-term vision is crucial before pursuing full PayFac status.

Alternatives for SaaS Payment Integration

Not every software company needs to become a PayFac to benefit from integrated payments. There are several intermediary options that allow you to embed payment functionality and earn revenue—without taking on regulatory liability.

Using tools like Stripe Connect, PayPal for Marketplaces, Braintree Marketplace, or Adyen for Platforms, your SaaS can offer a smooth onboarding experience, split payouts, and custom transaction flows. These platforms allow you to mimic many benefits of a full payment facilitator model while offloading compliance, underwriting, and fraud detection to a more established provider.

These third-party platforms provide sandbox environments, APIs, and onboarding support, making them ideal for mid-size SaaS companies that want speed-to-market and a user-friendly integration. You can often collect a platform fee or earn a share of transaction revenue, which helps in generating recurring income from payments.

For many vertical SaaS platforms—like invoicing apps, CRMs, or appointment scheduling tools—this level of integration is often more than sufficient. You retain some control over the user experience, improve stickiness, and add a revenue layer, all while keeping your focus on core product development.

However, this route also has limitations. Your payout schedule and fee structure are determined by the provider. Customization is often more limited compared to full PayFacs, and your branding may appear alongside or beneath the payment provider’s name, reducing the sense of end-to-end ownership.

The choice depends on your customer volume, risk appetite, and technical maturity. If you’re processing under $100 million annually and don’t have extensive internal finance and compliance teams, third-party platforms typically make more sense. Once your volume and capabilities grow, re-evaluating the transition to full PayFac becomes a more viable next step.

Evaluating the Market Opportunity

If you’re weighing the decision to become a PayFac, it helps to evaluate your market. Ask whether your customers want payment capabilities natively within your platform. Are they already using third-party systems that they find inconvenient? If so, embedded payments may offer a competitive advantage that improves retention.

The size of your customer base and their average transaction volume also play a role. For instance, if your SaaS serves real estate agents, freelancers, or booking professionals who handle large-ticket transactions regularly, even a small percentage of fees can yield meaningful income.

Calculating the Total Addressable Market (TAM) for integrated payments SaaS models can clarify whether this is a strategic move or a distraction. The question becomes: will you gain more by focusing on core product features, or does embedding payments unlock a new layer of value?

If the customer need exists and your product is in a good place, this could be the right time to act.

Compliance and Risk Management Essentials

If you do decide to pursue the PayFac model, compliance becomes non-negotiable. A key challenge in the payment facilitator model is navigating legal and regulatory obligations. These include KYC, AML (anti-money laundering), and PCI-DSS compliance, all of which are mandatory for managing financial transactions.

You’ll need robust underwriting policies to prevent fraud, a clear process for handling disputes and chargebacks, and the ability to suspend or terminate merchant access when necessary. Many PayFacs use third-party APIs to handle verification and fraud detection, but the ultimate responsibility lies with your platform.

Risk management also involves fund custody. As a PayFac, you may briefly hold client funds before disbursing them. This requires systems that track balances, fees, and refunds accurately, and ensure money is settled according to regulations and user agreements.

Insurance, legal audits, and data protection also come into play. It’s a full leap into the fintech world, and while many SaaS founders underestimate this shift, it can be a significant internal drain if not prepared for thoroughly.

The Role of PayFac-as-a-Service Providers

As mentioned earlier, PayFac-as-a-Service models have emerged to bridge the gap between full independence and third-party platforms. Companies like Infinicept, Finix, Tilled, and Payrix offer infrastructure, compliance, and settlement systems while allowing your brand to act as the payment facilitator.

You maintain more control over branding and the user experience while avoiding the heaviest lifting in regulatory processes. This approach typically involves a revenue share, where the service provider takes a cut of your transaction income in exchange for handling back-office operations.

For growing SaaS platforms that want to dip a toe into PayFac waters without diving headfirst, this can be a smart transitional model. Over time, if volume increases and you build your internal capacity, you can consider graduating to a fully independent facilitator model.

Planning for Internal Readiness

Becoming a PayFac isn’t just about opportunity—it’s also about timing. Assess your internal resources before making the leap. Do you have a compliance officer or financial advisor on staff? Can your engineering team build or maintain a complex payment infrastructure? Are your customer support workflows equipped to handle payment disputes?

A readiness audit should examine legal, technical, operational, and financial capabilities. It’s also wise to consult with a payment industry expert or legal counsel before submitting applications with acquiring banks and processors.

You’ll also need capital. Setting up a full PayFac model may require a financial reserve, not only for development and licensing but also to cover any potential chargebacks or fraud liability that you’ll now be assuming.

Impact on Customer Retention and Engagement

Integrating payments into your SaaS platform can significantly influence user satisfaction and long-term retention. When customers can handle payments, invoicing, and financial tracking directly within your software, it reduces friction and creates a more unified workflow. This convenience often leads to increased platform stickiness, reducing churn.

By becoming a PayFac for SaaS, you’re not just offering a tool—you’re becoming part of your customer’s revenue operations. That deep level of integration can make it difficult for customers to switch providers, giving you a long-term competitive edge. Additionally, when your system handles payments, it creates more frequent user touchpoints. These moments can be used to reinforce your brand, collect insights, and identify upsell opportunities.

Integrated payments also give your team access to valuable transactional data. This can be used to design better features, tailor support, or even offer financial products like instant payouts, lending, or loyalty incentives. In the long run, these added services enhance the perceived value of your platform.

