Which Payment Strategy Is Right For You: Payment Facilitator or ISO?

Are you interested in helping your customers process credit card transactions, but not sure which approach is best for you? You’re not alone. Most companies offering goods or services online (e.g. software, e-commerce, consulting, POS systems, etc.) combine credit card payment processing with their other services to increase their value to customers. However, it can be challenging to determine which payment strategy is best for you.

There are two primary strategies to consider if you’d like to offer credit card processing services to your customers. One is to become an independent sales organization, commonly known as an ISO. The other is to become a payment facilitator.

Each approach has its own set of pros and cons. The decision should be based on your unique needs and objectives as well as the type of experience you want to deliver to your merchant customers and their cardholders. Below is a description of each approach and how it could work for you.


The Pros and Cons Of Leveraging An Independent Sales Organization (ISO) Model

An ISO is a reseller of credit card processing services. To become an ISO, you establish a resale agreement with an existing payments processor, such as a bank or similar financial institution. You then resell that firm’s services under your brand, earning a small share of revenue from each customer you enlist.

The benefit of becoming an ISO is that it’s easy to get up-and-running. You don’t have to process payments yourself, monitor for fraud, or manage refunds and chargebacks. You don’t need to provide your own technology or significant resources. You simply sell services to new customers and then link those customers to your partner’s processing operation.

On the other hand, this reduced responsibility and overhead comes at the cost of control of your customer’s user experience. Since your processing partner manages the bulk of the processing responsibilities (including fraud protection, temporary holds, refunds, and chargebacks), the ISO approach may not create the best experience for your customers.

For example, ISO signup processes can be rigid and complicated. It may require your customers to fill out lengthy applications, undergo credit checks, and provide significant documentation before they are approved to accept transactions. Additionally, your customer’s fee statements will likely come from your partner. Those statements may not be clear, making it difficult for your customers to understand the pricing of the services. If your partner doesn’t provide great service, it could damage your relationship with your customer or even hurt your customer’s relationship with their clientele.

An ISO approach may be appealing if you simply want to resell services and get up-and-running quickly. However, this fragmented experience may not be the best approach if you want to provide sustainable, long-term value to your customer.


The Pros and Cons Of Becoming A Payment Facilitator

The second option is to become a payment facilitator. This allows you to control the entire customer experience, enhance your level of service to them, and increase your levels of revenue. However, becoming a payment facilitator requires a robust organizational transition and a lot of responsibility moving forward.

As a payment facilitator you take on the responsibilities associated with processing payments, managing cases of fraud and chargebacks. That means you will need to align your business with the right partners, technology and personnel to meet the requirements of credit card networks, like Visa and Mastercard. Aligning with the incorrect partners or tools can be the difference of a successful or unsuccessful transition to become a payment facilitator.

However, if you take a strategic approach to understand the right payment facilitator strategy for your organization, the process could pay long-term dividends. As a payment facilitator, you have complete autonomy over the customer experience. You control the service, payment processing, fraud mitigation, and reporting.

When you own the process, you’re able to control the type of service that is delivered to your customers. You can simplify the billing so they know exactly how much they pay for the service and you can tailor your offerings so that they receive the service and support that best helps them grow. Instead of a cookie-cutter billing and invoicing schedule, you can build payments plans that best reflect the conditions your customers face by taking into account items like seasonality, working capital requirements, reserves, merchant reputation, etc.

You have more flexibility to handle issues including more complicated items like fraud or on-boarding. For example, as you implement your own fraud solutions and onboarding workflows you can chose to whitelist certain customers based on your prior relationship with them.

To successfully incorporate payments into your business strategy, your business should determine how payments can both help service the increasing needs of your customers and increase the value of your organization.

If your customers handle more standard e-commerce transactions or your company does not quite have the resources or bandwidth to take on more of the processing responsibilities, it may make sense to become an ISO and rely more heavily on a good payments partner.

However if you’ve developed the tools and expertise to better support your customers or your customers require a more complicated payments flow, becoming a payment facilitator may be the best way to help you and your customers grow.

Stay tuned for more payments strategy guidance

Payments may not be your core business, but it may present a strategic opportunity for you to better serve your customers. Is it the right decision for you?

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