ISO payment processors don’t always have the best reputation. Some merchants believe they’re shady or untrustworthy. But while there are always bad actors out there, ISOs are typically on the up and up. They’re backed by sponsoring banks and credit card associations, and working with them can even bring a number of benefits. Read on to see five good reasons why your business should choose to process credit cards with an ISO, or independent sales organization.
What is an ISO payment processor?
Let’s start by defining a few terms.
To accept credit card payments from their customers, merchants need a few different things, including a merchant account and relationships with both an acquiring bank and credit card associations.
An acquiring bank is a bank that allows merchants to process credit card payments. These banks set up and support merchant accounts. (Examples: Wells Fargo, Bank of America, Chase, Citi Bank, etc.)
A credit card association is an organization that issues branded credit cards. (Examples: Visa, Mastercard, American Express, etc.)
It’s possible for merchants to work directly with an acquiring bank and credit card associations to handle their credit card processing. However, for the sake of simplicity, better service, and lower costs, many merchants choose instead to work with an ISO, or independent sales organization.
ISO payment processors are third-party, independent businesses that are legally qualified to work with merchant accounts and provide credit card processing for other businesses. ISOs serve as intermediaries between merchants and the acquiring bank and credit card associations. Instead of working directly with an acquiring bank, many businesses choose to work with ISO.
In order to operate, ISOs have to register with a sponsor bank (usually listed at the bottom of their website). This sponsoring bank meticulously evaluates the ISO to ensure they’re secure, legitimate, and stable. Sponsoring banks don’t want to take on undue risk, so they thoroughly vet each ISO before approving their registration. ISOs are required to provide documents to establish their credentials, such as financial statements, sales information, a list of employees, and more. The support of a sponsoring bank means merchant funds are protected and backed by an established financial institution.
MSPs vs ISOs
If you’ve been researching ISOs, you may have run across the term “MSP.” Merchants sometimes get confused about the difference between the two phrases. However, for all intents and purposes, they’re essentially interchangeable.
An MSP is a member service provider. Just like an ISO, an MSP is a third-party business that’s qualified to work with merchant accounts and provide credit card processing services to merchants. And just like ISOs, MSPs work with both acquiring banks and credit card associations to facilitate credit card processing for merchants. The only difference between the terms is that Visa prefers “ISO,” while Mastercard uses “MSP.”
What ISO payment processors do
The main purpose that ISOs serve is to make things easier for acquiring banks and credit card associations. ISOs take on the bulk of responsibility when it comes to providing credit card processing services to merchants so that banks and associations can focus their efforts elsewhere.
Both acquiring banks and associations typically offer a wide range of products and services to thousands and even millions of customers, so allowing ISOs to specialize in the area of credit card processing frees up time and resources for banks and associations to dedicate elsewhere.
Because ISO payment processors are vetted and qualified by their sponsoring and acquiring banks and the associations, they can:
- Find new merchants to onboard (advertising, referrals, etc.)
- Handle setup of each merchant account
- Offer support and relationship management for each account
- Manage troubleshooting, software bugs, questions, processing errors, etc.
- Provide POS terminals to merchants
But ISOs don’t just offer benefits to banks and associations. ISOs also provide better service and lower costs to their merchants.
5 benefits of working with an ISO payment processor
1. Better customer service
Merchants who choose to work directly with acquiring banks like Wells Fargo or Bank of America may lose out on customer service and personalization. These large, national banks already have millions of customers across a dozen different services. Getting individual help on your account may be difficult when you’re competing with everyone else trying to get customer service.
ISOs, on the other hand, are small enough to provide dedicated, readily available customer service. ISOs often have personal relationships with their merchants and can easily address any questions or problems that come up with the account.
At the same time, ISOs are backed by their sponsoring bank, so merchants don’t have to worry about the security or stability of their funds.
2. Easier to get onboarded
Acquiring banks don’t like to take on risk. When evaluating merchants for a potential merchant account, acquiring banks go through an extensive and exclusive underwriting process that even legitimate, established businesses often can’t pass. ISOs have a little more leeway and risk tolerance and are able to accept a wider range of businesses. Merchants have a much better chance of opening a merchant account with an ISO payment processor than with an acquiring bank.
3. Access to innovative payment technology
Unlike banks, ISO have the time and resources to invest in technology that improves the payment processing experience. While banks have to focus on all the inner workings and complicated processes of traditional banking, ISOs are free to innovative and create cutting-edge technology that helps their clients.
For example, some ISOs provide integrated payment applications that allow merchants to process credit card payments directly in their accounting, CRM, or eCommerce platform. These applications are fully automated and eliminate busywork and double data entry, delivering significant time savings to merchants.
ISOs can also provide payment collection tools that cut down on time-consuming follow-up and streamline the payment collection process. Tools like a customer payment portal or email payment links help merchants get paid faster and increase their cash flow.
4. Individual underwriting process
Aggregators (Square, Stripe, Venmo, etc.) use a single merchant account for all their customers. Every customer pays the same rate and fees to process credit cards, regardless of their industry, processing volume, or other variables that traditionally impact the cost of processing cards. That means more respectable businesses essentially end up covering the cost of high-risk businesses that drive up the cost for everyone.
By contrast, ISOs keep each merchant account separate, so each business can negotiate their rate based on their own industry, history, and risk level, not another business’s.
5. Lower costs
Unlike aggregators, which typically offer the same pricing model to every customer, ISOs allow their customers to choose which type of pricing plan best suits their business.
For example, ISOs may offer flat rate or interchange plus pricing plans. This flexibility empowers merchants to choose the pricing plan that works best for their unique business needs, often leading to lower costs.
Why should you choose an ISO payment processor?
Merchants want to make the smartest decision when choosing how to process credit cards for their business. Most of the time, the best choice for established B2B businesses is an ISO payment processor. Businesses that choose to work with an ISO will enjoy a better overall experience, including better customer service, support, costs, and payment technology. All of these benefits mean merchants will be able to devote more time and resources back into their business rather than into credit card processing management and costs.