Payments Processing and Channel Synergies among Merchant Acquirers, PayFacs, ISVs and VARs [2025 Untangled Edition]

Executive Summary

This report provides a comprehensive analysis of three interconnected financial technology markets: Independent Software Vendors (ISVs), Payment Facilitators (PayFacs), and Merchant Acquiring/Payment Processing. All three markets are experiencing significant growth driven by digital transformation, cloud adoption, and changing consumer preferences.

The PayFac market shows the highest growth rate at 28.4% CAGR, followed by the ISV market (13.2 - 23.8% CAGR depending on the source), and the Merchant Acquiring/Payment Processing market (7.68-14.5% CAGR). These markets are increasingly interconnected, with software companies (ISVs) adopting payment facilitation models (becoming PayFacs) and leveraging payment processing infrastructure to create seamless customer experiences.

Let's deep dive into each market and how they intertwine through integrations, channel and distribution strategies.

1. Payment Facilitator (PayFac) Market

Market Size and Growth

The PayFac market is experiencing rapid growth:

• Gross Payment Volume (GPV): $929 billion in 2019, expected to reach over $4 trillion by 2025

• Growth Rate: 28.4% CAGR (the highest among the three markets analyzed)

• Transaction Revenue: Expected to reach $15 billion by 2025

  
  

  

  Projected Growth of PayFac Gross Payment Volume from 2018 to 2025

  
  

Number of Payment Facilitators

• 966 payment facilitators in 2018, increasing to 1,075 in 2019

• Projected to reach 2,381 PFs by 2025

• Growing at a CAGR of 13.8%

  
  
  
  

  

  Projected growth of payment facilitators from 2018 to 2025

  
  

Market Trends

1. Software Companies as Payment Platforms: Software providers increasingly becoming the platform for electronic payment acceptance

2. Streamlined Merchant Onboarding: Simplified process for merchants to begin accepting electronic payments

3. Vertical-Specific Solutions: Software providers in specific verticals (e.g., restaurants, healthcare) adopting the PayFac model

4. Control Over Payment Experience: PayFacs gaining control over underwriting, onboarding, fee structures, and funding schedules

5. Focus on Small and Micro-Merchants: PayFac model particularly beneficial for smaller merchants previously underserved by traditional payment processors

   
   

   

   Illustration of converging trends in payment facilitation, highlighting the evolution of software companies into payment platforms, streamlined merchant onboarding processes, customized vertical solutions for specific industries, and enhanced payment control, all benefiting small and micro-merchants.

   
   
   
   

Market Drivers

1. Investments from Payment Networks: Card networks (Visa, Mastercard) supporting PayFac growth;

2. PFaaS Solutions: Payment Facilitator as a Service solutions reducing market barriers;

3. Proven Benefits: Success of early adopters demonstrating the model's value;

4. Revenue Opportunities: Increased revenue for software companies that own their customers' payments process;

5. Government Support: Some governments actively supporting digital payment adoption to improve tax collection;

   
   
   
   

   

   Key Factors Fuelling the Payment Facilitator Market Growth: Proven Benefits, Revenue Opportunities, PFaaS Solutions, Government Support, and Investments from Payment Networks.

   
   

Key Market Players

The market is led by "payment facilitator mega-players" including PayPal, Square, Stripe, who pioneered systems with fewer hurdles for emerging merchants.

2. Independent Software Vendor (ISV) Market

Market Size and Growth

The ISV market shows significant size and growth potential, though estimates vary considerably between sources:

• Research and Markets: Estimated at US$2.0 Trillion in 2023, projected to reach US$4.8 Trillion by 2030, growing at a CAGR of 13.2%

  
  

• Market Research Future: Valued at USD 425.70 Million in 2023, projected to grow to USD 3,024.24 Million by 2032, exhibiting a CAGR of 23.80%

  
  

These variations likely reflect differences in market definition, methodology, and scope of analysis. Despite these differences, all sources indicate substantial growth in the coming years.

Market Segments

The ISV market can be segmented by:

• Deployment Model:

  • On-premises

  • Cloud-based

• Component:

  • Software

  • Services

• Application Type:

  • E-Commerce

  • Logistics

  • Retail

  • Healthcare

  • Financial

  • Educational

  • Others

Breakdown of the ISV Market by Application Type: Retail leads with 30%, followed by E-Commerce at 22%, Financial at 18%, Healthcare at 15%, Logistics at 10%, and Educational at 5%.

