The Regulatory Face of Payments as a Service

Unbundling ISOs, Expanding the Card Payment Ecosystem, Spreading Mass Confusion

I don’t think you understand how weird it was to pay with a card in the 90s.

We understood punch cards back then: buy coffee ten times, get one free. But we couldn’t imagine the idea of using credit to pay on a daily basis. That sounded pretty bad.

Until we had the ISO.

ISOs are to banks what car dealers are to carmakers: incentivized intermediaries.

Their role was to make it easier to get businesses through the endless amount of hoops required to be able to accept card payments. And believe me: in the beginning, there were just too many, and the skepticism was a deterrent.

Not true anymore.

Western societies have now normalized the use of credit cards to pay for everything. The “punch card” feature has ballooned, and so has the ability to put off payments. Cash is, for some, vintage, but for most, old-fashioned.

Accepting cards is something that businesses cannot not do.

ISOs played a pivotal role in making the use of a credit card routine. And while they exist, they’ve disintegrated into a whole industry of players that call themselves by different names, and offer different things.

These are the PSPs, or Payment Service Providers.

We will use the term “provider” to refer to parties who are providing access to the payment systems to end users and/or other providers.

— Payment Systems in the US

There is a lot of confusion about PSPs. I’m tired of seeing LinkedIn posts that segment PSPs into Merchants of Record, Payment Facilitators, Acquirers, Gateways and Orchestrators, and then proceed to fill these categories with examples that are plainly wrong.

Not just slightly wrong. Totally wrong.

This, I believe, is in part caused by the ambiguity on the part of PSPs so that they can say that they somehow play all the roles.

That ambiguity is deliberate. In practice, you cannot play all these roles.

This is The Payments Engineer Playbook. In this 2 part series, we’re setting the record straight: you’ve heard of Merchants of Record, PayFacs, Acquirers, Gateways and Orchestrators, the flavors of PSPs. But you’ve been left wondering what’s exactly the difference among them, and why and how a PSP can fulfill one or more of these roles.

In this first part, we’re looking at how PSPs are distributed over the spectrum of regulation. Paid subscribers can read the whole the article, and bookmark it for future reference. Free subscribers can instead read all about the value of payment orchestration, the issues with gateways accepting rebates, or the opportunities for embedding payments at Gumroad.

Let’s dive in.

The Regulation Platform

In this newsletter, I use PSP and Platform interchangeably. It’s deliberate.