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What is an ISO?

Tuesday, November 04, 2014

Maximizing profits is an essential part of business, especially for small businesses and startups. So while cash is king, there’s an overwhelming demand from customers for businesses to accept credit and debit cards.

Today, customers expect to be able to use card payments at your business, as cards now make up the majority of payments. To accept credit cards, you know that your business needs a way to process them. But many companies don’t understand the options they have for debit and credit card processing. So in this article, we’ll talk about one particular payment processing option—an ISO.

What’s an ISO?

First, it’s important to understand what an ISO, or Independent Sales Organization, is. ISOs are third-party payment processing companies that help handle merchant accounts for businesses. ISOs can be seen as middlemen between a small business 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 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 fees and have their own sales agents.

The ISO goes through a rigorous process to partner with an acquiring bank. During this process, the member bank – 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. Once this is complete, the company becomes a registered ISO, and the member bank then authorizes and sponsors them. ISOs must disclose who their sponsor bank is to the public and their clients.

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.

What’s the difference between an ISO and a MSP?

Now, you might be wondering how an ISO is different from an MSP (Member Service Provider). The answer? For all intents and purposes, they’re the same. The only difference is the terminology that the card networks use. Visa labels these organizations as ISOs, while Mastercard uses MSP to describe an approved merchant account provider. In this article, we’ll use ISO and MSP interchangeably.

Why should my business consider an ISO?

Another common question from business owners like you is, “Why should my business use an ISO?” If you’re deciding between using an acquiring bank or an ISO, it’s important to consider your business’s unique situation. While both give you access to a merchant account so you can process payments, utilizing an ISO might be right for your business.

The  most significant benefit of working with an ISO is the customization and personalization they can offer your business. Large acquiring banks deal with the biggest companies directly, which leaves little room for them to help your small business. But, because the ISO uses the bank to process your transactions, you get the security and reliability of a large bank network. You’ll also get the personalization of working with a smaller company. 

ISOs can provide other benefits, too. Because they can tailor their offerings to your business, you’ll see more flexible pricing, more customization in the services they can provide and more personalized support for your business. In addition to offering your business access to a payment processing account so you can accept credit and debit card payments, an ISO can also help you with payment processing equipment. They’ll be able to tailor the equipment to your needs—from full retail point of sale (POS) systems to mobile credit card terminals and even ecommerce payment gateways. Some offer these services directly, while others partner with payments industry servicers or financial institutions. Instead of a one-size-fits-all solution, these tailored options can help your business get what it needs to be successful.

What should my business look for in an ISO?

If you decide to work with an ISO/MSP, how do you choose the right one for your business? Remember, ISOs go through stringent requirements to earn the designation from card networks, so many are capable. But there are a few criteria you’ll need to consider for your business.

Do they offer the right hardware?

When it comes to choosing  an ISO, streamlining your business is one of the major reasons to consider working with one. As part of that, it’s important to be sure that your ISO offers the best hardware for your business. From mobile payment solutions to card readers and traditional registers, you should be sure the ISO can meet your business’s hardware needs and be sure the hardware works with your business’s current tools and platforms.

Do they support the right payment types and methods?

Credit card payments may not be the only type of payment method your business accepts. Other payment types like ACH transfers, invoicing, and recurring payments could be essential for your business, so it’s important to confirm an ISO can meet these needs.

What’s the payment gateway look like?

For online sales, customer experience is paramount. That’s why you’ll want to make sure an ISO has a straightforward, engaging gateway. If they don’t, look to see how third-party applications can better this experience or how the payment gateway would integrate with your current ecommerce website.

How much will I save?

When negotiating with an ISO, it’s important to know what you’re currently paying in processing costs and transaction fees, as well as your processing volume. Not only will this help your business determine what your business needs from an ISO, but it will also help you compare an ISO’s service costs to your current processor. By comparing the numbers, you’ll be able to decide if a particular ISO is worth the switch.

Can I integrate my loyalty programs?

Gift cards and loyalty programs are two important methods to continue growing your business. Check with the ISO to see if they have options that integrate these methods directly into your payment reports.

Do I know and understand all the fees?

While it might seem obvious, make sure to fully read and understand the contract you’re signing. Some ISOs add on hidden fees, have high registration fees, and draw out contract lengths. Be sure to double check these before signing on the dotted line. While it might seem a bit excessive, you’ll save yourself a lot of headache and hassle down the road.

An ISO can be a great partner to help you customize a payment processing solution that solves your processing needs. After seeing what to watch out for, you can narrow down prospective processing partners to find the perfect one for your business.

Ready to work with an ISO that knows the ins-and-outs of running a small business?

Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind.