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Shaw Merchant Group
Friday, January 13 2023
Difference Between a Merchant Services ISO and a Sales Agent

In this industry, you will often hear the words “merchant sales agents,” “Member Service Providers,” and “Independent Sales Organizations” used in a similar context, as if all three of these things are the same. The truth is that these terms actually refer to distinct roles in the credit card processing business. If this seems confusing to you, don't worry; all of these terms will be explained in this article, as well as their relationships to the credit card associations. We will also go over how you might go about becoming a merchant services ISO or an MSP.

After we've sorted all of that out, we'll go over what the advantages and disadvantages are of working in the industry as each of these roles. Getting an idea ahead of time of what each of these entails will hopefully save you from making a lot of mistakes early on in your business ventures.

What Every Term Means - First of all, let's get everything perfectly clear by defining the terms that we've mentioned so far:

ISO (Independent Sales Organization) – This is basically the credit card processor, the company that serves as the middle man between the credit card companies and the merchant. It will often provide terminals to the merchants, as well as tech support, training, and customer service. Another common term for this is “merchant service company.”

MSP (Member Service Provider) – ISO is a term often used by Visa, and so MSP is basically MasterCard's version of this. They both mean roughly the same thing. However, to make things a little more obscure, MasterCard also uses the term ISO, but it means something different. Basically, in their case, an ISO offers services that are not processing and transaction services, like customer service and lead generation. For our purposes, though, don't worry too much about these subtle distinctions. They are basically the same thing. For the sake of simplicity, let's just assume that we're including MSPs when we use the term “ISO” from now on.

Sales Agent – This role is completely different from the above mentioned roles. A merchant services agent is a third party that sells the services of merchant services ISOs and MSPs. Since merchant services companies often like to concentrate on processing credit cards and offering POS solutions, they will contract sales agents to find merchants to work with. A sales agent doesn't have to pay the high association fees like an merchant services ISO does, but he can't do business in his own name and have a merchant services ISO program with an ISO or MSP company.

What is the Relationship Between an ISO / MSP / Sales Agent and the Processing Banks? - You probably realize that merchant services ISOs are not banks, and that these organizations need banks to ultimately perform the transactions. Every merchant services ISO will need a sponsoring bank, one who is a member of Visa and MasterCard's respective associations. In practice, these banks will usually not take on small merchant service companies, and actually most merchant services ISOs use larger ISOs as intermediaries between them and the banks.

A merchant services ISO program can also have several sponsor banks. Though this can be extra costly, it also gives merchant services ISOs the advantage of being able to take on different kinds of merchants. For example, some banks might be averse to what they see as “high-risk” businesses, while others are not (though these usually charge higher fees).

By the way, these sponsoring banks don't really need merchant services ISOs at the end of the day. They could cut out the middle men and sell directly to merchants if they wished, but most of these companies prefer to focus their energies on processing transactions and don't want to bother with customer service and other issues.

If you're curious about what acquiring bank a given ISO uses, simply check out their website. They are actually required to make this information public, and it will usually be apparent in the footer of the page.

Now, how about sales agents? Well, agents are indeed registered with the credit card associations, but of course it is much less complex and expensive than it is for ISOs. Sales agents are basically contractors and the ISOs that they work with usually take care of the heavy lifting when it comes to paperwork.

How Do ISOs Go About Registering With Visa and MasterCard? - If you're an ISO, you'll have to swim through a rough sea of bureaucracy before your business can start processing credit cards. First, you need to find a bank that is a member of the credit card associations—usually both, but sometimes one—and you need to show the bank that you know what you're doing.

The banks will have to put you through a vetting process before the Associations are comfortable taking you on. You will usually have to submit all kinds of information on your business, and what type of business you are running, whether it is a “high risk” business, and what sort of services you provide to customers can all be a factor.

Usually, the bank and credit card companies will want to see:

  • Your financial history
  • Your business plan
  • Incorporation documents
  • Who your agents are
  • Promotional material that you use to sell

After all of that is squared, you'd be required to pay $5,000 for each of the credit card associations. This is a yearly fee, by the way, and your application gets reevaluated every year as well. By contrast, an agent pays a bit of pocket change—maybe $50 once a year—to stay in business.

Should You Be an ISO or a Sales Agent? Which is Better? - Now, you might be curious about what path to take when it comes to your merchant services business. Should you become an ISO for merchant services, or take the safer and cheaper route and become a merchant services agent? Really, it comes down to your revenue. Do you have the sufficient merchant volume to be able to afford all of the crazy fees that ISOs have to pay? Then maybe it would be worth the trouble for you. If not, you should probably stick to the path of a sales agent, at least until you have more capital.

