Payments Learning Resources

What is IPSP

Are you a merchant looking to accept credit card payments but are unsure of the actual iPSP definition, and what the relationship is between an iPSP, an acquirer and a payment gateway? 

IPSP Definition

Read on as we define the different players and their roles in the payment process.

As an ecommerce merchant, you are faced with a decision: who do you partner with in order to accept payments – an iPSP or an acquirer?

An iPSP (Internet Payment Service Provider), more often called a Payment Facilitator or even a Payment aggregator, is a service provider that facilitates payment transactions on behalf of sub-merchants or sponsored merchants. To clearly understand the IPSP definition, it is important to note that the iPSP signs a merchant agreement on behalf of the acquirer. The IPSP also operates a ‘master merchant account’ and receives settlements on behalf of the sub-merchants utilizing the account to accept credit card payments, in effect acting as a third-party biller. Conversely, Merchants choosing to work with an acquirer, work directly with a regulated financial institution that has a license with Visa and Mastercard, in order to accept payments.

How does an IPSP benefit online merchants

a black hand pointing to the word benefits

What is an IPSP and what are the benefits online merchants can derive from working with an iPSP versus an acquirer?

An Internet Payment Service Provider will work with an acquirer in order to open a merchant account, agree on pricing and complete the payment gateway integration process. When the iPSP merchant account is all set up and ready to go, the iPSP will then sign up multiple sub-merchants under its own Merchant Identification Number (MID) to enable them to accept online payments. Doing so allows the sub-merchants to bypass the more rigorous application, underwriting and technical process involved in opening an individual merchant account with a financial institution.

For example, an iPSP will have one MID with an acquirer under which they process payments falling within the travel merchant category code. Under the same account, the iPSP will then sign up several small travel agencies as sub-merchants who will utilize the same merchant account.

The iPSP will assume all risk and liability for their sub-merchants, and the acquirer will monitor the iPSPs registered with them, to ensure that the appropriate due diligence and compliance processes are followed when the iPSP boards the sub-merchants.

Sub-merchants on their end simply sign up with the iPSP to begin accepting payments from their customers.Typically, merchants with low transaction volumes are the ones opting to work with an IPSP.

Some of the benefits of choosing a payment aggregator for your business include:

  • ease of application
  • fast approval
  • simple pricing structure
  • acceptance of online payments instantly

Despite the benefits of the IPSP model, some merchants choose to open a direct account with a merchant acquirer like Powercash21 instead, to ensure the secure credit card payments processing of their business’ transactions.

Acquirer Vs. IPSP

The decision of choosing an IPSP or an acquirer is a very important one that every business needs to consider carefully. Some of the key differences to note between the two payment provider options, in order to determine which model is right for your business, include:

Account setup

A spanner icon in the foreground with a spanner in the background

IPSP – Account setup is much quicker with an iPSP. Account setup and onboarding is simplified as the iPSP undergoes the complete onboarding process with an acquirer themselves and then utilizes a simpler process to enroll the sub-merchants to their account.

Acquirer – the application and approval process lasts longer and it is more rigorous for the merchant. However, if approved, the merchant is given a unique MID meaning that the merchant processes under a unique account that the merchant has complete control over.

Payments processing

IPSP – With an iPSP all sub-merchants process their credit card payments under a shared MID with a number of other sub-merchants and whilst sharing one single descriptor. A descriptor is what appears on your customers’ credit card statement describing the transaction. Finally, there are limits and rules set by Visa and Mastercard as to how much volume a merchant can process under an aggregated account. Once those limits are surpassed the merchant needs to process under their own dedicated MID.

Acquirer – Payment processing is done through a dedicated Merchant Account when the merchant signs up with an Acquirer. The risk parameters and limits are set according to the business model of one merchant, and not the collective parameters set for a number of merchants as is the case with an iPSP. Furthermore, the merchant gets to choose a billing descriptor, clear enough to the customer regarding what the transaction was for. Why is this important? When your customers recognize a transaction listed in their statements, it is much less likely that they will question and dispute the particular transaction and in turn submit a chargeback for it with their issuing bank.

Fees and rates

IPSP – a payment aggregator is not very flexible on rates, and they usually have fixed prices and the rates offered are usually much more expensive than those of an acquirer.

Acquirer – Merchant acquirers are more competitive with their rates, especially since. with a direct merchant account. a layer in the payment process is removed. Using an iPSP is like utilizing an agent between the merchant and the acquirer.

Funds settlement

IPSP - Part of the agreement between the acquiring bank with which the iPSP is registered is the frequency of settlements. Depending on that schedule (e.g daily), the iPSP will first have to receive the settlement for all sub merchants from their acquirer, and in turn the iPSP will allocate those funds to each sub-merchant accordingly.

Acquirer – Merchants who partner with an acquiring bank like Powercash21, usually receive their funds faster, as the money gets settled to their direct merchant account, eliminating the extra reconciliation and allocation steps the iPSP is required to take.

Chargebacks and Fraud

a chargeback icon  surrounding a yellow dollar sign

IPSP – Sometimes an aggregated account is the only way for high risk merchants to get approved for payment processing. Sharing one single descriptor might confuse the end customer and lead to a higher chargeback rate on the account. In addition, since all sub- merchants fall under one single MID, all it would take is one merchant with excessive chargebacks and fraud, forcing the acquiring bank to close the account. Even if as a merchant you manage your chargeback and fraud effectively, keeping your merchant account live is subject to the rest of the sub-merchants you share the account with.

Acquirer – acquirers like Powercash21, offer a variety of fraud prevention and risk management tools that merchants may utilize to protect the payments they receive from customers. Risk and fraud parameters are customized to each dedicated MID, according to the merchant’s business and history. The merchants have full control and responsibility of their merchant account, and avoid the exposure risk characteristic of aggregated accounts.

Powercash21 – a better alternative than IPSP

Hopefully this article has clarified the IPSP definition and whether working with one is a good fit for your business. If you are still unsure, contact Powercash21

As a fully regulated acquirer licensed by Visa and Mastercard and offering merchant accounts to businesses in a variety of industries, we can provide you with more details on the difference between accepting payments through a shared versus a dedicated MID. Not to mention, the pros and cons of working with an acquirer such as Powercash21 vs an IPSP.

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