Is a Digital Payments Agent the Right Choice for Your Small Business?

Is a Digital Payments Agent the Right Choice for Your Small Business?

As digitization continues in the payments industry, cash and check payments are falling by the wayside. Many consumers are no longer enticed by a cash discount. Instead, they now make their purchases with credit cards.

According to a report by Insider Intelligence, credit card payments are expected to reach $1.82 trillion by 2024, up from $1.75 trillion in 2019. This represents a 0.79% compound annual growth rate (or CAGR).

Infographics Digital Payments Agent 1

Varied business entities are competing to serve the payment processing needs of small business customers. In this article, we’ll take a look at what a digital payments agent offers and whether they can be a viable option for small businesses.

Let’s get started.

Understanding the various payment services entities

The payment services landscape is populated with several types of service providers. Each varies in its operating structure and services offered to business customers.

Independent Sales Organization (ISO)

Think of an independent sales organization (or ISO) as a dedicated sales representative for a bank associated with Visa or Mastercard. Whether an individual or a team, ISO reps promote the member bank’s services to business owners.

Because of the ISO’s relationship with the credit card association, they can engage in practices that would otherwise be forbidden. Examples include advertising to potential customers, interacting with cardholders, and offering targeted payment solutions.

Each sales agent performs four primary functions for their sponsoring bank:

  1. Acquires and services new small business customers
  2. Executes payment processing contract logistics
  3. Markets point-of-sale (or POS) systems to target markets
  4. Promotes targeted customer service solutions  

Digital payments agent/Merchant services partner 

A digital payments agent handles all payment processing operations for small- and medium-sized businesses. Also known as a merchant services partner, this well-connected services provider works through a sponsoring ISO.

The sales agent convinces business owners to utilize the ISO’s payment processing functions. By building solid customer relationships, the agent receives residual income for the life of each ISO program. 

Highly successful digital payments agents do not focus on adding more customers to their agent program. Instead, they position themselves as solutions providers who can help facilitate their customers’ business growth. 

These valued partnerships often involve a higher level of collaboration than a typical sales interaction. Digital payments agents also benefit from referral business.

Payments aggregator 

A payments aggregator typically works with low-volume merchants such as individuals or start-up small businesses. Also called merchant services aggregators, these business entities usually avoid working with high-risk industries. The payments aggregator’s bank does not want the higher risk associated with these businesses.

Payments aggregators can provide business owners with three significant advantages: 

  1. They can quickly set up a business account so merchants can start accepting payments. 
  2. A payments aggregator can accept payments in different currencies. 
  3. Integrated security measures help with transaction security functionality.

However, a payments aggregator has three notable downsides. First, this payment processor uses a flat-rate pricing model with higher rates than an interchange-plus pricing structure. 

An aggregator does not cater to higher-volume merchants, so the aggregator’s services are not scalable. Finally, an aggregator may arbitrarily close a customer’s account if the business is deemed to have excessively high risk.

Infographics Digital Payments Agent 2

Merchant services provider (or MSP)

A merchant services provider (or MSP) furnishes the equipment and services needed to process card payments. Commonly used equipment includes a point-of-sale system that can also perform varied business services functions. Inventory tracking and sales reporting are common applications.

The merchant services provider maintains a direct connection to credit card associations (such as Visa and Mastercard). Because of this favored status, the MSP can access desirable base interchange rates. To retain this advantage, however, the MSP must pay a high annual fee to both card associations.

Besides facilitating card payments, the MSP helps each merchant to resolve unwelcome chargeback issues. Chargebacks can result from several sources. A chargeback typically results in a negative impact on the merchant’s bottom line.

The MSP may also assist with application programming interface (or API) issues involved in payment integrations. Finally, the MSP can explain why bank-based ACH payments use an entirely different electronic payments mechanism.

Payment services provider (PSP)

Individuals and businesses need a way to accept buyers’ debit and credit card payments. eCommerce businesses, online auction sellers, and other online vendors need credit card processing services. Plumbers, mobile dog groomers, field-based sales reps, and craft show vendors must be able to process mobile payments.  

Specifically, the product or service provider needs an electronic payment gateway through which each transaction is processed. The payment gateway also acts as the conduit for the transaction’s payment.

