Everyone Embraced the Payfac Concept. Then the Bubble Burst.

For software executives navigating the next wave of embedded payments, the Payfac model tells a cautionary story. For most of the last decade, becoming a Payfac was the ultimate strategic status move in embedded payments. It signaled ambition, control, and sophistication – a proactive approach to a high-growth and high-margin revenue stream. Investors loved it. Boards encouraged it. Every software platform wanted to 'own payments', convinced that facilitation was the key to unlocking better margins and faster growth.

But like most bubbles, the logic was self-reinforcing. The Payfac model promised speed, control, and better economics, but it also rooted in complexity, cost, and risk. As the infrastructure powering embedded payments matured, those trade-offs stopped making sense. The same commercial upside could now be achieved through modern distribution models without the regulatory liability or operational drag.

By 2025, the shine has worn off. What began as a revolutionary structure for scaling micro-merchants has become a burden for the very platforms it was meant to empower. The Payfac concept didn’t die because it was wrong; it died because the ecosystem evolved past it.

Industry consensus is clear: the model’s growth has flattened, and platforms are moving toward lighter, embedded approaches, while maintaining the same benefit framework.

From breakthrough to burden

In the late 2010s, the Payfac model solved three real problems. It allowed software firms to board thousands of merchants quickly, manage bespoke funding flows, and capture better unit economics. For a brief window, that combination made perfect sense.

Then the market caught up. Once processors began offering Payfac-level economics through reseller and ISV models, the trade-offs became hard to defend. Control turned into overhead. The cost and complexity that once defined advantage became an anchor.

The idea that a platform needed to become a Payfac to achieve superior economics turned out to be a myth. Economics parity arrived through technology, not licensure.

The hidden cost of control

Running a Payfac is expensive and operationally heavy. It requires underwriting, fraud management, and ongoing capital reserves. Those costs might have been justifiable when the model was the only path to better margins, but not now.

As revenue share in embedded payments continued to shift toward the software side, the cost of maintaining a Payfac infrastructure stopped tracking with its benefits. It became cheaper to act like a Payfac than to be one.

Today, only a narrow set of use cases truly need the model: platforms handling high-velocity merchant onboarding or deeply bespoke funding splits. Everyone else can achieve the same outcomes as a reseller or ISO without carrying a permanent compliance department or liability stack.

The great unwinding

Despite that reality, many boardrooms are still asking the wrong question. They continue to debate whether to 'become a Payfac' when they should be asking how to exit one. Hundreds of software companies that embraced the model early are now carrying an unnecessary compliance and risk function that adds little strategic value.

De-conversion is not trivial, but it is increasingly attractive. Partnering under a reseller or ISV structure transfers most of the operational stack while preserving merchant relationships and user experience.

We’re seeing this shift firsthand as leading ISVs and platforms adopt hybrid models, retaining merchant experience ownership while outsourcing risk, settlement, and compliance to specialized partners.

The opportunity is to simplify, not rebuild.

The transition will take time. Re-papering customers and unwinding internal processes is slow work, and some teams will resist reversing a once-celebrated strategic choice. But the direction of travel is clear, and it runs one way.

The end of the Payfac illusion

A few legacy providers still defend the model, especially those who invested in Payfac-in-a-Box technology. Their argument is familiar: control your payments, control your destiny. But that logic belongs to another era. Modern embedded payment stacks already deliver the control, data, and economics Payfacs once promised, only without the cost or complexity.

The number of new Payfacs entering the U.S. market will shrink dramatically over the next year. What remains is a long tail of incumbents discovering that what was once a differentiator has become a drag.

The Payfac era taught the industry how to think about control and integration. Its end will teach it something even more important: focus. Owning the payments stack is no longer the path to value; orchestrating it intelligently is.

In 2018, becoming a Payfac meant being ahead of the curve. In 2025, it means you haven’t noticed the curve has moved.

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