How to become a registered ISO

Saturday, January 03, 2015

How to become a registered ISO

Taking your business to the next level

Business owners like you need to know a lot of terms in the payments industry. One of the most important terms to know is what an independent sales organization (ISO) is and what it does. In this article, we’ll tackle the difference between unregistered and registered ISOs, as well as the process to become a registered ISO. To start, let’s talk about ISOs.

What’s an ISO?

An ISO is a third-party payment processing company that helps handle merchant accounts for businesses. ISOs, sometimes called merchant services providers (MSPs) can be seen as middlemen between small businesses and large member banks. As a third-party processor, each ISO has a relationship with acquiring member banks, which allows them to provide merchant services – like credit card processing services, cash advances, payment gateways, POS systems and more – to their customers. Because they can’t process payments without a relationship with an acquiring bank, they must maintain this relationship. However, they are independent and can set their own processing fee pricing and have their own sales agents.

The ISO goes through a rigorous process to partner with an acquiring bank. During this process, the member banks – such as Wells Fargo or Bank of America – will ensure that the ISO has proper security measures in place, that they are legitimate, and that they pass any of the other strict requirements an acquiring bank may have. ISOs must also register with credit card associations like Mastercard and Visa to prove that they’re capable of handling payment processing duties. They may also need to declare if they plan to support high risk payment processing.

Acquiring banks provide the backing for payment processing to the ISOs. In return, ISOs serve as a buffer between the millions of businesses that need payment processing and the acquiring banks. Typically, ISOs handle the day-to-day operations and interactions with small businesses. As you can see, an ISO is an important part of the payments ecosystem. But is there a big difference between a registered and unregistered ISO? Let’s take a look in the next section.

What’s the difference between a registered and unregistered ISO?

There are some key differences when it comes to registered and unregistered ISOs. These differences center around what each type of entity can and cannot do when it comes to merchant processing. Operationally, the biggest difference is that unregistered ISOs aren’t able to hire out work to sub-agents. Registered ISOs on the other hand can employ independent agents to handle tasks like sales and recruiting in exchange for residual pay. In simpler terms, an unregistered ISO can work for a larger ISO or for themselves, but cannot give the work to anyone else.

Building a successful processing business requires gaining new clients, and unregistered ISOs are hampered by their ability to bring in business on their own. Long term, many unregistered ISOs seek the registration process so that they can continue to grow their business and acquire new merchant clients. Let’s take a look at the steps necessary to become a registered ISO.

How to register as your own ISO

The ISO registration process can be long and arduous, but comes with a lot of financial upside. Here’s a rough estimate of the steps you’ll need to complete during the application process:

Name your business

Like any new business, you’ll need to choose a memorable or relatable name for your business. Naming can be tough, but it’s an important part of getting your business off the ground. During this process, you’ll want to ensure that this name hasn’t been taken by another business in your state. To do this, you can check with the appropriate authorities, like the Secretary of State.

Decide on your business form

Next, you’ll want to decide which business structure makes the most sense for your business. There are four main business types – corporation, partnership, limited liability company and sole proprietorship. Let’s briefly detail each:

  • Corporation – Owned by its shareholders, it’s a separate legal entity from its owners. Therefore, it protects you from any legal liability of the corporation’s debts or actions. You’ll need to register with your state and file annual paperwork.
  • Partnership – A joint venture run by two or more people. However, partners are typically personally liable for all debts in the partnership. Usually, this type of business is not required to file with their state.
  • Limited Liability Company – This is a business owned by its members. Some states allow single-member LLCs, while others require more than one owner. LLC paperwork protects owners from personal liability as it relates to the business.
  • Sole proprietorship – An extension of the individual, this business is personally guaranteed by the owner. That means your personal assets are not protected under this business type. Therefore, it’s important to consult a business attorney before filing for sole proprietorship.

File with your state

Once you decide on a business name and form, it’s time to file the necessary paperwork with your Secretary of State. Depending on your state, you’ll be responsible for certain fees. Check with your local authorities to get a better idea of these fees.

Acquire permits and licenses

This step is state-dependent, but you’ll want to ensure that you’re following any rules your state may have when it comes to business licenses or any other permits or licensing. Because each state is different, requirements can vary state by state.

Register for taxes

Next, you’ll need to register for taxes. This usually occurs at the state and local levels, but you’ll most likely need an employer identification number (EIN) to do so. You can obtain an EIN through the IRS.

Document your business rules

An important step for businesses with more than one owner, you’ll need to define any rules and regulations for your business. Typically, these detail how profits and losses will be divided among owners and how and when meetings can be called.

Create a business plan

Potential financial institutions who sponsor you will want to see your business plan. Therefore, it’s important to solidify this plan early in the process. Business plans can vary significantly, so you’ll want to find one that works for you.

Secure a bank sponsor

After you have a written business plan, you’ll now want to find a bank sponsor. Call places in your area and it’s important to ensure they are Visa or Mastercard association members. This process may take some time to complete.

Gather business information & review contract

Once you’ve secured your bank sponsor, you’ll need to make sure you have all the necessary paperwork in hand – required documents, credit reports for all owners and analyze the contracts carefully.

Register with your bank sponsor

Once the bank accepts your registration and you’re officially classified as a registered ISO, you’ll just need to pay the registration fee. The initial registration fee for registering with a single ISO or processor is $10,000 for the first year, and $5,000 for each subsequent year per credit card association. You will be required to review your registration annually and pay the fee again each year.

As you can see, becoming a registered ISO can be a long and drawn out process – especially as you’re searching for a sponsor. Putting in the effort can pay dividends for your business, as you’ll be able to scale your registered ISO much faster than an unregistered ISO.


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