Regional Analysis

• North America: Accounts for approximately 23.4% of the market

• APAC: Largest contributor at 32% of the market

• Key Countries: US, UK, China, Germany, and Japan

Pie chart depicting the global Independent Software Vendor (ISV) market share by region, highlighting that North America holds 23.40%, APAC accounts for 32%, and 'Others' make up 44.60%.

Market Trends

1. Rising Enterprise Data Volume: Driving demand for software solutions to manage and analyze data;

2. Cloud Computing Adoption: Shift from on-premises to cloud-based solutions;

3. AI Integration: Increasing incorporation of AI and machine learning in software solutions;

4. Licensing Model Evolution: Moving from traditional licensing to usage-based models;

5. Vertical Market Specialization: ISVs focusing on specific industry verticals;

6. Mobile Workforce Support: Growing demand for collaboration tools and remote access solutions;

   
   

   

   Key factors driving the growth of the ISV market.

   
   

Key Market Players

Major players in the ISV market include Adobe Inc., Alphabet Inc., Autodesk Inc., Cisco Systems Inc., Dell Technologies Inc., IBM Corporation, Microsoft Corp, Oracle Corp, Salesforce Inc., SAP SE, and VMware Inc.

3. Merchant Acquiring/Payment Processing Market

Market Size and Growth

The merchant acquiring and payment processing market shows strong growth potential, with varying estimates:

• Grand View Research: Valued at USD 47.61 billion in 2022, expected to grow at a CAGR of 14.5% from 2023 to 2030

• Business Research Insights: USD 23.55 billion in 2024, projected to reach USD 45.83 billion by 2033 at a CAGR of 7.68%

• EIN Presswire: Expected to reach $38.16 billion by 2028, with a CAGR of 10.7%

• Markets and Markets: Projected to grow from USD 103.2 billion in 2023 to USD 160.0 billion by 2028, at a CAGR of 9.2%

• UBS Global: US merchant acquiring net revenue in 2023 was approximately USD 35 billion based on total US acquiring volume of approximately USD 12.3 trillion

Market Segments

• By Payment Method:

  • Credit card (dominated the market in 2022 with more than 44.0% share of global revenue)

  • Debit card

  • E-wallet (fastest growing segment)

    
    

• By End-use:

  • Hospitality (dominated the market in 2022 with more than 39.0% share of global revenue)

  • Retail (fastest growing segment)

  • Others

Regional Insights

• North America: Dominated the market in 2022 with over 34.0% share of global revenue

• Asia Pacific: Expected to be the fastest-growing regional market due to increasing smartphone and internet penetration

• Europe: Strong regulatory environment affecting market development

  
  
  
  

  

  North America leads the global payment processing market with 34.0% revenue share, followed by the rapidly growing Asia Pacific driven by smartphone penetration. Europe faces challenges from a strong regulatory environment

  
  

Market Trends

1. Digital Payment Adoption: Increasing penetration of internet and smartphones driving digital payment growth

2. Contactless Payments: Growing adoption of NFC and QR code payment technologies

3. API Advancements: Enabling businesses to adapt to payment needs through single API integration

4. E-wallet Growth: Rising adoption of smartphone-based payment applications

5. Online Shopping: E-commerce expansion driving demand for digital payment solutions

   
   

The illustration depicts the key dynamics driving the growth of digital payments.

Market Challenges

1. Cybersecurity Concerns: Rising threats of cyber-attacks and payment frauds

2. Integration Issues: Challenges in seamlessly integrating with existing operations

3. Digital Payment Awareness: Limited awareness in some regions

4. Customer Support Limitations: Difficulties providing 24/7 support

   
   

   

   Addressing Challenges in Payment Processing.

   
   
   
   

Key Market Players

Major players include Amazon Payments Inc., Authorize.Net, PayPal Holdings Inc., and Global Payments, Inc.

