Three Payment Processing Models For Retail MSPs

If you’ve considered adding payment processing to your lineup of MSP services, good for you. You’re looking at a nice competitive differentiator. But did you know that there’s more than one model for moving into the business and increasing the stickiness of your retail and hospitality clients? Let’s take a look at three different options.

1-Referral partnership with agents: In this model, you wouldn’t actually sell payment processing services or technology. Rather, you’d refer managed IT clients that need payment processing services—or to which you want to sell payment processing services—to a sales agent. Some agents work for independent sales organizations that provide payment processing services to merchants and may also sell point of sale terminals. Others handle sales to merchants on a contract basis. In either situation, you’d receive a fee for each referral you make, but wouldn’t otherwise “share” the account with the ISO served by the agent.

On the positive side, being a referral agent is a good way to get your payment processing feet wet—to learn the lingo and build a foundation for delving more deeply into payment processing. The disadvantage is, of course, smaller fees than would otherwise be collected.

2-Partnership with ISOs or acquirers: This type of partnership usually involves an arrangement where the ISO sells the actual merchant accounts and, in most instances, handles the necessary account setup paperwork, while the MSP sells the technology, executes integration and upgrades, and services accounts going forward. Here, you’d pocket a share of recurring revenues without the burden of signing on merchants for processing services and setting up accounts (the responsibility here falls on the ISOs’ shoulders). You’d also generate profits from offering point of sale software as a service, and from selling any payment hardware (if that’s in your wheelhouse) or providing hardware as a service. The major pitfall of allying with ISOs/acquirers, though, is that your solutions and systems must integrate with the payment processing gateways supported by the processors with which your ISOs/acquirer partner works.

3-Partnerships with processors: Once the exception rather than the rule, this approach has really taken hold.

MSPs that adopt the processor partnership collect a percentage of the fee for each transaction processed. Variables that affect the percentage of transaction fees you’d collect under the processor partnership umbrella include the size of your merchant base, the ease with which payments can be integrated into your applications, and the scope of your sales staff. MSPs’ ability to offer to merchants almost or entirely turnkey business solutions that incorporate processing, rather than more basic POS solutions with no ancillary capabilities (e.g., reporting) and a payment processing piece, allows them to bring in the largest possible cut of transaction fees.

In addition to such potentially hefty transaction fees, you’d benefit from partnerships with processors. Why? Processors typically don’t insist on maintaining exclusive arrangements with MSPs and other partners. So, working in this model, you’d have the freedom to sign and service merchants that use a competing processor—opening doors for attracting a broader cadre of merchants.

What’s more, reputable processors themselves serve up a range of “perks” to their partners, including the latest research and design for gateway solutions and help ensuring merchant compliance with the Payment Card Industry Data Security Standard (PCI-DSS) and Payment Application Data Security Standard (PA-DSS) requirements—the complexities of which might otherwise pose a challenge to MSPs attempting to incorporate payment processing into their roster of offerings.

Payment processing is a great option for MSPs that play in the retail sector, and the beauty of these three models is that you can start with #1, above and gradually expand as you choose or as your circumstances and plans change. Pay up!