By Donna Sesto Neary
Payvision
As ISOs and merchant level salespeople (MLSs), do you ever wonder what your European counterparts are like? Do you know whether ISOs and MLSs across the pond conduct business the way you do?
Are they even referred to as ISOs and MLSs? This article will explore those questions, and more, as well as take a look at the card-not-present (CNP) acquirer landscape in Europe.
To begin with, the term "ISO" is not widely used in Europe. Rather, the term "payment service provider" or "PSP" is common. Throughout Europe, PSPs work closely with and under the direction of financial institutions and banks.
They do not have the independence of American ISOs, so calling them independent sales organizations is not appropriate. The terms "MLS" and "agent" aren't used at all because all sales professionals working for PSPs are salaried employees.
Also, PSPs are generally in the small to midsize range and have fewer than 100 employees. However, larger PSPs tend to resemble their American Super ISO counterparts and are comparable in size and infrastructure. In addition, there are far more small ISOs in the United States than there are small PSPs in Europe.
PSPs have been doing business in Europe for about 20 years. And, just like in America, new ones are cropping up every year. That means competition is fierce and growing as merchant acquiring becomes more accessible.
Like their American counterparts, PSPs can be aggressive, but new regulations in Europe are making market entrance more challenging. So, as the European market grows, so does the desire to get into merchant acquiring, but the barrier to entry is becoming harder to overcome.
It is much easier to enter the U.S. market as a player than it is in Europe. Many factors in Europe are involved: 25 different European countries, myriad alternative payment options and a history of core acquirers and bank processors.
You might be surprised that the basic difference between American ISOs and European PSPs can be summed up in one word: liability. The majority of PSPs do not carry any liability on any acquiring deal. The banks carry all the liability. Again, PSPs are facilitated through their sponsor banks.
While some PSPs possess their own bank identification number, do their own underwriting and work off their own processing platforms, many PSPs are owned, in part, by a bank or financial institution.
Pricing structures for PSPs may be similar to ISOs, but they do not have as many options as their American colleagues. U.S. ISOs enjoy tiered pricing, bill-back, cost plus, per item fees - basically, more flexibility.
That translates into more advantageous portfolio management for ISOs. The majority of PSP offers are limited to bundled pricing, which restricts offerings. But in recent years there has been an increase in business maturity throughout Europe. The international marketplace is starting to see PSPs adopting a structure similar to that of U.S. ISOs.
One concept unique to the European market is inter- and intra-regional interchange. European merchants can qualify for either one. Intra-regional encompasses all of Europe, whereas inter-regional denotes areas outside Europe. In contrast, the U.S. marketplace uses one interchange with multiple categories, not inter- and intra-regional versions.
Another surprising difference between ISOs and PSPs is in the CNP arena. The global CNP market is different than in the United States in that PSPs each service one lead merchant with sub-merchants under it.
These are called Internet Payment Service Providers and facilitate one master merchant account that is basically structured to support sub-CNP merchants - resembling a vertical archetype. Needless to say, this is not a common practice in the United States. Again, global platforms are being developed that focus on this unique type of CNP merchant.
In recent years, global processors have introduced new platforms to support international merchants. These platforms help ISOs and PSPs both in the United States and Europe to assist global merchants that do business in multiple regions.
Because of these innovative global solution providers, ISOs and PSPs can enjoy one structure, similar pricing strategies, products, reporting and reconciliation - all standard services that U.S. ISOs offer.
Most European PSPs are focused in the country where they are located. Not every PSP is licensed for cross-border transactions. Yet some are starting to focus on the American market.
This translates into a new opportunity for U.S. ISOs: partnering with European PSPs. Savvy U.S. acquirers are putting together cross-border deals and aligning themselves with several European banks. PSPs want to partner with their American counterparts.
They see it as a necessary step to fulfill their merchants' desire to expand their customer base to include American consumers.
European PSPs are viewing U.S. ISOs very closely - using them as a learning tool, extracting what works and making it their own. The U.S. market tends to be more myopic. Assessing markets from a global business perspective, Europe is looking at America, and America is not looking back.
The U.S. perspective of international processing is often limited to offshore acquiring for high-risk merchant accounts. Having this perspective significantly hinders opportunity and enhances attrition of America's CNP merchant base. U.S. ISOs need to expand their awareness, and fast.
Conversely, the biggest similarity between these global arenas is disclosure. European PSPs take full disclosure seriously. European legislators have initiated the Payment Service Directive, which is a comprehensive set of rules, regulation and guidelines that every PSP must follow.
It is interesting to note that in the U.S., government involvement in payment processing is minimal compared to the European market, which is heavily regulated by government agencies.
So, where are European PSPs heading? Industry experts predict you will see fewer PSPs because of the increased number of mergers and acquisitions sweeping across Europe.
Another change will be the crossover from credit card to debit card in Europe and the predicted monopolization by Visa Inc. and MasterCard Worldwide of the market.
Because of these challenges, PSPs will move toward consolidation of local payment types. Unlike the United States, where one currency is used, each individual country throughout Europe employs local payment types. PSPs have to be conscious of this and will need to become more cross-border friendly.
Donna Sesto Neary is Director of Business Development at Payvision. She can be reached at d.neary@payvision.com.
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