The payment processing industry uses the terms ISO a lot, but, ironically, only a few merchants understand this expression. Visa uses the term ISO (Independent Sales Organization) or MSPs (Member Service Provider) to refer to an organization or an individual who does not belong to a credit card association like Visa or MasterCard bank.
It is usually challenging to decode such financial jargon to know what it means and its role in credit card processing. To facilitate your knowledge, we have put in a bit of effort to break down cryptic terms like ISO and MSP into easily digestible pieces of information that anybody can understand. We have outlined the basics to define a Visa-registered ISO/ MSP, what they do, and whether you should work with them.
About ISOs and MSPs
What do you mean by the term ISO in the credit card processing industry? Visa uses the term ISO (Independent Sales Organization) or MSPs (Member Service Provider) to refer to an organization or an individual who does not belong to a credit card association like Visa or MasterCard bank. Still, they have a relationship with Association member banks.
A Visa-registered ISO company can legally sell or work with Visa merchant accounts. Such ISOs work as an interface between your business and the credit card company, processing banks, acquiring banks, and other merchant processors involved in payment processing.
Visa registered ISOs have a relationship with the Association, which permits them to perform several activities legally. ISOs can issue POS terminals, offer payment solutions, interface with cardholders, and advertise to prospective customers. They can not do any of these activities without explicit authorization from the credit card company. MasterCard calls them MSPs (Member Service Providers), referring to organizations or persons fulfilling the same functions as an ISO.
Difference between ISO and MSP
As such, there is a subtle difference between the two. Mastercard calls them MSPs, whereas Visa calls them ISOs. The payment processing industry uses both terms interchangeably. Although they mean slightly differently, you can safely use either of them.
How much do ISOs/MSPs charge?
Different merchant service providers or members have several pricing structures. Depending on the service provider’s fee model and their markup margins, the price paid by you as a merchant differs.
Visa registered ISOs or MasterCard MSPs shell out a lot of money to stay in the game. They pay $5,000 to the sponsoring Association. Moreover, they also need to invest heavily in the software and additional human resources to keep their businesses ready for review.
Besides, multiple banks can sponsor the same business. For example, if Visa and MasterCard sponsor a company, it must pay at least $10,000 to the Association to get started. Moreover, for every annual registration, the company must pay $2,500 to each Association to remain certified as ISO or MSP.
Despite heavy startup and annual costs and infrastructure spending, a Visa-registered ISO/ Mastercard MSP is cost-effective for most small to medium-sized businesses. It works well for companies processing numerous transactions per month or selling big-ticket items. Unlike transaction-based pricing, it is better to stick to a membership-based pricing structure so that you don’t end up paying a large portion of your profits on every transaction.
What Are The Pros And Cons Of Working With Them?
Visa-registered ISOs/MSPs must meet several criteria to get registered. They must prove to the Association with sufficient documentation that their business is financially feasible. The documentation may include submitting two years of financial statements, a complete list of employees, all the sales materials, and more.
Registered ISOs must pay the minimum fee and conduct large transaction volumes. The financial service provider must pay the difference out of pocket if they do not meet the minimum transaction requirements; not an attractive proposition for any business scale. You may argue that it may be cheaper to work with companies that are not Visa-registered ISOs. But in reality, it is rarely so.
When you work with an ISO/MSP, you get the reliability and security of an extensive credit card network, as they process your business through Association banks.
It is true that, unlike Visa-certified ISOs, non-association banks may not charge upfront fees from companies. However, they usually include clauses in their fine print that entitles the banks to forfeit part of entire profits if they fail to meet minimum monthly commitments. Consequently, financial service providers working with such shady banks don’t stay long in their business.
Hence, if you need proper functionality and security, you will still be better off with a trusted visa-registered ISO.
Are Merchant aggregators better than ISOs?
You can start accepting payment without paying the upfront costs of setting up a merchant account by opting for a merchant aggregator. You can start selling products the day you open your merchant account. Although it may sound pretty interesting, there are many pitfalls.
Merchant aggregators work by pooling or aggregating all their merchant accounts in one place. They can terminate your account with little or no notice, may charge much higher transaction fees, and provide minimal security. They often don’t charge a monthly membership fee; instead, they make money by deducting at least 2.7% for every transaction processed by you. You may imagine how quickly this can add up into massive amounts.
Imagine your service provider stopped transacting for a week or two, or your business suffered a wide-scale security breach. Your business may not handle that much heat except in circumstances where you can’t afford a monthly membership charge or you are just starting up. There is no need to put your business security at risk or compromise with your customers’ data security. You can straightway partner with Visa-registered ISOs to avoid unpleasant situations.
List of registered ISOs
It is legally binding on ISOs to disclose the sponsor bank’s name. You can find those details at the bottom of their websites. However, most ISOs usually brag about their sponsor bank affiliations. You can double-check the financial service provider’s credentials from the Association website or download the Visa-registered ISOs and Mastercard MSP list.
We don’t say that merchant payment processing is simple; Visa-registered ISOs/MSPs are no exceptions. Nevertheless, you may partner with an ISO offering 24×7 customer service who can address your payment processing issues on priority.