Payment Compliance for Software Providers: What You Need To Know

As a vertical SaaS provider, your expertise is in solving the unique operational challenges of your industry.

You’ve invested the time needed in understanding these businesses, building workflows that fit their reality, and creating solutions that makes their day-to-day easier.

Now you want to enhance your software, and perhaps embedding payments is the next logical step.

But here’s where things get interesting: once payments are part of your platform, you’re also entering another world with its own set of rules.

Payment Card Industry Data Security Standards (PCI DSS), Anti-Money Laundering (AML) protocols, Know Your Customer (KYC) verification, fraud monitoring, data privacy requirements, and card network regulations all become part of your operational reality.

For many software providers at this stage, the question becomes: Should we become a full payment facilitator?

It’s an appealing option. Becoming a payment facilitator means having complete control over the payment experience, stronger economics on every transaction, and ownership of the entire merchant relationship. For some companies, it’s absolutely the right choice.

But it’s also a significant commitment. Becoming a full payment facilitator means building an entire payments operation: compliance teams, risk management systems, bank partnerships, and card network certifications. It’s a strategic shift that requires substantial investment in areas outside your core expertise.

In this post, we’ll uncover the rules software providers need to adhere to in becoming a full payment facilitator.

The Importance of SaaS Payment Compliance

As a payment facilitator, compliance isn’t just a box to check. There are real business implications.

Non-compliance with payment regulations can result in financial penalties, damage to your brand reputation, and in serious cases, loss of your ability to process payments altogether.

It sounds counter-intuitive, but the better you do, the more complex compliance becomes. Every business on your platform has different risk profiles, transaction patterns, and regulatory requirements depending on their location and business type. What starts as manageable oversight for 50 customers can become a significant operation at 500, and a full department at 5,000.

There is also the opportunity cost. The time your team spends navigating PCI requirements, building fraud detection rules, or updating KYC workflows is time away from building the features that differentiate your platform in your vertical.

Instead of innovating on the next feature that will make your customers’ lives easier, you’re deep in the details of regulatory frameworks that, while important, aren’t why your customers chose you in the first place and won’t be a compelling reason for them to stay either.

Payment Facilitator Requirements

When you become a full payment facilitator, you’re assuming direct responsibility for a comprehensive compliance framework. Here’s what it looks like in practice:

PCI DSS Compliance: The Payment Card Industry Data Security Standard (PCI DSS) isn’t a one-time certification; it’s an ongoing commitment.

Full payment facilitators must maintain strict data security controls, undergo regular audits (like quarterly network scans, annual assessments), and continuously update their systems as standards evolve.

This means dedicated security infrastructure, documentation processes, and often hiring specialized personnel who fully understand the technical requirements.

AML/KYC Programs: Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements mean you’re responsible for verifying the legitimacy of every customer on your platform, not just at onboarding, but continuously.

This includes identity verification, business validation, monitoring transaction patterns for suspicious activity, and maintaining detailed records. You’ll need systems to flag unusual behavior, processes to investigate and report it, and the expertise to make judgment calls on merchant risk profiles.

Fraud and Risk Management: As a payment facilitator, you own the financial risk as well. Chargebacks, fraudulent transactions, and merchant defaults must be solved by you and if there are losses, you will have to absorb them.

This requires sophisticated fraud detection systems, clear risk policies, adequate loss reserves, and often a dedicated team monitoring transactions in real-time. The liability doesn’t just create financial exposure; it requires constant vigilance and quick decision-making to protect your platform and your customers.

Data Privacy and Security: Beyond PCI, you’re handling sensitive financial data that falls under various privacy regulations such as CCPA in California, and industry-specific requirements if your vertical includes regulated sectors.

Serving healthcare providers? HIPAA considerations layer on top. Childcare centers? You’ll need additional safeguards for minors’ information. Each vertical and geography adds its own requirements to your compliance matrix.

Full Payment Facilitation Path: A Strategic Commitment

Becoming a registered Payment Facilitator is a viable strategy, but it’s important to go in with eyes wide open about what you’re signing up for.

The Investment Is Substantial. The financial commitment goes well beyond initial licensing fees. You’ll need to budget for compliance personnel (risk analysts, fraud specialists, compliance officers), legal counsel familiar with payment regulations, ongoing audit costs, technology infrastructure for monitoring and reporting, and capital reserves that sponsors typically require.

For many software providers, this can mean millions in upfront investments before processing a single transaction profitably.

Time-to-Market Is Measured in Years, Not Months. Most software providers underestimate the timeline.

Between finding and negotiating with a bank sponsor, completing registration with card networks, building out your compliance infrastructure, undergoing audits and certifications, and hiring the right team, you’re typically looking at 18 to 24 months before you can start generating payment revenue. That’s two years where your competitors might be moving faster with alternative approaches.

