What Are ISO Payments? Everything You Need to Know

What Are ISO Payments? Everything You Need to Know

If we had to bet, we’d say you’re in 1 of 2 camps:

  1. You’re considering opening a business and are researching how to make an informed decision when to comes to payment processing.
  2. You’re considering switching payment providers and are curious to see what your options are.

Regardless of where you are in your business life, you’re in the right place. The payments world is confusing, and understanding all of the players and how the money flows between them is important.

By understanding the business models of the people you’re partnering with, you put yourself in a better negotiating position and improve your ability to discern trustworthy partners from seedy ones.

Today we’re talking about ISOs, and we’re going to tell you everything you need to know.

Let’s jump in:

What is an ISO?

ISOs, or independent sales organizations, are companies who aren’t officially part of the cardmember associations like VISA or MasterCard but have developed partnerships with acquiring member banks to provide merchant accounts or other merchant services to members.

Let’s break that down a bit.

These are businesses that typically have their own set of technologies and sales agents, some operate essentially independently and set their own processing rates, and they act as a one-stop shop for all things merchant services. ISOs make money by selling and leasing hardware/software along with taking a percent of transaction revenues.

And the way they seem to provide everything a merchant needs is by already having partnerships in place to provide all parts of accepting credit cards — most importantly by having a direct relationship with an acquiring bank.

An acquiring bank is a bank that has the authority and ability to provide merchant accounts.

Merchant accounts are the official accounts that your business’s revenues are deposited in before they are sent to your chosen business account. You can’t accept credit cards without them (although some third-party processors let you use their merchant account), so they are the most important partnership for an ISO to have.

Read more: What is a Merchant Account? Everything You Need to Know

After that’s established, the competitive differentiators in ISOs come from differences in service, technology, and rates. So if you’re wondering, do ISOs offer merchant services? Then yes, absolutely yes.

Typical ISO merchant services include:

  • Credit card processing
  • Online gateways
  • Hardware (terminals, etc.)
  • Software (POS systems)
  • Analytics programs
  • Mobile readers and apps

And so on.

Where do ISOs fit into the payment ecosystem?

It’s easiest to think of the payment ecosystem like a pyramid, and ISOs sit in the middle.

Below the ‘ISO agent’ chunk of the pyramid would be the merchants and then the consumers themselves. Think of ISOs as official service providers on behalf of the cardmember associations and acquiring banks.

We break that ecosystem down in more detail here.

Are ISOs and banks the same thing?

No. Registered ISOs do not provide merchant accounts or banking accounts of the sorts. While some ISOs do lend to businesses and provide breach coverage, they do not function or behave like banks.

Are ISOs and Merchant Service Providers the same thing?

Essentially, depending on the definition. The definitions can be a bit confusing, but the way MasterCard talks about merchant service providers (MSPs) is the same way VISA talks about ISOs — all you need to know is that both terms refer to companies that sell a suite of merchant services and usually have relationships with acquiring banks.

What are registered ISOs / MSPs?

Registered is just a term that means they have an official partnership with a bank. Nothing weird or special.

How do ISOs affect my business?

The ISO or MSP you choose to work with can have a dramatic effect on your business (which again, may be why you’re here in the first place).

They handle almost everything payment related, so let’s cover what you should be looking for.

How to make good decisions when evaluating ISOs and/or MSPs

Read this knowing that the key defining principles of good ISOs are transparency and innovation.

Here’s a list of best practices to keep in mind, and if you want to dig even deeper, then you should read: Merchant Service Provider: 12 Questions to Ask.

Make sure they have the hardware you need.

Some ISOs lease other companies’ hardware, others create their own. Regardless, your ISO should be presenting you with the best hardware for you business. That could mean mobile terminals, that could be traditional registers — make sure they have the capacity and make an effort to craft a unique hardware package for your business.

Make sure their online gateway and invoices are flexible and sophisticated.

Online sales are bigger than ever and will only rise. If you partner with an ISO with a restrictive gateway that looks terrible, it will affect your sales. See what they offer, and if you don’t like it see how easy it is to use third-party applications to better the UX and UI of a given funnel. This goes for invoices too. Know your needs and search for a company that will make your workflow easier.

Know your average processing volume and fees going into negotiations.

This is negotiations 101. You need to have an average processing volume idea by location and in total before walking into these conversations. By checking that number against what you’ve paid in fees, you can know exactly what you’ll be saving by switching. If a company offers to check the numbers for you, even better. Let them walk you through the numbers, double check them yourself, and then walk into fewer fees!

See if they have loyalty programs

Loyalty programs and gift cards are an important way to continue growing your business. See what options they have and make sure the ISO ties that information right into your payment reports.

Pay special attention to hidden fees and contract lengths.

Some nefarious ISOs include really high cancellation fees and charge you for over or under transacting. This is ridiculous, and you should double check that you aren’t being taken advantage of. If an ISO or MSP offers you free hardware or some crazy low flat rate (like less than 1.5%), then rest assured they are making that money up somewhere else. It’s like ordering mattresses online — yeah you get a free return but you are already paying for everyone else’s returns!

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Hopefully this will help you be a bit more informed when considering who to work with in the ISO/MSP world.

We’re an ISO ourselves, and we work with smart, passionate business owners who are looking for a partnership. We work day in and day out to offer impeccable service and technology.

Merchants save up to 35% when they switch to Tidal Commerce.

We work with retail, healthcare, professional services, eCommerce, nonprofits — you name it. And as long as you want to grow your business and appreciate transparency and honesty, then you’ll fit right in.

Think you’re in that camp and want to work with someone who really has your back?

Awesome.

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