As a small business owner, terms like “merchant accounts,” “card networks,” or “interchange fees” might sound all too familiar. It’s true, payment processing is one of the most critical aspects of running your business. However, balancing the cost of accepting payments with profit margins is easier said than done.
This is where an independent sales organization (ISO) comes in. In this article, we’ll explore what an ISO is, why you may need one, and how to choose the best one for your business.
What Is an ISO?
An ISO is a company that resells merchant services offered by payment processors and acquiring banks. Think of these third-party companies as middlemen that connect payment service providers with businesses, giving them access to the tools they need to accept credit cards, debit cards, and electronic payments.
Independent sales organizations don’t process payments themselves. They partner with credit card member banks to offer merchant services, point-of-sale systems, and merchant accounts. Even though the actual processing and fund transfers are managed by larger financial institutions, ISOs work independently.
Is an ISO the Same as an MSP?
To be able to operate as a company, an ISO must register with major card networks like Mastercard or Visa and adhere to their regulations and guidelines. Without such authorization, ISOs can’t sell merchant accounts or services, or act as intermediaries for acquiring banks and processing companies.
So what’s a member service provider (MSP)?
The terms ISO and MSP can be used interchangeably. These are just different ways that Visa and Mastercard refer to these participating members. ISO is the official term that Visa uses, while MSP is the official term that Mastercard prefers.
As MSP can mean a number of different things in various industries, ISO is the preferred term and is more common in the payment processing industry.
What Services Do ISOs Provide?
An ISO’s core function is providing payment processing services to small and medium sized businesses. They offer a range of services that enable these businesses to accept and manage card payments from their customers.
Processing credit card payments
ISOs provide secure payment solutions that enable businesses to accept credit and debit cards. They offer competitive processing rates by partnering with larger financial institutions.
Setting up merchant accounts
These companies help businesses set up merchant accounts of their own, without which, they can’t accept credit card payments. As independent sales organizations partner with acquiring banks to enable the setting up of accounts and transfers of funds. They often act as advisors for businesses so there are no hiccups in getting merchant accounts from acquiring banks.
Integrating point-of-sale systems
Setting up merchant accounts is just one part of being able to accept card payments. If you don’t have the right setup at your store, your customers won’t be able to use their payment cards.
Most ISOs also offer point-of-sale solutions including the hardware, software, and additional systems that integrate seamlessly with their payment processing solutions. ISOs supply card readers, mobile payment devices, and EMV-compliant terminals to support in-person transactions.
Training and support
Yet another reason why ISOs are highly-sought after. They offer training and ongoing support to their customers to ensure they can use their payment systems effectively. Ongoing support also helps them troubleshoot issues for their customers.
Payment gateways
eCommerce businesses need to accept payments securely via their websites to be able to stay afloat. ISOs provide online payment gateways for such merchants.
Apart from basic payment processing systems, many ISOs also offer additional services and solutions to help businesses streamline their operations. Here are a few of them:
- Technology setup – Not only can ISOs provide you with the technology but also help set up and configure these systems for your business.
- Reporting and analytics tools – Many ISOs offer detailed reporting tools that help businesses track sales, monitor trends, and optimize performance.
- Data protection solutions – Payment processing involves the transfer of sensitive and confidential information. As such, ISOs often provide fraud prevention tools, encryption, and PCI compliance support.
ISOs frequently bundle these services together, creating convenient all-in-one payment solutions that simplify payment management for businesses.
How Does an Independent Sales Organization Make Money?
As ISOs partner with other financial institutions and get merchants to use the services of these institutions, they not only make money from merchant fees but also referral fees.
- Residuals – Depending on the payment plan chosen by the merchant, ISOs get a cut from each payment transaction. This is a source of steady, recurring income for them.
- Upfront fees – Merchants buy or lease POS systems, which form another income stream.
- Markups on processing rates – ISOs add a margin on top of the base processing rates charged by larger merchant services providers, boosting profit.
- Commissions from acquiring banks – ISOs earn referral fees when they bring new merchants to sponsor banks.
Understanding the Key Differences: ISOs vs. Processors and Aggregators
Certain terms used in the payment processing industry can be quite confusing. Let’s go over a few of them.
ISOs vs. payment processors
ISOs resell services from larger processors but don’t process payments themselves. Processors, on the other hand, manage the actual transactional flow between banks and credit card associations. Large payment processors also have direct relationships with acquiring banks and card networks while ISOs don’t.
ISOs vs. merchant aggregators
Aggregators like PayPal or Square group multiple merchants under a shared merchant account, making it easier and quicker for small businesses to start accepting payments. ISOs, however, help set up individual merchant accounts, which offers more flexibility and control.
Benefits of Working with ISOs/MSPs
ISOs or MSPs offer several benefits for small and medium businesses.
- Tailored payment solutions – Unlike large payment processors, independent sales organizations provide customized services that fit your business’s specific needs.
- Competitive rates – They often negotiate better prices on behalf of their clients by negotiating with processors and banks.
- All-in-one services – ISOs bundle payment processing, hardware, support services, and additional software, simplifying business operations.
- Dedicated support – Many ISOs provide personalized customer service and troubleshooting.
- Access to advanced technology – ISOs offer POS systems, payment terminals, security software, and reporting tools to streamline payment processing.
- Compliance assistance – They help businesses ensure PCI compliance and enhance data security.
- Proven legitimacy – To become a registered ISO, they must meet strict financial and operational standards, ensuring they are reliable and trustworthy partners.
How to Tell if a Business is Registered as an ISO/MSP
With so many options available, how can a business owner ensure they’re working with a legitimate ISP? Here are some ways even the most inexperienced merchants can verify if a company is a registered ISO.
- Visa or Mastercard registration – Legitimate ISOs/MSPs display their registration seal on their website, confirming their partnership with the credit card associations.
- Partnership with a major processor – Check if they partner with reputable processors. In this case, you will also have to research the partner merchant services provider.
- Transparent pricing and services – Authentic ISOs/MSPs provide clear details about their fees and services.
Final Words
For small businesses just starting out, working with an independent sales organization can be a smart move. ISOs offer affordable, all-in-one payment solutions, making it easier to manage transactions without needing extensive industry knowledge or resources.
Plus, they’re a safe bet since they don’t handle the money themselves. Your payments are always processed by trusted partner banks or processors.
Payment Depot is a registered ISO of Wells Fargo Bank. To simplify your payment processing and keep your business running smoothly, contact our in-house customer support team today.
