Who Can Leverage ISOs and PayFacs?

January 19, 2024

Why do Acquiring Banks Reject Merchants?

Acquirers act as the middleman between the Merchant and the Card Networks. They provide the infrastructure to communicate with, validate, and transfer funds from a transaction. As a middleman that approves and declines a sale, Acquirers need to follow strict compliance with Card Associations for fraud, disputes, and products/services for sale. Underwriting risk becomes incredibly important for not just saving money, but for protecting against reputation, litigation, compliance, and regulatory risk.

Luckily, an Acquirer is not the only way for Merchants to start accepting payments.

When the risk is too high or the Merchant needs specialized Payment services, then Acquirers may refer Merchants over to an ISO or Payment Facilitator (PayFac). These third parties work with high-risk and complex Merchants to get them set up with the infrastructure to take payments safely.

Leveraging ISOs

The biggest difference between an ISO and a PayFac is that ISOs set up Merchants with a MID. That means more flexibility around pricing models. ISOs also tend to be specialized in a specific industry. They help pre-approve and vouch for Merchants, using Acquirer relationships to influence the underwriting process.

Being specialized, ISOs create unique value by carrying Merchant specific solutions. They can look at an individual Merchant and get them set up with everything from POS terminals, Gateways, mitigations services/tools, and more.

Lastly, ISOs have a more flexible and complex pricing model. Instead of a flat rate, an ISO may charge by marking up interchange fees, adding ISO specific fees, transaction fees, monthly fees, incidental fees, and fraud and dispute and ancillary fees.

ISOs can be a better option for large, established Merchants. Being able to negotiate lower fees is worth the extra underwriting and added billing complexity. But instead of working directly with an Acquirer, ISOs provide dedicated and specialized customer support. They understand Merchant needs and carry the tools and knowledge for maintaining compliance.

Leveraging PayFacs

Instead of setting up a Merchant with their own MID, PayFacs get Merchants enrolled under a Master MID. They do all the underwriting and Know Your Customer (KYC), accepting the risk and responsibility. PayFacs tend to be quick and easy to enroll.

Like ISOs, PayFacs also offer industry specific solutions. Using a service that understands your unique business needs and pain points can feel smoother. But unlike ISOs, new businesses without any transaction history can find PayFacs willing to underwrite their risk more easily.

PayFacs can be a better option for smaller transaction volume—the time and money needed to be underwritten by an ISO might not be necessary for all Merchants. PayFacs are also attractive for the ease of getting started—simple onboarding, integrated solutions, and less stringent underwriting.

Slyce360 Provides Opportunity

Reporting on payments is messy—especially when dealing with transaction volume in the millions.

Right now, Processors only see payment issues as they happen. Maybe there’s a chargeback, maybe fraudulent activity, or maybe a card decline. Issues show up as a monetary number and MID without any more information attached. Since Risk Departments can’t spend the time to uncover every single root cause, payment issues and Merchant’s slipping out of compliance are both considered the price of doing business.

Slyce360 can solve this communication breakdown. It integrates with Merchant CRM data, giving everyone upstream, from ISOs and PayFacs to Acquiring Banks, more granular reporting on issues as they happen. Built-in insights open conversation between all parties, letting Processors know what’s happening and giving Merchants the tools to mitigate rising issues.

Learn more about Slyce360 today