The customer can swipe, dip, or tap their card to begin the transaction. Alternatively, the service provider can manually enter the credit card information. A payment processor can easily execute these card-present or card-not-present transactions.

Many companies have full-featured POS systems. However, others operate with relatively minimal payment processing equipment. Field-based businesses often process sales with a smartphone and a mobile card reader.

Payment processing functions of a PSP

A payment services provider (or PSP) is an online payments processing company that offers payment solutions for varied needs. Payment methods include Visa, Mastercard, American Express, and Discover credit and debit cards. Apple Pay and other digital wallets are also gaining increasing consumer acceptance.

Each PSP opens a master account with an acquiring bank (also called the merchant’s bank). Next, the PSP provides each small business customer with a new account (or subaccount). 

This allows the PSP to immediately start processing the customer’s credit card transactions. The PSP transfers the customer’s net sales proceeds from their subaccount to their business bank account.

Finally, note that the PSP is not a full-fledged merchant services provider. Therefore, the PSP cannot offer negotiable payment processing rates or help the merchant scale the business.

Understanding payment processing

Payment processing (generally the same as credit card processing) refers to the process of executing a customer’s payment. This multi-step sequence begins when the customer swipes, dips, or taps their card at the card terminal. The payment processing cycle ends when the merchant can access the funds in their business account.

The parties involved in a payment processing transaction are:

  • Cardholder: The customer who uses their credit card or debit card to make an in-store or online purchase
  • Card-issuing bank: The bank that issues the card to the customer
  • Merchant: A business owner who sells the goods or services to the customer
  • Payment processor: An entity that securely routes customer card data from the point-of-sale terminal to the card-issuing bank
  • Card association: Visa or Mastercard network that sets fees and establishes operational guidelines
  • Acquiring bank: The merchant’s bank that ultimately receives the funds on behalf of the merchant
Infographics Digital Payments Agent 3

The payment processing sequence

Here are the five key steps involved in a payment processing sequence:

  1. The customer swipes, taps, or dips their card at a card terminal. If the card reader cannot read the information, the cashier will manually enter the data.

2. The payment processor routes the data to the customer’s bank (or card-issuing bank) for approval.

3. If the transaction is approved, that information is transmitted to the merchant’s bank. If the transaction is declined, the customer will be asked to provide another form of payment.

4. When the purchase is complete, the payment processor takes their transaction commission.

5. The remainder of the funds is deposited into the business’ merchant account. From there, the net proceeds are transferred to the business’ bank account.

Functions of a digital payments agent

Working with a sponsoring ISO, a digital payments agent performs payment processing functions for small- and medium-sized businesses. First, the agent establishes mutually beneficial relationships with their customers.

This collaborative mindset sets the stage for the execution of a payment processing contract. As long as the account remains active, the sales agent receives residual income from every transaction. The agent also becomes a valued business partner who supports the customer’s growth.

The digital payments agent path can be a low-cost way to get into the profitable credit card processing industry. Almost every company needs a merchant account to accept credit card payments, gift card payments, and mobile payments. The digital payments agent seamlessly facilitates these and other services.

The income potential of a digital payments agent

A digital payments agent job isn’t a “get rich quick” scheme. The sales agent receives a small residual income from each customer transaction. These payments will gradually add up over time. However, one customer’s transactions will probably not generate sufficient income to support a comfortable lifestyle.

On the positive side, maintaining multiple customer accounts means more residual income. A digital payments agent with a healthy-sized customer base can enjoy a solid monthly income for an indefinite period.

5 qualities needed for success as a digital payments agent

Building a thriving digital payments agent career takes preparation and hard work. These five desirable attributes set the stage for success:

  • Sincere desire to help business owners succeed
  • Solid knowledge of the credit card processing industry 
  • Keen familiarity with customers’ business environment
  • Outstanding work ethic and long-term commitment 
  • Willingness to follow legal and ethical guidelines

Should small businesses work with digital payments agents?

Small business owners likely have multiple payment services companies that want their business. With so many service providers available, a business owner may wonder if a digital payments agent is the right choice. First, remember that this sales agent represents an ISO/MSP (or Member Service Provider in the Mastercard realm).

For small- to medium-sized businesses, an ISO/MSP is a very cost-effective payment processing method. This is especially true for companies that process many monthly transactions or sell high-dollar products. Working with a membership-based ISO/MSP also means the business won’t have to give up substantial profits on each sales transaction.

