The evolution of ISO and PSP business models

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Historically, the US payments market was characterized by the Independent Sales Organization (ISO) model, which took care of different processes in the payment value chain.

This included processing, liabilities, risk management, underwriting and all services in Europe that are done primarily by acquiring banks. Across the Atlantic 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.

Until now, those two models have coexisted in harmony, since Europe has mainly been an alternative payments market and the US more of a card payments one. But in the new e-commerce landscape, these two business models—ISOs and PSPs—are evolving into something completely different.

Consumers have an increasing tendency to shop globally. There’s a whole world of possibilities when it comes to searching online for a wider range of products and services, hunting special deals, or just comparing prices, quality or product availability in different countries. This trend has prompted merchants to start looking beyond their borders and expand their business internationally.

That’s where cross-border e-commerce comes in. It’s helping PSPs, ISOs, acquiring banks and merchants around the world to benefit from the endless opportunities offered by e-commerce growth. This led to a shift in the payments market: domestic processing lost its importance as a sole solution and became integrated as part of a bigger, combined and globally-oriented payment processing solution.

So where do we see this shift happening in PSP and ISO models? The US’s ISOs will eventually borrow more and more features of the PSP model by offering additional alternative payment methods. And the European payments market is moving into a space where cards are more important.

In the EU, regulations like PSD2 that payment services providers are compliant with are changing the landscape. Now there are more opportunities in the card processing sector that will allow them to take over work that was previously only in a bank’s domain, like underwriting, processing and even membership in card schemes like Visa and Mastercard. This means they can act as acquirers to issue or acquire a card transaction performed within the schemes.

Essentially, the European PSP model is now shifting towards a similar setup to the ISO model and vice versa. And American ISOs are becoming more of a PSP model by offering different kinds of alternative payments methods.

What’s more, due to increased competition and price compression, many ISOs have decided to tailor their business model to focus on fewer industries and create customized products and solutions. This ISO specialization will help merchants solve operational challenges and attain a deeper understanding of their own industry. Keep an eye on these trends with us to watch the payments world keep evolving.

The author

Gijs is one of the three Payvision's co-founders and acted as our COO until April 2020. He’s got extensive knowledge on the e-commerce and global payments industries, especially when it comes to joint ventures and strategic investments. With his industry expertise and know-how on the growth of the e-commerce sector, Gijs has become a distinguished panelist at events.

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