4. Cross-Market Analysis

Market Interconnections

1. ISVs Becoming PayFacs:

   • Software companies (ISVs) are increasingly adopting the payment facilitator model;

   • This trend is driving growth in both the ISV and PayFac markets;

   • Vertical-specific ISVs (e.g., for restaurants, healthcare) are particularly active in this transition;

     
     

2. PayFacs Leveraging Payment Processing Infrastructure:

   • PayFacs rely on the underlying merchant acquiring/payment processing infrastructure;

   • Growth in PayFacs contributes to growth in payment processing volume;

   • Payment networks (Visa, Mastercard) support PayFac growth to increase transaction volume;

     
     

3. Technology Integration:

   • All three markets are increasingly interconnected through technological integration;

   • APIs and cloud platforms enable seamless connections between software, payment facilitation, and processing;

     
     

     

     Interconnections in the Market: ISV Market adopts payment facilitation models, bridging with the PayFac Market, which leverages underlying infrastructure to connect with the Payment Processing Market, providing essential processing capabilities.

Common Trends Across Markets

1. Digital Transformation:

   • All three markets are experiencing growth driven by increasing digitalization

   • Rising internet and smartphone penetration is a common growth driver

   • Shift from traditional/cash payments to digital payment methods

     
     

2. Cloud Adoption:

   • Cloud-based solutions are gaining prominence across all three markets

   • Cloud deployment enables scalability, flexibility, and reduced infrastructure costs

   • SaaS models becoming increasingly popular

     
     

3. Integration and API Development:

   • APIs are becoming increasingly important for seamless integration

   • Single API integration capabilities are valued across all three markets

   • Interoperability between systems is a key focus area

     
     

4. Market Consolidation:

   • Strategic partnerships between industry players are common

   • Larger technology companies expanding through acquisitions

   • Ecosystem development through partnerships

     
     
     
     

     

     Key trends driving growth and innovation in payment markets include market consolidation through strategic partnerships, digital transformation with a shift to digital payment methods, cloud adoption for scalability, and integration via API development for seamless system interoperability.

     
     
     
     

Regional Patterns

1. North America Leadership:

   • Leading region across all three markets

   • High adoption of digital payment solutions and credit cards

   • Strong presence of major market players

     
     

2. Asia Pacific Growth:

   • Fastest-growing region across all three markets

   • Increasing smartphone and internet penetration

   • Rising adoption of e-wallets and alternative payment methods

     
     

3. European Regulatory Influence:

   • Strong regulatory environment affecting all three markets

   • Significant number of ISVs in the DACH region

   • Growing adoption of digital payments with regulatory oversight

     
     

     

     Regional Market Share Comparison highlights the dominance of the PayFac market in North America, the balanced distribution in Europe, and the strong presence of the ISV market in the Asia Pacific. The Rest of World region shows a more varied distribution among the three markets.

     
     
     
     

5. Future Outlook

Emerging Trends

1. AI and Machine Learning Integration: Increasing use of AI for fraud detection, customer insights, and process automation

2. Blockchain and Cryptocurrency Adoption: Growing interest in blockchain-based payment solutions

3. Real-time Payments: Acceleration of instant payment capabilities

4. Biometric Authentication: Enhanced security through biometric verification methods

Key Trends Transforming the Payment Industry: AI Integration, Blockchain Adoption, Real-time Payments, and Biometric Security Lead the Way.

Regulatory Considerations

1. Data Privacy: Increasing focus on protecting consumer financial data

2. Security Standards: Evolving requirements for payment security

3. Open Banking Initiatives: Regulatory support for increased competition and innovation

4. Cross-border Regulations: Varying requirements across different jurisdictions

6. Competitive Landscape in Payments: How Processors Differentiate for ISVs & Merchants

The payment processing market is highly competitive, with players differentiating through technology, pricing, vertical specialization and value-added services. Below is an overview of how key players compete and the strategies they use to attract ISVs and merchants.

A. How Payment Processors Differentiate Themselves

1. For ISVs (Independent Software Vendors)

Independent Software Vendors (ISVs) evaluate payment processors and merchant acquirers based on several critical factors to ensure seamless integration, scalability, and alignment with their business goals. Below is an overview of the key purchasing criteria:

Seamless Integration and Technical Capabilities

• API and SDK Support: ISVs prioritize payment processors that offer robust, developer-friendly APIs and SDKs to simplify integration into their platforms. Flexible APIs enable faster deployment and customization to meet specific software needs.

