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.

Depending on your business needs, you may favor one provider over another based on the products and services they offer.

Merchant aggregators vs ISO/MSPs

Merchant aggregators are middlemen (or middlewomen) that let you start accepting payments without the cost of setting up a merchant account. You can often even get started selling products the same day you sign up for an account. Sounds great, right? Well… not so much. Merchant aggregators pool (or aggregate) all of their merchant accounts into one place–– so there’s less security, much higher transaction fees, and your account can be terminated with little to no notice. Merchant aggregators make their money by deducting 2.7% or more from each transaction you process instead of charging a monthly membership fee. As you can imagine, that 2.7% can add up pretty quickly. Can your business handle it if you suffer a wide-scale security breach, or if your associates suddenly can’t process transactions for a week or two? Unless you’re just starting up and you can’t afford a monthly membership fee, there’s no reason to put your business and your customers’ data security at risk instead of just partnering with a registered ISO/MSP right off the bat.

How to choose the best ISO/MSP for your business

So, you’ve decided to work with an ISO or MSP. To maximize the value that you’ll get from your provider, consider the following factors before choosing who to sign up with. Merchant-friendly rates. Opt for an ISO/MSP partner that offers favorable payment processing rates. When discussing costs, ask them about their pricing structure. Do they implement interchange-plus pricing? Tiered pricing? Flat-rate processing? What about membership-based pricing? Each of these methods comes with advantages and disadvantages, and the right choice depends on factors like your credit card processing volume, ticket values, etc. But here’s a pro tip: merchants that sell low-ticket items and/or have low processing volumes may benefit from with flat-rate processing. Meanwhile, if you process a medium to large amount of credit card payments, then membership or interchange-plus may be a better fit. Tiered pricing almost always puts the merchant at a disadvantage, so stay away from it whenever possible. Payment processing offerings. Choose a provider that has a wide range of payment processing partners and services. In addition to having relationships with all major card networks, your ISO/MSP should also be able to support that latest payment technologies (such as contactless and mobile payments). Bonus points if they offer payment methods beyond credit cards — such as ACH, SMSs payments, etc. Products and services. Choose a provider that offers products and services relevant to your business. For intance, if a significant chunk of your revenue comes from brick-and-mortar sales, then having a ISO/MSP that has strong point-of-sale offerings is a must. If you’re always on the go, then choose a vendor that offers robust mobile payment offeings. Whatever the case, evaluate your current (and ideally future) needs and align yourself with a vendor that can meet those requirements.

List of registered ISO/MSPs

ISO/MSPs legally have to disclose the name of their sponsor bank, which you can usually find at the bottom of their website. However, most registered ISO/MSPs proudly trumpet their sponsor bank affiliations from the rooftops. To double-check a provider’s alleged credentials with the Association itself, you can check out Visa’s list of registered ISOs here and/or download MasterCard’s MSP list from this website.

The Final Word

Nobody said merchant payments were simple and ISO/MSPs are no exception, but you do have the option to partner with an ISO/MSP that offers 24/7 customer service to answer your payment processing questions as they arise. Payment Depot is a registered ISO of Wells Fargo, and Payment Depot’s award-winning, in-house customer service representatives are always on-hand. Reach out today to learn how you can grow your business by working with a trustworthy payment processor that’s always 100% transparent––so you can fulfill all of your payment processing needs without the headache.