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CNP EXPO Payvision on The Evolution of ISOs vs PSPs

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Historically, the US payments market has been characterized by the Independent Sales Organization (ISO) model, which took care of different processes in the payment value chain such as processing, liabilities, risk management, underwriting and all services which in Europe are done primarily by acquiring banks.

At the same time, in Europe the traditional payment service provider (PSP) model functioned as a gateway and was focused on bringing together many domestic payment options in a single gateway, with one service platform and one reconciliation.

Those two models co-existed, since until now Europe has mainly been an alternative payment market and the US more of a card payment one. In the new ecommerce landscape, however, the evolution of these two business models, ISO and PSP, becomes clearer and clearer.

Topics Covered:
- European Payment Market vs. American Payment Market – discussion from the business models perspective
- ISOs vs. PSPs
- The influence of online shopping behavior
- The evolution of the two business models

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CNP EXPO Payvision on The Evolution of ISOs vs PSPs

  1. 1. The evolution of ISO and PSP business models Gijs op de Weegh, COO Payvision and Joe Emig, VP Business Development – International Acquiring A presentation for CNP EXPO 2014 – GRAD SCHOOL May 2014, Orlando | Florida
  2. 2. Content 1. European Payment Market vs American Payment Market 2. The existent models of PSP and ISO 3. The influence of online shopping behaviour 4. The shift in the payment market 5. PSPs & PSD 6. Conclusion
  3. 3. 1. European vs U.S. Payment Markets Europe – an alternative payment market US – a credit card payment market
  4. 4. 2. The Existent Business Models – ISO The leading model in the US payments market is the Independent Sales Organization (ISO): o A sub-division between the ISO and the acquiring institution for different processes in the payment value chain such as marketing, sales, processing, loss liability, risk management, and underwriting - In Europe most of these services are handled primarily by the acquiring banks. - In the US ISO model, ISOs earn a greater share of revenue in exchange for performing more of the value chain processes. - ISOs develop their own value chain with an infrastructure that includes “front end” elements including marketing campaigns, sales channel partners (agents, referring parties), onboarding tools, and customer service.
  5. 5. 2. The Existent Business Models – PSP • Europe - the traditional payment service provider (PSP) model functioned as a gateway • focused on bringing together many domestic payment options in a single gateway, with one service platform and one reconciliation.
  6. 6. Online Shopping Behavior Influence • The increasing tendency of consumers to shop globally • The possibility of searching online for a wider range of products and services, special deals • Comparing the price, quality or availability of different products in different countries Cross-border ecommerce Creates opportunity for PSPs, ISOs, acquiring banks and merchants around the world to look beyond their borders and expand their business internationally.
  7. 7. PSPs Challenge Domestic payment option lost its importance as a sole solution and became integrated as part of a bigger, combined and globally-oriented payment processing solution.
  8. 8. PSPs & PSD • The payment services providers, compliant with the Payment Services Directive (PSD), have found more opportunities in the card processing sector which will actually allow them to take over the work previously considered the banks’ domain: underwriting, processing and even membership in card schemes like VISA and MasterCard, allowing them to behave like acquirers, to issue or acquire a card transaction performed within the scheme.
  9. 9. ISOs Challenge Domestic US ISOs have an opportunity to expand their service offering to include international payments and alternative payments. - The role of the ISO will remain the same: service the merchants directly by adding value at each stage of the payments process. - The function of the ISO must evolve: make new markets and a global opportunity available to merchants that have been limited to US selling options.
  10. 10. ISOs: Expanding Reach How and Where? Add key pieces to the value chain: Offer services in key markets: - Multi-Currency Processing (MCP) - European Union countries - Multiple currency gateway support - Asia-Pacific region - Consolidated reporting and funding - BRIC emerging markets - Alternative payment types - Know your merchant’s key target markets and needs Engaging with specialized global providers allows ISOs to bring a full-service international program to its merchants.
  11. 11. Specialization of ISOs Traditional challenges of the ISO model are: - Increased competition - Compressed pricing/margins How does the modern ISO stand out? Specialization – providing distinctive products and service offerings – increases customer loyalty and improves profit margins.
  12. 12. Conclusion • The European PSP model is now shifting towards the ISO model and vice versa, the American ISO is becoming more of a PSP model by offering different kinds of alternative payments methods. European PSP MODEL American ISO MODEL
  13. 13. Thank you! E-mail: gijs@payvision.com; j.emig@payvision.com

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