• Platform Compatibility: The payment processor must support multiple platforms (web, mobile, POS) to ensure consistency across channels.

• Ease of Integration: A tried-and-tested integration process, including technical support during development and testing phases, is highly valued to minimize downtime and resource strain.

  
  

Supported Payment Methods

• ISVs look for processors that offer a wide range of payment methods, including credit/debit cards, ACH, mobile wallets, recurring payments, and international options. This ensures flexibility and caters to diverse customer preferences.

• Tokenization and secure storage for recurring payments are also important for compliance and security.

  
  

Vertical-Specific Expertise

• ISVs often operate in niche verticals (e.g., healthcare, retail) and prefer partners who understand the unique needs of their target industries. This includes tailored solutions for compliance requirements or operational complexities specific to those verticals.

  
  

Revenue Sharing and Pricing Models

• Transparent pricing structures with clear revenue-sharing agreements are critical. ISVs evaluate commission rates, hidden fees, and overall profitability of the partnership.

• Flexible monetization models, such as embedded payments or referral programs, are preferred to align with their growth strategies.

  
  

Value-Added Services

• ISVs value processors that provide additional features such as fraud detection, analytics dashboards, tax compliance tools, and business management capabilities like payroll or accounting services. These services enhance the overall value proposition for merchants.

  
  

Customer Support

• High-quality customer service is essential. ISVs seek partners that offer dedicated support teams for onboarding, troubleshooting, and ongoing maintenance to ensure smooth operations for their merchants.

  
  

Scalability and Flexibility

• As ISVs grow, they need payment processors capable of scaling alongside them. This includes handling higher transaction volumes, expanding into new markets, or adapting to new payment trends like BNPL (Buy Now Pay Later).

Below is a summary of the parameters ISVs look at when picking their processors

Key differentiators for payment processors targeting ISVs

2. For Merchants (SMBs & Enterprises)

Merchants, on the other, prioritize cost, ease of use, and value-added services among others:

Key differentiators in merchant payment processing.

B. Competitive Positioning of Key Player

Current Situation

Processor	Key Strength	Target Market	Weakness
Stripe	Best API for developers, global reach	SaaS, marketplaces, ISVs	Higher fees for small merchants
Square	All-in-one POS, SMB-friendly	Retail, restaurants, micro-merchants	Limited customization
Adyen	Enterprise-grade, global acquiring	Large e-commerce, travel	Complex for SMBs
PayPal	Brand trust, BNPL (Pay Later)	Freelancers, SMBs, marketplaces	High dispute rates
Fiserv/First Data	Legacy bank partnerships	Large retailers, franchises	Less agile than fintechs
Global Payments	Integrated POS solutions	Healthcare, hospitality	B2B focus limits SMB appeal

Future Trends in Competitive Differentiation

• AI & Automation – Smarter fraud detection, dynamic pricing.

• Crypto & Blockchain Payments – Stablecoins, Central Bank Digital Currencies (CBDCs) for settlements.

• Banking-as-a-Service (BaaS) – Embedding bank accounts, lending.

• Hyper-Personalization – AI-driven payment routing for cost optimization.

C. Integrated Payments Strategies

Integrated payments allow ISVs and merchants to embed payment processing directly into their software or workflows. Key strategies include:

1. Embedded Payments for ISVs

• Turnkey SDKs/APIs (Stripe, Adyen) – Quick integration without building from scratch.

• PayFac Enablement (Finix, WePay) – Lets ISVs monetize payments without becoming a full PayFac.

• Revenue Share Models – ISVs earn a % of transaction fees (Shopify, Mindbody).

• White-Labeled Solutions – Processors handle compliance while ISVs brand the experience.

  
  

2. Unified Commerce for Merchants

• Omnichannel Payments – Sync in-store, online, and mobile (Square, Clover).

• Subscription Billing – Automated recurring payments (Chargebee, Recurly).

• Marketplace Payouts – Split payments, escrow (Stripe Connect, Adyen for Platforms).

• Vertical-Specific Solutions – Tailored for industries like healthcare, fitness, or retail.

  
  

3. Value-Added Services (Beyond Processing)

• BNPL & Financing (Affirm, Klarna) – Boosts average order value.

• Fraud & Chargeback Protection (Signifyd, Sift) – Reduces losses.

