How ISVs and ISOs can control the customer experience without the risk

By Peter Fitzpatrick | 18 September 2018

What’s the main thing that payment facilitators have that ISVs and ISOs don’t? They control the merchant experience in ways that ISOs and ISVs can’t. Why? Risk decisioning lies with the payment facilitator.

A great customer onboarding experience can be characterized by speed and ease, but the underlying drivers are how long it takes to complete the application and how long it takes to get it approved. Many ISOs and ISVs have already streamlined the application process as best they can, but hit a roadblock when it comes to faster approvals because they can’t make their acquirer or third party assess risk any faster.

Risk management: a competitive advantage for Merchant e-Solutions

Merchant e-Solutions is both a merchant acquirer and global processor, processing over $17bn in annual transaction volume and supporting 150 global currencies including all major credit cards, debit, and alternative payment solutions. Last year, they partnered with Agreement Express to produce their own Risk Scorecard and have been achieving semi-automated underwriting to offer their merchants a competitive application experience and faster approvals.



Now, Merchant e-Solutions is starting to work with payment facilitators and ISVs to deliver what they refer to as “Underwriting-as-a-Service”. Eric Haru, EVP of Risk and Compliance and James Scarborough, SVP of Strategic Partnerships at Merchant e-Solutions, spoke with us about what this entails and why it’s important.

“Speed and efficiency in managing risk and underwriting is becoming a source of a competitive advantage,” said Eric Haru. “We’ve seen companies like Square using speed and efficiency of risk processes to differentiate themselves.” Today, there are thousands of companies claiming to be payment facilitators who control the merchant experience, but they are not actually doing the rest of what’s involved in being a payment facilitator, or a “mini-acquirer”, as some put it.

“Many ISVs we speak to like the idea of becoming a payment facilitator,” shared James Scarborough, “but as soon as we explain everything that’s involved, they begin to realize that what they really want is to control the experience, not burden themselves with regulations, compliance, underwriting, or money transmissions.”

Merchant e-Solutions traditionally works with ISOs and agent banks, but the majority of their growth last year came from partnering with ISVs with a focus on ecommerce-based merchants, B2B and ERP.

Scarborough shared that it’s important for acquirers to provide their ISVs and other partners with as many tools and as much guidance that they need to get started with payments onboarding. “We’re not just going to give you the rates and the specs and leave you to figure out the rest,” Scarborough said. Haru added that giving ISVs the right tools that they need to own more of the process helps give their partners more skin in the game. He said, “Greater ownership of the end-to-end process and customer experience will allow ISVs to better monetize their product offering and create more stickiness with their customers.”

The key question: to assume risk, or not to assume risk?

What is involved in equipping ISVs to onboard their own merchants? According to Scarborough, “Our partners can drive the experience, including fast boarding, and we’ll control the rest.” Having an automatic connection between partner onboarding and acquirer underwriting systems reduces the barrier to offering a frictionless merchant experience.

Merchant e-Solutions plans to give their partners the ability to deliver the merchant information to them in a more timely fashion by flowing directly through Agreement Express and their CRM. The plan, Scarborough said, is to “have a fully automated process where we can respond to any of our partners who are using Agreement Express with a merchant ID through an API.”

They will deliver the service in two options: risk assumption or no risk assumption. For ISVs who do not want to take on the liability, the merchant application information will flow through to Merchant e-Solutions seamlessly on Agreement Express and enter their automated Risk Scorecard for underwriting approval. The merchant ID will then be generated and funding will be managed by Merchant e-Solutions. “That’s what we call Underwriting-as-a-Service”, said Scarborough.

The ISVs who wish to assume risk have an option too. They can use the automated Risk Scorecard in Agreement Express to manage their own underwriting approval to get a more payfac-like experience without having to manage the funding. These partners can conduct their own KYC and dictate the level of credit risk they’re willing to take on until it reaches a certain threshold or produces risk flags in the Risk Scorecard that is monitored by Merchant e-Solutions. “You can take on a lot of things as a payment facilitator,” said Scarborough, “but we’re still going to pump the brakes when necessary.” Every ISV, ISO or payment facilitator wants their merchants to get boarded and approved immediately - and most of them can be. Partners expect this kind of speed, unless the risk level requires further examination.

How acquirers can help with merchant experience

Regardless of whether an acquirer is partnering with ISOs, ISVs, or payment facilitators, Haru reminds us that “The main goal is to be flexible and minimize unnecessary burden to our partners.” The more an acquirer can help their partners, the more applications their partners will send their way. When asked for advice on how to speed up the process, Haru said, “Speed and efficiency are always executive goals, and Agreement Express helps us be as efficient and flexible as possible in the onboarding and underwriting process.”

Many acquirers have seen significant growth with ISVs, but these new partners want to own as much of the merchant experience as possible. Leveraging APIs to receive merchant applications, and to send back a Merchant ID after conducting automated underwriting, allows acquirers to give their partners’ merchants a best-in-class experience.

This allows each player to stay competitive in a disrupted market where merchant experience is king, while remaining thorough and compliant to all KYC, AML, and other underwriting needs.

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