Small and micromerchants can be difficult and expensive for traditional merchant acquirers to reach. So, many acquirers have historically focused on marketing to and providing payment services for larger businesses that generate a better ROI.
As a result, third parties have commonly stepped in to bridge this divide. Payment facilitators evolved out of this opportunity to extend payment processing services to smaller merchants more effectively.
But before PFs existed, merchant acquirers often relied on ISOs, or independent sales organizations, to resell and market their services to merchants.
The way ISOs operate and their relationships with merchants can vary. ISOs are overseen by their acquiring partners, and some acquirers allow them to take on more responsibility than others. One ISO might simply recruit new merchants and refer them on to their acquirer. Another ISO might take on more functions – handling more of the merchant underwriting, onboarding, reporting and customer service processes, for example.
While ISOs are filing an intermediary role similar to that of a PF, they are two fundamentally different business models. An increasing number of companies that are looking to handle more payment operations and present their own brand and solutions are choosing to become payment facilitators instead.
Both ISOs and payment facilitators are required to follow rules defined by the card brands, such as Visa and Mastercard, as well as the requirements of their acquiring partners. However, the card networks have more clearly defined payment facilitator roles and responsibilities. PFs are given more latitude to create their own business practices and more closely manage their own relationships – but with this comes additional responsibility.
For example, PFs are allowed to enter directly into two-party agreements with their submerchants, while ISOs cannot. In the ISO model, on the other hand, merchants contract directly with the acquirers, and the ISO is sometimes included as a third party to those agreements for non-payment related services or perhaps for secondary branding purposes. PFs are also allowed to own their own submerchant portfolios and may move them to different acquirers, while portability depends on the contract in an ISO situation and is typically far more limited.
Acquirers also have stricter requirements for ISOs when it comes to things like merchant applications and onboarding, which must be determined by and presented as that of the acquirer. While PFs must, of course, also adhere to the acquirers’ mandates for merchant oversight and demographic collection, they have some freedom to create their own applications and processes within those boundaries.
The freedom granted to PFs enables them to have more control over their merchants’ experience, creating processes and business practices tailored more specifically to those customers’ needs.