Becoming an ISO might seem really expensive and complicated to you right now, so you might be wondering why you would even want to become one. Well, basically you have the potential to make way more money. As a merchant services ISO, you are working directly with the processing banks (or at least with a larger ISO that is working with the banks), so you get a very low price in terms of transaction costs because there are less middle men between you and the bank. Your profit margins are higher than that of a merchant services sales agent. Merchant services sales agents get less of a share and they also have higher fees to deal with. It's like the difference between wholesale and retail, to give a somewhat awkward analogy.

However, not everything is rainbows and sunshine when it comes to being a merchant services ISO. There is a lot of responsibility and a lot of bank fees to dodge, things that sales agents don't really worry about. For example, you would need to watch out for so-called minimum processing fees. Basically, these are fees that the bank will charge you if you don't make a certain amount of transaction fees. Even worse, some banks will increase these fees year after year, and you will lose your residuals if you can't keep up. In fact, you might even have to pay a penalty out of your own pocket!

In order to avoid these minimum fees, you need to have a substantial portfolio of merchants. The minimum threshold that you are required to meet may be thousands of dollars, and since you're making pennies per transaction, you're going to need a huge volume of transactions. This is why it's not very wise to become an ISO if you have no experience in the business and no clients yet. It is just too risky.

As mentioned, the bank can also decide to increase the minimum every year, so that you're constantly trying to catch-up. This can be bad news for you because you can lose everything that you worked for. It's hard to escape having minimum fees of some kind, but steer clear from the kind of agreement that increases it every year if you can.

There are also some companies that will require you to sign up a certain minimum amount of new merchants per month, or you could lose all of your residuals. Don't sign up for such a deal, either, or you could see all of your income disappear quickly through no real fault of your own.

What We Have Learned - What's the best way to get started, then? Well, like anything else, that really depends on you and where you are with your business. If you're starting from square one, it's advisable to avoid the risks of becoming an ISO, and to simply stick to being a sales agent until you have decent enough income. There's something to be said about gaining experience and learning the business as well. No matter what you do, make sure to read every single contract before you sign anything so that you can avoid being taken for a ride. Don't jump into anything until you are ready. If you're not confident enough to negotiate with sponsor banks, then don't become an ISO just yet and spend some time as a sales agent building up your portfolio. Take things slow and you will avoid costly mistakes.

Posted by: Scott Shaw AT 10:21 am   |  Permalink   |  Email

How to Become an ISO Agent?

To become an Independent Sales Organization (ISO) agent, one must first research and partner with a reputable merchant services provider that works with ISOs to offer payment processing services to businesses. Once a partnership is established, the individual will typically undergo training on the provider's products and services, as well as on sales techniques and best practices for acquiring new clients. The ISO agent will then work to build a portfolio of merchants by contacting businesses and pitching the benefits of using their payment processing services. This may involve creating customized pricing plans, providing demonstrations of the technology, and addressing any concerns or questions that potential clients may have.

In addition to acquiring new clients, ISO agents are responsible for providing ongoing support and assistance to their merchants. This may include helping businesses set up their payment processing systems, troubleshooting any technical issues, and ensuring that transactions are processed smoothly and securely. ISO agents must also stay informed about industry trends, regulations, and compliance standards to provide accurate information and advice to their clients. Building strong relationships with merchants, offering excellent customer service, and staying proactive in seeking out new business opportunities are all key factors in succeeding as an ISO agent in the competitive payment processing industry.

Starting a payment processing company can be a lucrative and rewarding business venture. With the rise of e-commerce and online transactions, the demand for reliable and secure payment processing services is higher than ever. In this comprehensive guide, we will walk you through the steps to start a payment processing company, become a registered ISO, and the benefits of offering white label payment solutions for credit card processing.

Part 1: How to Start a Payment Processing Company

  • Research the Industry: Before starting a payment processing company, it is important to conduct thorough research on the industry. Understand the current trends, competition, regulations, and the needs of potential clients. This will help you identify your target market and create a unique selling proposition for your business.
  • Develop a Business Plan: A solid business plan is essential for the success of your payment processing company. Include details such as your target market, pricing strategy, marketing plan, financial projections, and operational strategy. This will serve as a roadmap for your business and help you stay on track towards your goals.
  • Obtain Necessary Licenses and Registrations: To operate as a payment processing company, you will need to obtain the necessary licenses and registrations. This may include registering as a Money Services Business (MSB) with the Financial Crimes Enforcement Network (FinCEN) and obtaining a Payment Card Industry Data Security Standard (PCI DSS) compliance certification.
  • Partner with a Processor: To process credit card transactions, you will need to partner with a payment processor. Research different processors and choose one that offers competitive rates, reliable service, and advanced technology solutions. This partnership will be crucial for the success of your payment processing company.
  • Set Up Merchant Accounts: Merchant accounts are necessary for businesses to accept credit card payments. Work with your payment processor to set up merchant accounts for your clients. Provide personalized service and support to attract and retain merchants for your payment processing company.
  • Market Your Services: Once you have set up your payment processing company, it is time to market your services to attract clients. Develop a marketing strategy that includes online and offline channels such as social media, email marketing, networking events, and industry publications. Highlight your competitive advantage and the benefits of working with your payment processing company.
  • Provide Excellent Customer Service: Customer service is crucial for the success of your payment processing company. Provide timely and personalized support to your clients to build trust and loyalty. Stay updated on industry trends and regulations to offer expert advice and guidance to your clients.