• Business Analytics – Insights into sales trends, customer behavior.

• Card Issuing (Marqeta, Galileo) – For branded debit/prepaid cards.

  
  
  
  

7. Channel Strategy in Payments: How Merchant Acquirers Work with ISVs, ISOs & VARs

Payment providers leverage ISVs (software platforms), ISOs (sales agents), and VARs (value-added resellers) to distribute their solutions. Here’s how top acquirers tailor their channel strategies and why some excel with specific partners:

1. Channel Partner Types & Key Needs

Overview of Channel Partner Types and Key Needs: ISVs focus on embedding payments into software and value APIs and revenue share; ISOs specialize in reselling merchant services, prioritizing high residuals and spiffs; VARs bundle payments with hardware/software, emphasizing integration ease and support.

2. Which Acquirers Excel with Each Channel?

A. Best for ISVs (Software Platforms)

Top Processors: Stripe, Adyen, Square, Finix, WePay

Why?

• API-first with developer-friendly docs.

• PayFac enablement (Stripe Connect, Adyen for Platforms).

• Revenue-sharing (Shopify takes a cut of processing).

• White-label options (Marqeta, Galileo for card issuing).

  
  

B. Best for ISOs (Sales Agents)

Top Processors: Fiserv (First Data), Global Payments, TSYS, Elavon

Why?

• High residual payouts (ISO-friendly pricing).

• Fast underwriting (critical for ISOs closing deals).

• Portfolio buyouts (big ISOs acquire smaller ones).

• Co-branded programs (e.g., Bank of America with Fiserv).

  
  

C. Best for VARs (POS Resellers)

Top Processors: Clover (Fiserv), Heartland, Lightspeed, Toast

Why?

• Hardware + payments bundling (Clover, Square).

• Residual income (VARs earn on lifetime processing).

• Pre-integrated solutions (e.g., Toast for restaurants).

  
  
  
  

3. Key Channel Conflict Considerations

• ISVs vs. ISOs: ISVs want embedded control, while ISOs want residuals—some processors (like Stripe) avoid ISOs entirely.

• Exclusivity Deals: Some ISOs/VARs lock merchants into proprietary systems (e.g., Clover).

• Channel-Friendly Pricing: ISOs need interchange-plus, while ISVs prefer flat-rate simplicity.

  
  

4. Future Trends in Channel Strategy

• ISV Dominance: More ISVs (SaaS platforms) bypass ISOs by embedding payments.

• Consolidation: Big ISOs (like Worldpay) acquire smaller players.

• Hybrid Models: Processors (e.g., Fiserv) serve ISVs, ISOs, and VARs under one umbrella.

  
  

  

  Channel Strategy in Payments: Exploring how merchant acquirers collaborate with ISVs, ISOs, and VARs to enhance payment services..

TL;DR:

• ISVs → Choose Stripe, Adyen, Finix for APIs & embedded payments.

• ISOs → Prefer Fiserv, Global Payments for residuals & fast underwriting.

• VARs → Love Clover, Heartland for bundled POS + payments.

  
  

Free Intro Online Meeting

Book Now

6. Summary

The ISV, PayFac, and Merchant Acquiring/Payment Processing markets are experiencing significant growth driven by digital transformation, changing consumer preferences, and technological innovation. These markets are increasingly interconnected, with software companies adopting payment facilitation models and leveraging payment processing infrastructure to create seamless customer experiences.

As these markets continue to develop, we can expect further integration, consolidation, and innovation, creating both opportunities and challenges for market participants. Companies that can successfully navigate the interconnections between software, payment facilitation, and processing will be well-positioned for future growth.

The winners in payments will be those that:

✔ Offer seamless integration (for ISVs);

✔ Provide vertical-specific solutions (for merchants);

✔ Bundle financial services (lending, banking, analytics);

Author

Written by Gianluca Caccamo, leader in connecting People and Data for Strategic Partnerships, counting more than 15 years at companies like Google, Pinterest and Wix among others.

---

Want to know more about Channel Partnerships and network with like-minded Alliance leaders? Join the Slack Community

Join Our Slack Community

---

Citations:

This report was compiled based on data from multiple industry sources including Grand View Research, Research and Markets, Market Research Future, Technavio, Infinicept/AZ Payments Group, Business Research Insights, EIN Presswire, Markets and Markets, Clearly Payments, and UBS Global.

