A Guide to Understanding Integrated Payment ModelsMary Ann Felts
As a developer building out solutions for your merchants, you may not realize you have a choice when it comes to the payment model you select. Payment technology is constantly evolving, and choosing the best approach to integrate payments can be confusing. The terminology and industry buzzwords are enough to make anyone’s head spin!
In this post, we break down the differences between a few of the most common routes you can take when it comes to integrated payment models: independent sales organization (ISO), full-fledged payment facilitator (PayFac), or PayFac-as-a-Service (PFaaS) models. While all of these options allow you to integrate payment processing and grow your revenue, there are several key differences to consider when deciding which one is right for your business. The model you choose will impact merchant account approval times, fee structures, capital expenses, revenue opportunity, and your level of risk. In order to understand all the in’s and out’s, let’s dive into a breakdown of how each one works and explore the benefits.
ISO Payment Models
How It Works
In the Independent Sales Organization (ISO) model, merchants interact with the payment processing provider to apply for their own merchant account to begin accepting payments. This process typically takes several days to a week to get approved while your merchants are evaluated for risk and underwritten.
In this model, the developer or business owner receives a share of the revenue based on a few factors, including industry interchange rates and the number of transactions that are processed each month. Merchants will typically pay a monthly fee in addition to the aforementioned variable interchange rates.
ISO Model Benefits
Revenue share: By facilitating payment acceptance as a part of your service, you receive a revenue split from the payment processing provider—an additional income stream that can supplement your existing revenue.
Limited Risk: Since the payment provider underwrites merchants and issues each one a unique merchant account, the provider bears the burden of risk when it comes to fraud, chargebacks, and PCI compliance.
Minimal Upfront Capital Investment: In general, working with a payment provider eliminates the need to build your own payment gateway, an undertaking that requires time and capital.
How They Work
PayFacs essentially build a payment infrastructure from scratch. In this model, the ISV would need to acquire sponsorships from processors or banks, build gateway integrations, develop payment processes, hire payment specialists, maintain PCI DSS standards, and much more. Once this process is completed and a solid infrastructure is in place, the developer or ISV opens a master merchant processing account with an acquiring bank so that it can serve a myriad of sub-merchants as a payment facilitator. The ISV determines the processes behind onboarding new merchants including ID verification, underwriting, and risk monitoring, in addition to managing ongoing customer needs such as chargeback handling.
Maximum revenue potential: In theory, as a PayFac, you have greater control over profit margins and have the potential to earn more revenue than you would by working through an ISO.
Control of the Customer Experience: Since PayFacs build and maintain the payment infrastructure, relationships, and processes, they also control the complete payment experience for their customers.
Traditional PayFac Model Considerations
While this model gives the business owner complete control of the payment process, it also means taking on another core competency—potentially monopolizing developer resources. This model also requires a large up-front investment and ongoing maintenance costs that present a significant barrier to entry for many businesses. This model can take months or even years to get up and running to start earning money. Many ISVs rarely reach the scale needed to fully realize a monetary payoff. Additionally, the developer or business also assumes all the risk in processing the payments of its merchants.
How PFaaS Models Work
PFaaS models offer developers a quicker path to becoming a PayFac by utilizing the payment provider’s existing infrastructure and banking relationships to offer a plug-and-play PFaaS model that includes many of the same benefits a typical PayFac would enjoy, but with less investment and risk.
Increased Revenue Opportunity: Integrating payments into the software or business process is much easier than with other models, allowing business owners to onboard more clients faster. The nature of this model also gives developers and business owners more revenue potential since payments are integrated into merchant processes.
Enhanced Customer Experience: This model enables the business, now acting as a payment facilitator, to bring their merchants a seamless onboarding process and full control over their clients’ end-to-end processing experience.
Instant Account Approval: Merchant accounts are approved instantly with no waiting period.
Reduced Risk: Risk is reduced as the PFaaS provider is responsible for maintaining compliance with PCI DSS, anti-money laundering, know your customer, and other regulations.
Reduced UpFront Investment: PFaaS models allow businesses to act as a PayFac and reap the rewards without huge investments in capital—while also leveraging a breadth of payment methods and value-added solutions not found when going directly to an acquirer.
Cardknox Payment Processing Solutions for Developers
Cardknox offers both an ISO and a PFaaS model to deliver integrated payment processing to your merchants. Each one offers revenue sharing opportunities, streamlined merchant management through our Merchant Portal, and the same white-glove service you expect. Use the chart below as a quick guide to determine which of our models—Cardknox Traditional or Cardknox Go PFaaS—is a better fit for your business.
|Key Differentiators||Cardknox Traditional Model||Cardknox Go PFaaS|
|Customer Onboarding Experience||Merchants interact directly with Cardknox for account setup.||Merchants interact directly with you, the ISV Partner, for account setup, providing more onboarding control for the Partner.|
|Account Set-up Process||Each Merchant signs up directly with a processing bank, and obtains a unique merchant ID and processing account.||The Partner is set up with an account through a processing bank to serve its sub-merchant customers.|
|Merchant Account Approval Time Frame||Several days to a week||Instant|
|Revenue Share||Split revenue share based on market rates.||More predictable and higher revenue share potential.|
|Merchant Fee Structure||Low variable rates for Merchants plus a monthly fee.||Flexible pricing models with no monthly fees.|
|Risk Management||Cardknox assumes payment processing risk.||Cardknox and the Partner share in payment processing risk.|
|Cardknox Merchant Portal||Full access to manage all your merchant accounts in one place.||Full access to manage all your merchant accounts in one place.|
|White-Glove Customer Service||One-to-one phone and email support for you and your Merchants.||Dedicated Partner support to help you serve your merchants.|
Ready to Get Started?
If you’re ready to partner with Cardknox for your payment processing needs, contact us today!