ISOs/MSPs: Who are They and What’s Their Role in Credit Card Processing?
The terms ISO/MSP are volleyed around a lot in the payments industry… Which is ironic, considering they’re expressions few merchants understand. It is a challenge to cut through all of the financial institution jargon to come to an understanding of what ISO/MSPs actually are and the role they play in credit card processing, so we’ve done the work for you and broken it down into terms human beings can understand. Here’s what you need to know about ISOs/MSPs, including what they are, what they do, and if you should work with them.
What are ISOs/MSPs?So, what does “ISO/MSP” actually mean? An ISO (independent sales organization) is a term Visa uses to refer to a person or organization that isn’t a Credit Card Association (i.e. Visa or MasterCard bank) member, but that has a relationship with an organization that is an Association member. (I know, the word “Association” sounds like a mafia reference, but it just refers to Visa or MasterCard member banks, so no need for the Tony Soprano impersonations today.) When a company is an “ISO” it just means that they can legally sell/work with Visa or MasterCard merchant accounts. They can interface between your business and credit card companies, as well as acquiring banks, processing banks, and other parties involved in merchant processing. The relationship the ISO has with the Credit Card Association allows them to legally do things like advertise to prospective customers, interface with cardholders, offer payment solutions and issue POS terminals—none of which they’d be able to do without the card company’s authorization. And an MSP (member service provider) is simply how MasterCard refers to a person or organization that fulfills the same functions as an ISO.
ISO vs MSP: Is there a difference?Not really. Visa calls them “ISOs,” MasterCard calls them “MSPs.” The terms are used interchangeably in the payments industry––it’s kind of a tomato, tomahhto situation. Although their meaning is (allegedly) slightly different, nobody can explain how or why, so you’re safe using either to refer to MSP/ISOs and their functions.
How much do they charge?There are different types of member/merchant service providers and various pricing structures. Ultimately, the price that you pay as a merchant depends on your provider’s fee model and markup. That said, it’s important to note that ISO/MSPs pay out a lot just to stay in the game. ISOs and MSPs pay out registration fees of $5,000 for each Association that sponsors them, not counting the extra employees and software they have to invest in to get their business ready for review. One business can be sponsored by multiple banks. For instance, a company may be sponsored by both MasterCard and Visa, which means they paid out a minimum of $10,000 just to get started. Each year after they’re registered, MSP/ISOs have to pay $2,500 to each Association they’re registered with to stay certified. Despite all of this, ISO/MSPs are the most cost-effective method of payment processing for most small to mid-size businesses–– especially those that sell big ticket items or process lots of transactions per month. Your best bet is to go with an MSP that offers a membership-based pricing structure, so you don’t have to pay out a large percent of your profits on each transaction.
Should you work with them?Companies have to meet a lot of qualifications to get registered as ISO/MSPs: They have to provide the Association with documents that prove their business is financially viable, submit all of their sales materials, a full list of employees, 2 years of financial statements, and more. There are also large transaction and/or fee minimums for registered ISO/MSPs and, if those minimums aren’t met, the financial services provider has to pay the difference out of pocket–– not exactly a sexy proposition for a business of any size. While all of this may make you think that it is cheaper to work with an organization that’s not an MSP/IPO, this is rarely the case. With an ISO or MSP, your business is processed through an Association bank, meaning your business has the security and reliability of a large credit card network. While non-Association banks may not charge organizations as much up-front as those that issue ISO/MSP certifications, their contracts often have fine print that entitles the bank to some or all of a merchant services provider’s profits if monthly sign-up minimums aren’t met… and providers that do business with sketchy banks like this usually don’t stay in business long. So, if you’re looking for security and functionality, you’re still better off going with a trusted ISO/MSP than trying to hack it on your own in the wild.
What other merchant services do ISOs or MSPs provide?Payment processing is generally the main offering that merchants can get from ISOs and MSPs. But depending on your provider, an ISO/MSP may also provide products and services like:
- Hardware and payment terminals
- Technology set-up
- Integrated software solutions (POS, accounting, business management, etc)
- Data security services
- Reporting and analytics
- and more.