[1] https://www.whatech.com/og/markets-research/it/935711-leading-factor-driving-the-independent-software-vendors-market-in-2025-growing-demand-for-cloud-based-solutions-drives-expansion-in-the-independent-software-vendor-isv-market.html

[2] https://blog.tbrc.info/2025/02/independent-software-vendors-market/

[3] https://infinicept.com/payment-facilitator/archive/payment-facilitators-expected-to-see-15-billion-in-transaction-revenue-by-2025-industry-forecast/

[4] https://globalfintechseries.com/news/payment-facilitator-market-expected-to-reach-15b-in-payments-revenue-by-2025/

[5] https://www.openpr.com/news/3869460/emerging-merchant-acquiring-market-trend-2025-2034-strategic

[6] https://www.globalpayments.com/en-eu/commerce-payment-trends

[7] https://www.thebusinessresearchcompany.com/report/payment-processing-solutions-global-market-report

[8] https://blog.tbrc.info/2025/03/independent-software-vendors-market-6/

[9] https://www.promarketreports.com/reports/payment-service-provider-market-17161

[10] https://blog.tbrc.info/2025/02/merchant-acquiring-industry-size-2/

[11] https://aws.amazon.com/isv/resources/software-company-growth-trends/

[12] https://www.devprojournal.com/technology-trends/2025-it-predictions-every-isv-needs-to-know/

[13] https://www.prnewswire.com/news-releases/independent-software-vendors-isvs-market-to-grow-by-usd-1-56-billion-2025-2029-driven-by-rising-enterprise-data-volume-report-on-how-ai-is-redefining-market-landscape---technavio-302372278.html

[14] https://www.einpresswire.com/article/775136548/independent-software-vendors-market-2025-by-industry-demand-leading-players-regional-overview-by-2032

[15] https://thinksys.com/development/top-trends-isvs-2022/

[16] https://www.globenewswire.com/news-release/2025/03/18/3044271/28124/en/Payment-Gateways-Market-Analysis-and-Forecast-2025-2033-Growing-Demand-for-Payment-Gateways-in-Emerging-Markets-Increasing-Demand-for-Recurring-Billing-Subscription-Management-Worl.html

[17] https://newsroom.mastercard.com/news/insights/2025/the-future-of-payment-facilitation-the-rise-of-payfac-as-a-service/

[18] https://www.gminsights.com/industry-analysis/payment-processing-solutions-market

[19] https://bankcardinternationalgroup.com/7-key-emerging-payment-processing-trends-for-2025/

[20] https://www.coherentmarketinsights.com/market-insight/independent-software-vendors-market-5858

[21] https://www.cognitivemarketresearch.com/isv-market-report

[22] https://finance.yahoo.com/news/independent-software-vendors-isvs-market-011100277.html

[23] https://www.prnewswire.com/news-releases/independent-software-vendors-isvs-market-to-grow-by-usd-1-56-billion-2025-2029-rising-enterprise-data-drives-growth-report-highlights-ai-driven-transformation---technavio-302360270.html

[24] https://www.fortunebusinessinsights.com/independent-software-vendors-market-108529

[25] https://britepayments.com/resources/article/8-essential-payment-trends-2025/

[26] https://www.fintechfutures.com/techwire/buy-now-pay-later-global-business-report-2025-bnpl-payments-to-grow-by-13-7-to-surpass-560-billion-this-year-driven-by-klarna-afterpay-paypal-and-affirm-forecast-to-2030/

[27] https://www2.deloitte.com/content/dam/Deloitte/us/Documents/financial-services/us-shaping-the-future-of-payments-trends-and-insights-for-2025.pdf

[28] https://www.trulioo.com/blog/payments/payfacs

[29] https://www.payplug.com/blog/opportunities-payfac-model/

[30] https://thepaypers.com/expert-opinion/merchant-payments-trends-driving-change-through-2025--1270863

[31] https://www.redcompasslabs.com/insights/2025-payments-trends-whats-in-store/

[32] https://www.paymentsdive.com/news/payments-trends-outlook-2025/738855/

---

GcTechAllies is a consulting powerhouse specializing in Strategic Alliances, Go-to-Market tactics and Payments. Tell us how we can help you!