What is an ISO in the Merchant Services Industry?

The merchant services industry entails the following: Business owners pay for processing services through a company that represents Visa or MasterCard. Seeing as credit card processing is key to any operation, choosing who to work with is a vital decision by the business owner. We have to understand that brands like Visa or MasterCard are referred to as Associations. Banking institutions like Citibank, Bank of America and others are what is known as Association Member Banks

An ISO or independent sales organization in the merchant services industry is a third party payment processing company that is authorized to handle accounts for businesses, and they become the key link between the business and the card issuer, namely Visa or MasterCard. Said issuers then proceed to contact the specific bank that issued the card in order to verify there is enough credit available on the account. If said funds are available, those funds are then held for the business that made that transaction.

Merchant service providers must be registered with Visa or MasterCard so as to legally provide credit card processing services under their own name. An individual or a business that wants to become an ISO has to go through an extensive vetting process that covers security as well as legitimacy. The process is both very thorough as well as expensive seeing as they have access to specific card and transaction information. They must be well established, regardless of the size, to be able to become a Visa or MasterCard ISO. Their workforce can vary from a handful to thousands.

A common question that businesses would ask is what is the advantage of working with an ISO versus working with a bank. Usually, businesses find that working directly with banks ends up being more expensive and lacks the flexibility that a third party processor can offer. Contrary to what some might expect, banks are not more secure in their operations either. It becomes a matter of specializing and playing to the strengths of each institution. While a bank has a wide array of responsibilities and services, the ISO can dedicate its resources to facilitate the best merchant and consumer experience.