Whether you’re a niche vertical SaaS or a broad horizontal platform, improving customer experience through seamless payment capabilities can transform you from a simple tool provider into an indispensable business partner.

Technical Architecture Considerations

Deciding to integrate payments deeply into your platform means assessing your current tech infrastructure. A full payment facilitator model introduces new layers of system design, such as merchant onboarding, risk monitoring, transaction routing, fund settlement, and real-time reporting.

You’ll need a secure environment that complies with PCI-DSS standards and supports tokenization for card data. Additionally, your platform must offer uptime reliability, particularly if payments are mission-critical for your users. Real-time reconciliation and audit trails become essential, especially when handling large volumes of sub-merchants.

A modern microservices architecture can help in scaling these components independently. However, integrating them seamlessly with your existing user flows—like invoicing, service booking, or order tracking—requires careful planning. API performance and data syncing with third-party systems like accounting software or CRMs are also vital.

SaaS platforms that aren’t ready to handle these technical requirements internally often turn to PayFac-as-a-Service solutions. These providers offer SDKs, APIs, and white-labeled environments to reduce time-to-market while ensuring security and compliance. Before making any decision, your engineering leadership should perform a capability assessment and map out the infrastructure requirements for full or partial payment facilitation.

Revenue Forecasting and Business Model Impact

Introducing integrated payments SaaS features can fundamentally change your revenue structure. Beyond subscription fees, your platform can now earn from every transaction processed through your system. This shift turns your revenue into a mix of recurring software income and variable transaction-based income.

To understand its impact, consider calculating potential gross payment volume (GPV) across your customer base. Multiply that by the average margin you expect to earn (usually 0.5% to 1.5% per transaction). Even modest volumes can generate meaningful monthly income, especially if your user base grows consistently.

This new revenue line also makes your business more attractive to investors. Payment revenues are often seen as more durable and scalable, especially if your SaaS has high engagement rates and retention. The more tightly integrated the payments are with your workflows, the more defensible your position becomes.

That said, keep in mind the cost side too. If you’re using PayFac-as-a-Service, you’ll share a portion of revenue with the backend provider. If you become a full PayFac, your operational costs will rise, but so will your margin potential. Careful forecasting and sensitivity analysis are essential before making the leap.

Competitive Differentiation in SaaS Markets

As more SaaS platforms look for ways to stand out in crowded markets, embedded finance is becoming a major point of differentiation. Offering native payments creates a seamless user journey that many customers now expect—especially in verticals like education, field services, healthcare, and marketplaces.

By adopting the payment facilitator model, your platform doesn’t just compete on features—it competes on ecosystem control. You can tailor the payment experience to match your users’ workflows, provide value-added services like instant payouts or tax automation, and keep users inside your product longer. This reduces reliance on external tools and increases your average revenue per user (ARPU).

Many successful platforms—Shopify, Mindbody, and Toast—have grown rapidly by embedding financial services and becoming the financial backbone for their users. They’ve turned payments into both a revenue generator and a brand loyalty tool.

If you’re in a highly competitive niche, becoming a PayFac for SaaS can set you apart from competitors still reliant on third-party integrations. It positions your software not just as a productivity tool but as a central hub for running a business. This strategic edge can drive faster growth and more durable customer relationships.

Conclusion

The shift toward embedded finance has opened powerful doors for SaaS businesses. Becoming a PayFac for SaaS is not just about adding a feature—it’s about transforming your platform into an all-in-one financial ecosystem. It offers control, customer stickiness, and the potential for significant SaaS payments revenue.

However, with that potential comes complexity. Regulatory obligations, technical maintenance, and customer support responsibilities rise significantly when you become a full payment facilitator model. For most early or mid-stage SaaS platforms, the hybrid approach—using tools like Stripe Connect or PayFac-as-a-Service partners—offers a safer, scalable way to begin monetizing payments.

The right choice depends on your market fit, volume, and long-term ambitions. Whether you pursue full independence or partner with established providers, the key is to align your payment strategy with your overall business roadmap. If done right, payments can become more than a feature—they can become a core engine of your growth.

FAQs

What is the difference between a PayFac and using a payment processor like Stripe?

A PayFac (Payment Facilitator) allows your software company to onboard sub-merchants under your master account, giving you control over payment flows, user experience, and transaction revenue. Using a processor like Stripe means you rely on their infrastructure to manage payments, and while you can still earn a share, you don’t own the full flow or assume regulatory responsibility.

Is becoming a PayFac suitable for early-stage SaaS startups?

Typically, no. Early-stage SaaS startups may lack the resources to handle compliance, underwriting, and technical demands. Instead, it’s recommended to start with third-party solutions like Stripe Connect or Braintree Marketplace. Once you have volume, infrastructure, and a dedicated team, then becoming a PayFac may make more sense.

How much revenue can a SaaS company earn from integrated payments?

While results vary, some SaaS companies report earning up to 20–30% additional SaaS payments revenue by embedding payments and collecting a fee per transaction. The exact amount depends on transaction volume, average ticket size, and whether you’re using a full PayFac model or revenue-sharing via a third-party provider.

What are the biggest risks of becoming a PayFac?

The main risks include handling PCI compliance, fraud management, customer disputes, and fund flow errors. You also take on financial liability for your sub-merchants. These risks require legal, technical, and financial preparedness, which is why many companies opt for PayFac-as-a-Service solutions to manage the burden while still capturing some benefits.