What are the pathways to becoming a front-end card processor?
Payments
Asked by Question Bot04/Aug/20131 answer
1 Answer
F
Faisal Khan
Answered 04/Aug/2013
To become a front-end processor one of the foremost prerequisites is to have domain knowledge about the field, which you clearly have since you have been a processor (albeit, as an affiliate I assume).
Becoming a front-end acquirer is absorbing all the risk that your clients collectively will pose to you. This means you need to be able to underwrite that risk, and in turn, the acquiring bank you work with to become an ISO/MSP, would need to qualify you for that risk. Simply put, you would need go through the underwriting process yourself as a master merchant. Whilst this may sound simple, it is not.
Banks do not like taking risks. To qualify you will have to demonstrate on various fronts that you are mitigating the risk, and will be able to absorb the losses (if any) and these risks/losses will not climb up the value chain back to the bank. This might involve you setting up a deposit with the acquiring bank to cover for such risk.
The most advisable path is to talk to various acquiring banks and understand the application path process in detail to becoming a fully qualified ISO/MSP. Depending on whom you interact with, the banks would be able to tell you where you lack (on a preliminary assessment) and you might need to make up on such areas before you apply.
Next you need to understand the financial advantage you will gain. Becoming a direct ISO/MSP does have a financial advantage, but it does come with a cost. Such costs would be insurance, additional financing, IT systems, Risk/Fraud systems, HR, recurring costs, etc. Without adequate processing volumes this could go against you in the short run, and you better have the finances to cover it till you break even and go on your way to profitability.
You could outsource your systems (this would essentially mean an additional charge on your MDR) as well as some base monthly fees. You would still need to either inherit or deploy a front/back office for accounting, fraud/risk, processing, customer support, etc. Which you may already have or not, depending on your current status.
One should really look at this leap of faith towards becoming an ISO/MSP when they have adequate processing volumes & Dollar value along with a rocksolid team to support front-end/back-end operations. The thought to go direct can be tempting, but caution is advised and best to reassess all your bases.
Becoming a front-end acquirer is absorbing all the risk that your clients collectively will pose to you. This means you need to be able to underwrite that risk, and in turn, the acquiring bank you work with to become an ISO/MSP, would need to qualify you for that risk. Simply put, you would need go through the underwriting process yourself as a master merchant. Whilst this may sound simple, it is not.
Banks do not like taking risks. To qualify you will have to demonstrate on various fronts that you are mitigating the risk, and will be able to absorb the losses (if any) and these risks/losses will not climb up the value chain back to the bank. This might involve you setting up a deposit with the acquiring bank to cover for such risk.
The most advisable path is to talk to various acquiring banks and understand the application path process in detail to becoming a fully qualified ISO/MSP. Depending on whom you interact with, the banks would be able to tell you where you lack (on a preliminary assessment) and you might need to make up on such areas before you apply.
Next you need to understand the financial advantage you will gain. Becoming a direct ISO/MSP does have a financial advantage, but it does come with a cost. Such costs would be insurance, additional financing, IT systems, Risk/Fraud systems, HR, recurring costs, etc. Without adequate processing volumes this could go against you in the short run, and you better have the finances to cover it till you break even and go on your way to profitability.
You could outsource your systems (this would essentially mean an additional charge on your MDR) as well as some base monthly fees. You would still need to either inherit or deploy a front/back office for accounting, fraud/risk, processing, customer support, etc. Which you may already have or not, depending on your current status.
One should really look at this leap of faith towards becoming an ISO/MSP when they have adequate processing volumes & Dollar value along with a rocksolid team to support front-end/back-end operations. The thought to go direct can be tempting, but caution is advised and best to reassess all your bases.