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Insights and Expertise

International of a local merchant by reference to local credit rating agen-
cies and other local indicators.
acquiring: Legal tips As a result of acquiring being siloed into various regions

and sometimes countries within those regions, in order
on ISO expansion to acquire all over the world, an ISO would have to have
somewhere between five and 10 acquiring relationships,
one for each region or country requiring an individual ac-
quirer.

Regional acquirers will also usually require the regional
ISO to operate through a locally incorporated entity; con-
sequently, a fully international ISO will have to incorpo-
rate local entities in each region.

Legal ease: Finally, local laws may impose certain licensing and reg-
istration requirements in the local entity that might not
apply in the United States.
Non-bank acquirers

In the United States, acquirers are banks. Outside of the
United States, local payment network rules and laws have
opened the market to non-bank acquirers. This means an
By Adam Atlas entity can be a full principal member and acquirer within
Attorney at Law a network without being a bank. This opportunity often
comes as a surprise to U.S. ISOs expanding outside of the
he most common trigger for international United States.
expansion of an ISO is a merchant asking
the ISO for a merchant account in Canada or That said, it's still not easy to become a principal mem-
T somewhere more exotic. On the bright side, ber of a payment network. There are capital requirements,
acquiring (like issuing) answers to a single set of payment commercial requirements and local legal requirements
network (Visa, Mastercard, etc.) rules, making acquiring that make the process much harder than spinning up an
in other countries somewhat similar to U.S. acquiring. ISO in the U.S. market. In Europe for example, non-bank
acquirers (as well as payment facilitators) are regulated as
However, foreign laws and customs introduce hurdles Payment Institutions (PIs). A PI is the EU equivalent of a
that require a U.S. ISO to jump through a few hoops before U.S. money services business (MSB).
offering acquiring services for non-US merchants. The
purpose of this column is to identify some of the key legal In addition to capital and commercial requirements that
issues involved in taking a US ISO on the road to serve payment networks may impose, payments regulators have
merchants outside of the United States. their own capital, AML compliance, security standards,
reporting, staffing and other statutory necessities for op-
Regions of the world erating a payments business that happens to process mer-
In broad strokes, payment networks divide the world into chant payments.
five or six regions. Those regions are North America (NA);
Latin America, including the Caribbean, (LAC), Europe Despite their being non-bank acquirers outside of the
(EUR), Asia Pacific (AP), Middle East & Africa (MEA) and United States (in places like the EU and Canada, for exam-
Eastern Europe (EE). ple), it is still possible to operate merely as an ISO without
taking on the highly regulated role of acquiring and set-
As a rule, acquirers in one region will not board merchants tling funds. In those jurisdictions, the sponsoring acquirer
from another region. Also, within a single region (such as might simply be a non-bank.
North America) acquirers in one country (for example, the Regulation of ISOs
United States) will often decline to accept merchants from
another country (for example, Canada). Acquirers resist For now, U.S. ISOs, as sales organizations of acquiring
out-of-region or out-of-country merchants because of pay- banks, are largely unregulated except for the contractu-
ment network rules, local laws and risk management. al obligation of adhering to bank AML, compliance and
security standards. Those requirements of U.S. ISOs are
A Malaysian bank will do a better job underwriting a Ma- mostly borne out of contracts with acquiring banks, not
laysian merchant than a U.S. bank will because the Malay- out of the law. Outside of the United States, however, some
sian bank understands the risk profiles and credit history ISOs are regulated even if they never touch funds.
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