It Fundamentally Changes Your Business. This might be the most important consideration: becoming a full payment facilitator doesn’t just add a revenue stream, it transforms what kind of company you are. Your executive team will spend significant time on payments strategy, your hiring focus will shift to include payments expertise and board meetings will include risk management discussions.

For some businesses, particularly those with massive scale, deep pockets, and strategic reasons to own the entire stack, this transformation makes perfect sense. But for most vertical SaaS providers, there’s a more practical path forward.

The Smarter Alternative: PayFac as a Service

This is where Payment Facilitation as a Service (PFaaS) changes the equation entirely.

Compliance Becomes a Shared Responsibility. With a PFaaS partner, you’re not navigating the regulatory landscape alone. Your partner, who lives and breathes payments compliance, handles the heavy lifting: maintaining PCI DSS certification, managing AML/KYC programs, operating fraud detection systems, absorbing chargeback liability, and staying current with evolving regulations.

They’ve already built the infrastructure, hired the specialized teams, and established the bank relationships. You get to leverage all of that without building it yourself.

Speed to Market Measured in Weeks. Instead of the 18–24 month timeline of becoming a full payment facilitator, a PFaaS partnership can have you processing payments in a matter of weeks. The infrastructure already exists- you’re plugging into it, not building it from scratch. This means faster time to revenue, quicker validation of your payments strategy, and the ability to respond to market opportunities while they’re still fresh.

Attractive Economics Without the Overhead. Here’s the part that surprises many software providers: you don’t have to own the entire compliance stack to capture meaningful payments revenue. With PFaaS, you still participate in the economics of every transaction flowing through your platform. Yes, you’re sharing revenue with your partner, but you’re also sharing the costs, the risks, and the operational burden. When you factor in what you would have spent on compliance teams, technology, audits, and reserves, the unit economics often look quite favorable.

Scalability That Grows With You. Perhaps the most underrated benefit: as your customer base grows, your compliance infrastructure scales automatically. Your PFaaS partner is already equipped to handle that volume. There’s no scrambling to hire more compliance staff, no sudden need for upgraded fraud systems, no capacity constraints on your KYC processes. Growth becomes a revenue opportunity, not a compliance challenge.

Benefits of PayFac as a Service for ISVs

Let’s translate the technical benefits into real business outcomes that matter to vertical SaaS providers.

Faster Path to Growth. Payments aren’t just a feature, they’re a growth accelerator. When you can bring payments to market quickly, you immediately improve customer retention (it’s much harder to switch away from a platform that handles your money), increase your average revenue per user, and create new upsell opportunities.

The difference between launching payments this quarter versus two years from now isn’t just timing. It’s cumulative revenue, competitive positioning, and market momentum that’s nearly impossible to recover.

Leaner, More Efficient Operations. Your team stays focused on what they’re good at. You don’t need to hire a VP of Risk Management, build out a fraud operations team, or recruit compliance specialists. Your engineering resources stay dedicated to product features, not payments infrastructure. Your executive bandwidth remains on vertical strategy, not payment regulation. The operational simplicity means better margins and more focused execution.

Seamless Customer Experience. Your customers don’t know (or care) whether you’re a full payment facilitator or using PFaaS. They just want payments that work. With the right partner, merchant onboarding is smooth, funds settle reliably, and fraud gets caught before it becomes their problem.

The infrastructure working behind the scenes is invisible to them, which is exactly how it should be. For example, with white-label payments from Xplor Pay, every interaction, from merchant onboarding to transaction processing, carries your brand. Customers see a payments solution that feels native to your platform and built for their industry, because that’s exactly what it is.

Reduce Your Compliance Burden with a Payments Partner

If there’s one thing that’s non-negotiable in payments, it’s compliance. There are no shortcuts, no workarounds, and no “we’ll figure it out later” options. The regulatory framework exists for good reasons, and anyone handling payments needs to operate within it.

But here’s what many software providers don’t realize until they’re deep into the research: becoming a full payment facilitator isn’t the only way to offer compliant, embedded payments.

PayFac as a Service gives you a third option: one that sits between basic payment integrations and full payments ownership. You get the control, the branded experience, the unit economics, and the customer relationships that matter, while your PFaaS partner handles the compliance infrastructure that enables it all.

With Xplor Pay’s PayFac as a Service, vertical SaaS providers can deliver a seamless, fully compliant payment experience to their customers without building compliance teams, navigating bank sponsorships, or diverting focus from their core product. You get to market faster, scale with confidence, and stay focused on solving the problems that make your platform indispensable to your vertical.

Ready to explore how PayFac as a Service can help you capture payment revenue without the compliance burden? Let’s talk.