CNP EXPO Payvision on The Evolution of ISOs vs PSPs

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

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

1. European vs U.S. Payment Markets

Europe – an alternative payment market

US – a credit card payment market

2. The Existent Business Models – ISO

The leading model in the US payments market is the Independent Sales Organization (ISO):

oA 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.

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.

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.

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.

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.

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.

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.

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.

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

Thank you!E-mail: [email protected]; [email protected]