ISO/MSP Requirements

A registered ISO receives that registration through the Visa or Mastercard credit card association. An ISO/MSP must meet several stringent requirements to be approved for registration.

Each company must provide the card association with documentation that shows their business is on a firm financial footing. The company must also have its sales materials approved and must supply a complete list of employees.

After the ISO/MSP registration process is complete, business owners’ transactions are processed through a card association bank. Customers benefit from the security and stability offered by a large-scale credit card network. These three reasons present a good case for choosing a reputable ISO/MSP for payment processing services.

Choosing an ISO: Factors to consider

Highest Rated Payment Processor In The Market

If a small business owner decides that working with an ISO makes sense, they should carefully evaluate each potential provider. First, the company should feature multiple products and services based on the latest technologies. These attributes should be relevant to the business’ operational goals. 

Next, the ISO should offer small business-friendly processing rates. Finally, the ISO should ensure PCI-compliant processing with no PCI fee. 

Payment Depot, a membership-based merchant services provider and a registered ISO of Wells Fargo Bank, meets all four criteria. This well-regarded company also gets stellar reviews for its customer service. Contact us today to learn how Payment Depot’s membership-based pricing plan can help you save hundreds of dollars each month in payment processing.


Quick FAQs about Digital Payment Agent

Q: What is a digital payments agent?

A digital payments agent is an entity that handles all payment processing operations for small- and medium-sized businesses. They work through a sponsoring ISO (independent sales organization) to convince business owners to utilize the ISO’s payment processing functions. By building solid customer relationships, the agent receives residual income for the life of each ISO program.

Q: How does a digital payments agent support small businesses?

A digital payments agent supports small businesses by facilitating payment processing operations, executing payment processing contract logistics, marketing point-of-sale (or POS) systems to target markets, and promoting targeted customer services solutions. They position themselves as solutions providers, helping facilitate their customers’ business growth.

Q: What are the benefits of a digital payments agent for small businesses?

Digital payments agents facilitate seamless transaction processing, which is crucial for small businesses. They build strong customer relationships, providing tailored solutions for payment processing. They also generate residual income from each transaction, leading to a potentially stable income source for small businesses.

Q: What are the downsides of using a payments aggregator for small businesses?

Payments aggregators usually use a flat-rate pricing model with higher rates than an interchange-plus pricing structure. They do not cater to higher-volume merchants, so the aggregator’s services are not scalable. An aggregator may arbitrarily close a customer’s account if the business is deemed to have excessively high risk.

Q: What does a merchant services provider (or MSP) offer a small business?

A merchant services provider (MSP) provides the equipment and services needed to process card payments. They maintain a direct connection to credit card associations (such as Visa and Mastercard), giving them access to desirable base interchange rates. Besides facilitating card payments, the MSP helps each merchant to resolve unwelcome chargeback issues.

Q: How does payment processing work?

Payment processing begins when the customer swipes, taps, or dips their card at the card terminal and ends when the merchant can access the funds in their business account. The parties involved in a payment processing transaction include the cardholder, card-issuing bank, merchant, payment processor, card association, and acquiring bank.

Q: What are the key steps involved in a payment processing sequence?

The payment processing sequence involves the customer initiating the transaction at a card terminal, the payment processor routing the data to the customer’s bank for approval, the approved transaction data being transmitted to the merchant’s bank, the payment processor taking their transaction commission, and finally, the funds are deposited into the business’ merchant account.

Q: What does a digital payments agent job entail?

A digital payments agent job involves performing payment processing functions for small- and medium-sized businesses. The agent establishes relationships with customers, executes a payment processing contract, and as long as the account remains active, receives residual income from every transaction.

Q: Is a digital payments agent a good choice for a small business owner?

For small to medium-sized businesses, a digital payments agent representing an ISO/MSP can be a cost-effective payment processing method. This is especially true for companies processing many monthly transactions or selling high-dollar products. However, business owners should carefully evaluate potential providers to ensure they meet their specific needs.

Q: What should a business owner look for in an ISO?

Business owners should look for an ISO that offers multiple products and services based on the latest technologies, offers small business-friendly processing rates, ensures PCI-compliant processing with no PCI fee, and gets positive reviews for its customer service.


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