Kostiantyn Prymak
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ISO/MSP: Role in Payment Processing

Kostiantyn Prymak

ISOs and MSPs are pivotal entities that facilitate credit card transactions for businesses. However, many businesses still have a lack of knowledge on their functions and characteristics. Today we will discover more on the definitions, roles, and challenges of ISOs and MSPs, highlighting the tips and tricks how they can simplify these challenges

What is an ISO/MSP?

Independent Sales Organisation (ISO) and Merchant Services Provider (MSP) are third-party companies that partner with Card Association member banks, like Visa and Mastercard, to provide payment processing services to merchants. While these terms are often used interchangeably, Visa typically uses “ISO,” and Mastercard prefers “MSP.” These organisations act as intermediaries, enabling businesses to accept card payments without directly handling the funds themselves

According to GITNUX, managed IT services, including those provided by MSPs, are expected to see a compound annual growth rate of 8.1% through 2026​​. In 2024, 56% of companies reported significant cost savings by partnering with MSPs, with operational efficiency improvements of up to 60%​. These statistics highlight the expanding role of MSPs in the broader IT and payment processing landscapes

Main Characteristics of ISO/MSPs

ISOs and MSPs offer a range of services that go beyond mere payment processing. Here are some of their key characteristics:

Merchant Account Setup

ISOs and MSPs assist businesses in setting up merchant accounts, which are essential for processing card payments. This process involves underwriting, where the financial stability and risk level of a merchant are assessed before they are approved for a merchant account​​. This service ensures that businesses can accept credit and debit card payments efficiently and securely

Risk Management and Fraud Protection

ISOs and MSPs play a vital role in risk management and fraud protection. They offer services such as transaction monitoring, fraud detection tools, and chargeback management. These services help merchants minimise the risk of fraudulent transactions and ensure compliance with industry standards, thereby protecting both the business and its customers​

Value-Added Services

Beyond basic payment processing, ISOs and MSPs offer various value-added services designed to help businesses optimise their operations. These can include:

  • Data Analytics: Providing insights into sales trends, customer behaviour, and transaction patterns
  • Reporting Tools: Offering detailed reports on transaction history, chargebacks, and payment processing fees
  • Management Tools: Integrating payment systems with other business management tools such as accounting software, CRM systems, and inventory management systems​
Technology Integration and Innovation

ISOs and MSPs often provide solutions that support the latest trends, such as mobile payments, contactless transactions, and biometric authentication. This commitment to innovation helps merchants stay competitive in a market​

Compliance and Security

Ensuring compliance with industry regulations and security standards is a critical function of ISOs/MSPs. They help merchants adhere to PCI DSS (Payment Card Industry Data Security Standard) requirements, which are essential for protecting cardholder data and maintaining the integrity of payment transactions. This compliance not only safeguards the business but also enhances customer trust​ 

ISO/MSPs vs. Other Payment Facilitators: Key Differences

In the payment processing ecosystem, various actors play distinct roles to ensure smooth and secure transactions. While ISO/MSPs are critical intermediaries, it’s important to differentiate them from other entities like Payment Service Providers, Payment Gateways, and Acquiring Banks. Here’s a detailed comparison to help you understand their unique functions and interactions:

ISO/MSPs

Role: ISO/MSPs are third-party companies authorised by credit card networks to resell merchant services. They act as intermediaries between acquiring banks and merchants, facilitating the setup and management of merchant accounts

PSPs

Role: PSPs offer comprehensive payment processing services directly to merchants. They manage the entire transaction process from start to finish, including authorisation, capture, and settlement

Services:

  • Payment Gateway Integration
  • Fraud Prevention
  • Multiple Payment Methods
  • Global Reach

Payment Gateways

Role: Payment gateways act as the technology bridge between a merchant’s website and the acquiring bank. They securely transmit payment information from the customer to the acquiring bank for authorisation

Services:

  • Transaction Authorisation
  • Data Encryption
  • Integration
  • Real-Time Processing

Acquiring Banks

Role: Acquiring banks are financial institutions that process credit and debit card transactions on behalf of merchants. They hold the merchant account and manage the settlement of funds

Services:

  • Merchant Account Provision
  • Transaction Processing
  • Settlement
  • Chargeback Management

Challenges Faced by ISO/MSPs

Despite their essential role, ISOs and MSPs face several operational challenges. Here are the main hurdles:

Challenge 1: Building a Processing Solution

Developing robust payment processing software is a significant challenge. It requires substantial time and financial investment. Many ISOs/MSPs lack the resources to develop such infrastructure independently

Solution: Partnering with a white-label payment gateway allows ISOs/MSPs to use existing infrastructure under their brand, offering a wide range of services without the need for extensive development. This approach is faster and more cost-effective

Challenge 2: Hiring and Maintaining an IT Team

To develop and maintain their processing systems, ISOs/MSPs need a skilled IT team. Finding and retaining such talent can be difficult and expensive, especially in the competitive fintech industry

Solution: Utilising a white-label solution can alleviate this burden. These solutions often come with dedicated support teams, allowing ISOs/MSPs to focus on business development rather than technical issues​

Challenge 3: Registrations and Audits

ISOs/MSPs must register with credit card associations like Visa and Mastercard, a process that involves rigorous documentation and compliance checks. This can be time-consuming and complex. The other issue is a PCI DSS certification, which is must-have to operate in financial sector

Solution: White-label payment gateways often simplify the registration process by ensuring compliance with industry standards, helping avoid costly mistakes and fines​

Challenge 4: Managing Financial Flows and Risks

Effectively managing transaction flows and identifying payment risks is crucial. Without the right analytics and management tools, ISOs/MSPs may struggle to maintain their business health and client satisfaction

Solution: Advanced analytics provided by white-label solutions offer real-time insights into transaction statuses, merchant account balances, and other critical metrics. This visibility helps in better risk management and decision-making

Challenge 5: Signing Contracts with New Partners and Clients

Building a client base in a competitive market can be tough, especially for new ISOs/MSPs. Establishing trust and credibility with merchants and acquiring banks is essential but challenging

Solution: White-label providers propose customer-oriented and highly-effective payment services, allowing to attract more potential clients. It can help ISOs/MSPs quickly build their portfolio and start generating revenue faster​

Conclusion

ISOs and MSPs are vital players in the payment processing industry, providing essential services that enable businesses to accept electronic payments securely and efficiently. By understanding the roles, challenges, and solutions available, businesses can make informed decisions about partnering with ISOs/MSPs or even becoming one themselves, leveraging the benefits of established infrastructures and networks to streamline their operations and focus on growth.

Despite facing significant challenges, partnering with a white-label payment gateway can provide ISOs/MSPs with the tools and support needed to overcome these hurdles and thrive in a competitive market. Transferty provides the high-quality white-label payment solution, ensuring the smooth and effective payment process. Contact our sales to get more information how Transferty can streamline your growth

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