Over the last decade, there has been a massive decline in the number of cash payments and a massive surge in the count of debit and credit card payments. Interestingly, many of us are not aware of three important players (acquirers, ISOs, and PayFacs) in the realm of payment processing. All of them contribute to transactional fluidity and we will read about their respective roles in the credit card payment solution industry to accept credit card payments.

Acquirers

Also known as acquiring banks, acquirers establish a direct link between major payment networks (such as MasterCard, American Express, Discover, and Visa) and merchants. The primary responsibility of acquirers is to authorize and process digital transactions and ensure the seamless transfer of funds between merchants and consumers. They also uphold the integrity, credibility, and trust of the payment ecosystem and manage the complicated settlement processes, providing comprehensive reporting and reconciliation services to merchants.

PayFacs

Payment facilitators (or PayFacs) refer to a provider of merchant services that help businesses accept digital payments, both in-store and online. Some of the most popular names include PayPal, Stax, and Stripe. They fall in between acquiring banks/credit card processors and merchants, offering credit card processing services on a sub-merchant basis. Also known as aggregators and Payment Service Providers (PSPs), PayFacs enter into strategic partnerships with ISOs and multiple acquirers. PayFacs eliminates the requirement for merchants to navigate business relationships with different providers to accept credit card payments. They may also offer additional services such as advanced reporting tools and robust fraud prevention mechanisms.

PayFacs enter into partnerships with acquiring banks to receive a Master Merchant Account. The PayFac has the freedom of adding their customers to the account as sub-merchants while the sub-merchants have to abide by some stringent rules laid down by the acquiring bank and the acquiring bank takes on the liability for all transactions processed by the PayFac’s customers.

PayFacs also seamlessly integrate the services of different ISOs and acquirers to elevate the overall efficiency and integrity of the payment process.

ISOs

Merchant Service Providers (MSPs) or Independent Sales Organizations (ISOs) perform their functions as indispensable intermediaries to bridge the gap between merchants and acquirers. They facilitate the creation and management of payment systems while also offering a unified and holistic solution to the diverse and ever-evolving payment needs of merchants. Many ISOs are more than just facilitators as they actively engage in offering valuable sales and marketing support to offer custom solutions to meet the specific requirements of different businesses.

When did PayFacs and ISOs enter the picture of payment processing?

A big gap in payment processing for businesses, especially for software companies was exposed by the introduction of online payments. When ISOs first entered the market, they used to deal in the sale of ATMs and point of sale (POS) terminals for card-present transactions to small businesses. However, they moved away from just selling physical devices when the eCommerce movement began. This was the time when they started dealing in the sale of merchant accounts on behalf of acquiring banks and card processors.

Around the same time, many software companies (i.e., independent software vendors) that had started off integrating different payment gateways began operating as Independent Sales Organizations (ISOs) to grab the new revenue opportunity that was presented by digital payments.

An ISO is usually a reseller of merchant accounts and follows a hands-off approach when it comes to onboarding. On the other hand, PayFac manages the applications by merchants and their onboarding process, including underwriting. PayFacs invests a lot in payment infrastructure or technology as they need to build their in-house systems and apps. ISOs, on the other hand, depend mostly on the processor's technology.

ISOs have no risk management protocols and procedures in place as they don't assume any risk in the context of processing merchant transactions including losses arising from chargebacks, fraud, or merchants going out of business or bankrupt. On the other hand, the PayFacs undertake 100 percent of the risks involved with sub-merchant processing and therefore put stringent measures in place.

When it comes to ISO models, merchants enter into direct contracts with the payment processor. In some cases, the ISO may be included as a third party but it is not always a necessity. On the other hand, contracts are always drawn between the PayFac and merchants in the PayFac model. They may include the payment processor as a party to the contract but again this is not a necessity.

Independent Sales Organizations never get to manage the merchant's money. This is simply because transactions are entirely managed by the payment processor including authentication, authorization, and settlement. Moreover, the payment processor is entrusted with the responsibility of depositing the money to account of the receiving merchant. On the other hand, the collective funds of all sub-merchants are deposited by the payment processor into the master merchant account of the PayFac which, in turn, distributes the funds to the sub-merchants.

Conclusion

If you're looking for the best credit card payment solution to accept credit card payments, you can choose WebPays as your preferred payment processing partner. Our intuitive and all-in-one platform helps you accept credit card payments and other payments in a breeze without having to work with multiple vendors. The best thing is that everything is put fair, clear, and transparent right before you on the table so you don't have to ever worry about hidden fees, unpleasant surprises, or markups.

Joining hands with WebPays allows you to deliver scalable, customizable, frictionless, and white-labeled payment gateway processing solutions for your customers. Moreover, you can access more robust and out-of-the-box reporting and analytics features while gaining invaluable insights into settlements and transactions. This helps businesses gain invaluable insights into the behaviors, preferences, expectations, and requirements of its existing and potential customers. This, in turn, helps them make better, more informed, and proactive data-driven business decisions to increase revenue and improve customer engagement.

Still have questions? No worries. Contact us today to find out how your business can save a fortune by availing of our innovative credit card payment solution to accept credit card payments.