PayFac vs Merchant of Record
Definition
A PayFac facilitates payments for other businesses (sub-merchants accepting payments from their customers), while a Merchant of Record (MoR) is the legal seller — it sells your product on your behalf, handling the transaction, tax collection, and compliance as the entity on the customer's bank statement. They solve different problems for software companies.
How It Works
In the PayFac model, your software's customers (merchants) accept payments from their customers, and you facilitate that transaction as the master merchant. In the MoR model, the MoR (Paddle, FastSpring) is the legal seller — they sell your SaaS product to your end users, handling sales tax, VAT, and global compliance. The MoR's name appears on the customer's bank statement, not yours.
Why ISVs Care
ISVs that help other businesses accept payments need PayFac or PFaaS capabilities. ISVs selling their own SaaS subscriptions or digital products may benefit from an MoR to offload tax and compliance burden. Some ISVs use both: an MoR (Paddle) for their own subscription billing, and a PFaaS provider (Stripe Connect, Xplor Pay) for the embedded payment acceptance they offer to their merchants.
The PayFac and Merchant of Record (MoR) models solve different problems for software companies. Understanding which one applies to your situation prevents choosing the wrong payment architecture entirely.
The Fundamental Distinction
A PayFac facilitates payments for other businesses. Your software’s customers (merchants) accept payments from their customers, and you facilitate that transaction.
A Merchant of Record is the legal seller. The MoR (Paddle, FastSpring) sells your product on your behalf, handling the transaction, tax collection, and compliance as the entity of record on the customer’s bank statement.
When Each Model Applies
Use PayFac (or PFaaS) when:
- Your software’s users need to accept payments from their own customers
- You’re building a marketplace, platform, or vertical SaaS with merchant payment acceptance
- Examples: restaurant POS, salon booking software, property management platform
Use Merchant of Record when:
- You’re selling your own SaaS product or digital goods directly to end users
- You want someone else to handle sales tax, VAT, and global compliance
- Examples: SaaS subscription billing, digital download sales, B2B software licenses
They Can Coexist
Some ISVs use both: an MoR (Paddle) for their own subscription billing, and a PayFac/PFaaS provider (Stripe Connect, Xplor Pay) for the embedded payment acceptance they offer to their merchants. Different problems, different solutions.