In this post, I will examine the use of ISOs. Recognizing how ISOs operate can help merchants secure the best payment processing.
This follows from my 3-part show on credit card processing, which explains the participants and pricing approaches and supplies money-saving suggestions. My 2-part primer on merchant accounts addresses their purpose and the best way to pick the best supplier.
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Acquiring banks and payment processors rely on ISOs to promote their services. A amazing ISO will use its experience in an industry to tailor made solutions for merchants. ISOs that concentrate on payment processing for restaurants are an example.
ISOs can sell the support of numerous merchant acquirers and payment processors, picking and choosing the best solution to receive a merchant. ISOs are extremely similar to independent insurance agencies that find the best policies for their clients.
ISOs are supposed to understand the requirements of the merchant clients and propose suitable solutions, such as pricing, equipment, and technology. The best ISOs take a while to understand their clients and build long-term relationships.
ISOs must register with the card brands — Visa, Mastercard, American Express, Discover. Registration fees are approximately $5,000 per year, per transaction. ISOs frequently have their own agents, who do not need to register.
ISOs vary in size. Some are huge, with hundreds of agents and workers; others are small, with just a few employees or even 1 worker. Larger ISOs sometimes subcontract parts of the business to smaller ISOs. To increase the confusion, Visa and Mastercard do not use the acronym ISO. Rather, Mastercard uses MSP (member service provider), and Visa uses TPA (third-party agent ).
How ISOs Make Money
Understanding how ISOs are compensated will help merchants get the best pricing and services. ISO earnings comes from:
- Residuals, that are a part of the fees that merchants pay for payment processing. Every time a merchant accepts a payment, the ISO receives a residual. Residuals are the principal revenue source for most ISOs.
- Value-added upselling, that are commissions from selling additional services, such as fraud verification, enhanced coverage, and point-of-sale accessories.
- Bonuses from new sign-ups, which may vary from $400 to $5,000 each merchant.
- Marketing Programs. ISOs can sell their merchant portfolios to private investors or other ISOs. The price is dependent upon potential residuals. Merchants should assess their arrangements carefully to make sure pricing and service levels do not change when their account is sold.
ISOs: Good vs. Bad
I’ve worked in the payments industry for around 20 years. Most ISOs and their agents are honest, hard-working experts who want their merchant clients to succeed. Unfortunately, a few are not.
- Review merchant statements frequently, searching for ways to reduce prices.
- Provide experience based on the merchant’s industry.
- Sell products and services that help the merchant, no matter residuals and bonuses.
- Proactively help merchants.
- Describe their contracts in detail, ensuring that the merchant understands the requirements.
- Use aggressive, high-pressure sales plans.
- Do not explain the fees, service levels, and stipulations.
- Sell unnecessary equipment and solutions.
- Disappear after the contract is signed.
Strategies for Merchants
When dealing with ISOs:
- Know that the charges. I’ve seen fees that start low but increase with time alongside other bait-and-switch sales plans.
- Remember that ISOs and their agents rely on residuals and bonuses. Ensure an ISO-recommended product is helpful for your business.
- Review the contract carefully and maintain the final, executed copy.
- Ask as many questions as needed. There are no stupid questions. A good salesperson will respond professionally and politely.
- Inquire if the ISO intends to provide your account. Know your rights if that happens.
- Compare the deal to other ISOs.
- Realize an ISO may not match your organization. Additionally, smaller ecommerce operations, micro-merchants, and intermittent sellers likely won’t profit from an ISO and are better off relying on end-to-end service providers such as PayPal, Square, together with other peer reviewed services.
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