Once a company decides that it needs to have payment processing as a part of its product offerings, there are a number of ways to go about doing that. One of the easiest ways is to work with a payments services provider (PSP) like WePay. That lets you harness a payments infrastructure that’s already been built out instead of recreating the wheel by building your own, and depending on which PSP you go with, you might also get help with things like regulatory compliance and customer support.
But PSPs aren’t the only game in town. We’re a fairly recent innovation in an industry that in some regards hasn’t changed much since the 1970s, and as you might well imagine, there’s a lot of different legacy players offering a range of different services.
It goes without saying that we here at WePay have built the best possible payments solution for specific types of businesses — online platforms like crowdfunding sites, small business software providers and marketplaces that provide value by linking payers with payees without controlling one side of the transaction the way a traditional merchant might. Nobody else in the industry offers the same blend of flexibility, regulatory compliance and 100 percent safety from losses due to fraud.
Yet payments is an area where there really doesn’t exist a one size fits all solution, despite what PayPal might like you to think. Depending on the nature of your business and what your goals are, a different type of payments processor might be right for you. Here’s some of the different types of payments partners along with their pros and cons.
Gateway companies are the OGs of the payments world, providing a technology layer that enables a company to interface with an acquiring bank to process transactions. If you are looking to build your own payment solution from scratch, then you will probably need to work with a gateway. Gateways are not interoperable — every acquiring bank has different gateways that they work with. Some, particularly those that are wholly owned subsidiaries of an acquirer like Vantiv, only work with a single bank. Gateways offer flexibility and a lower per-transaction fee at the expense of significant upfront and ongoing costs associated with creating and running a payments system.
Examples: Chase Paymentech, First Data, Cybersource
- Extremely flexible with regard to the flow of funds, user experience, etc
- Large, reliable companies that have been around for decades
- Typically, lower per-transaction fees as middlemen are cut out
- Geared toward larger companies
- Developer tools are often outdated and hard to work with
- Contract negotiations take a long time and can be taxing
- The need to build comprehensive risk, compliance, and security teams and systems in-house at great expense
- Pricing is complicated — most work on a cost plus model with upfront costs, monthly minimums, exclusive contracts and termination penalties
- Not interoperable — going international will likely mean using a different gateway to interact with a different acquirer in each market, meaning a huge development load for every new expansion
Independent Sales Organizations (ISOs)
Independent Sales Organizations, or ISOs, are the value added retailers of the payments world. Their primary purpose is to market and sell merchant accounts to businesses on behalf of an acquiring bank. Most ISOs have a single acquirer they work with, but some of the larger ones work with several. It’s hard to generalize too much about ISOs, as it is a diverse industry — on the small end they may be little more than a sales office peddling merchant accounts to local brick-and-mortar businesses, while larger ISOs often offer a greater degree of technology, service, and support to their customers. ISOs are generally unsuited for platform payments, as their primary use case is providing merchant accounts for an end retailer.
Examples: Too many to list. Here’s Visa’s list of registered ISOs.
- Makes it much easier to acquire a merchant account from an acquiring bank
- Generally you have a single point of contact at an ISO which may lead to a higher level of support
- May offer a way for merchants in riskier industries to get an account, as some ISOs are willing to underwrite some of the risk in exchange for higher fees
- Platform payments are not a core competency, best for traditional e-commerce sites
- Setup may be technically difficult
- The need for platforms and larger e-commerce sites to build comprehensive risk, compliance, and security teams and systems in house at great expense
- Smaller ISOs may offer little in the way of additional services beyond a basic merchant account
Payment Service Providers (PSP)
Payment Service Providers, also called PSPs and payment facilitators are a newer class of payments companies that bundle an acquirer, processor, gateway and support for alternate payment methods into a complete payments solution. PSPs are very developer-focused, providing modern tools like APIs and SDKs as well as a complete technology stack for payments processing. The downside is that the most regulatory compliant of them will impose their own checkout flow on a transaction, which can hurt brand building and the user experience, while some that are more flexible offer less in the way of fraud mitigation and regulatory compliance.
Examples: WePay, Braintree, Stripe, Balanced, PayPal
- Modern developer tools and pre-built technology stacks that make it much easier to onboard new users and start accepting payments fast
- Lower upfront costs and better implementation support.
- Better adapted to the needs of platform companies
- (WePay specific) Handles 100 percent of regulatory compliance and risk management issues, as well as mitigating losses due to chargebacks
- Higher transaction fees
- Often co-branded, diluting the platform’s brand
- Often impose their own checkout flow, which can hurt conversions
To Sum Up
There are a lot of players in the payments space, all of them with slightly different product offerings geared to different types of businesses. A large multinational company is going to want to work with different partners than a mom-and-pop retailer, and a platform company is going to have different needs than a company that’s an end merchant. The key is finding the right kind of payments provider that meet your specific needs. If you’re a platform looking for an easy and simple payment API, WePay can help. Contact our API team at API@WePay.com to hear about how we make processing payments simple, safe, and profitable.