Part 2: How to Become a Registered ISO

  • Understand the Role of an ISO: An Independent Sales Organization (ISO) is a third-party company that acts as a sales agent for payment processors. ISOs are responsible for acquiring merchant accounts, providing customer service, and managing the relationship between merchants and processors. By becoming a registered ISO, you can earn commissions on credit card transactions processed by your clients.
  • Partner with a Processor: To become a registered ISO, you will need to partner with a payment processor. Choose a processor that offers an ISO program and provides support for acquiring and managing merchant accounts. Discuss the terms and conditions of the partnership, including commission rates, revenue sharing, and compliance requirements.
  • Complete the Application Process: To become a registered ISO, you will need to complete an application process with the payment processor. This may include submitting business documents, undergoing a background check, and signing a contract. Once approved, you will receive a unique ISO identification number and access to the processor's services and resources.
  • Acquire Merchant Accounts: As a registered ISO, your main responsibility will be to acquire merchant accounts for the payment processor. Develop a sales strategy to attract new clients and offer competitive rates and personalized service to differentiate yourself from competitors. Build strong relationships with merchants to grow your portfolio and increase your earnings.
  • Provide Ongoing Support: Once you have acquired merchant accounts, provide ongoing support to your clients to ensure their satisfaction and loyalty. Address any issues or concerns promptly and offer solutions to improve their payment processing experience. Stay informed about industry trends and regulations to offer valuable insights and recommendations to your clients.


Part 3: Benefits of White Label Payments for Becoming a Credit Card Processing Company

White label payments offer a number of benefits for credit card processing companies looking to expand their services and reach new clients. By partnering with a white label payment provider, you can offer customized payment solutions under your own brand, without the need for costly infrastructure or technology development. Here are some of the key benefits of white label payments for credit card processing companies:

  • Increased Revenue Opportunities: By offering white label payment solutions, credit card processing companies can expand their service offerings and attract new clients. White label payments enable you to provide a range of payment options, including online payments, mobile payments, and point-of-sale solutions, to meet the needs of diverse businesses and industries. This can lead to increased revenue opportunities and long-term growth for your payment processing company.
  • Brand Recognition and Loyalty: White label payments allow credit card processing companies to build brand recognition and loyalty among their clients. By offering customized payment solutions under your own brand, you can establish a strong presence in the market and differentiate yourself from competitors. This can help you attract new clients and retain existing ones by providing a seamless and consistent payment experience.
  • Cost-Effective Solution: White label payments offer a cost-effective solution for credit card processing companies looking to expand their services without the need for substantial investment in technology and infrastructure. By partnering with a white label payment provider, you can access advanced payment processing technology and services under your own brand, at a fraction of the cost of developing and maintaining these capabilities in-house.
  • Flexibility and Customization: White label payment solutions offer flexibility and customization options for credit card processing companies to tailor their services to the specific needs of their clients. You can customize the user interface, design, and features of the payment solutions to align with your brand and meet the requirements of different industries and business sizes. This flexibility allows you to offer a personalized and unique payment experience to your clients.
  • Scalability and Growth: White label payments provide credit card processing companies with the scalability and flexibility to grow their business and expand into new markets. By offering white label payment solutions, you can reach a wider audience of merchants and businesses, across different industries and geographies. This can help you increase your market share, attract new clients, and drive long-term growth for your payment processing company.

In conclusion, starting a payment processing company, becoming a registered ISO, and offering white label payment solutions can be a rewarding and profitable venture for entrepreneurs in the merchant services industry. By following the steps outlined in this comprehensive guide and leveraging the benefits of white label payments, you can build a successful credit card processing company and establish a strong presence in the market. With the increasing demand for reliable and secure payment processing services, there are ample opportunities for growth and innovation in the merchant services industry.

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    Shaw Merchant Group is a registered DBA of EPX, a registered ISO of BMO Harris Bank N.A., Chicago, IL, Fresno First Bank, Fresno, CA, and Citizens Bank N.A., Providence, RI.

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