Many independent agents who enter the payment processing business have a long-term objective of becoming a registered ISO. Registered ISOs can thrive and earn in ways that unregistered rivals simply cannot, thus making registration incredibly enticing. But what exactly goes into the process? It’s a lengthy, arduous process, but like with most difficult tasks, it’s usually more than worth it in the end.
If you think it’s time to boost your business, consider becoming a registered ISO agent. In this article, we’ll discuss what this means, how to earn from it, and how you can become one.
What is an ISO?
Independent Sales Organizations (ISO) are an important component of the payments’ ecosystem. They market card services to businesses and connect them to financial service providers who process their card payments online, in person, over the phone, or through other innovative methods.
ISOs serve as independent agents or brokers for financial services companies, banks, and payment processors (collectively known as Acquirers). While they resell the services of the organization they represent in exchange for a commission, some seek to distinguish their offer by adding value-added services to attract more merchants.
After an ISO successfully sells an acquirer’s services and the underwriting process is complete, the merchant will have entered into a contract with the acquirer, who would then own the relationship and oversee customer service interactions. Hence, while ISOs are an important link in the payments value chain, the quality of the services offered by the acquirers they introduce can jeopardize their long-term commission earnings.
How Do ISOs Earn?
ISOs make money by receiving commissions for processing services sold to clients. They also make money by opening services for their merchants that are opened by agents. In terms of merchant processing, ISOs have emerged as the primary hub over the years. ISOs are used by big and heavyweight companies to sell their services; an ISO can also act as an agent for the client company.
How to Become a Registered ISO in Merchant Services
The following is a high-level breakdown of the processes you should expect to take if you decide to apply to become a registered ISO in merchant services:
Start Your Business
The first step in becoming an ISO, like any other commercial venture, is to get your firm up and operating. This requires going through the regular company formation procedures, such as registering the company as a legal entity, getting your tax information set up, and completing all of the required documentation. This can all be done on your own, but if any of the requisite documents are not signed, your application to become a registered ISO may fail before it even begins. As a result, it’s a good idea to deal with a lawyer who can verify that everything is done correctly and without error.
Have a Detailed Business Plan
When the time comes to start looking for partners, financial service providers will want to know you’re reliable, serious, and low-risk. Due diligence will be used to examine all of these issues, and one of the first things you’ll need to submit is your business plan. No financial services company, payment processor, or bank will accept your business unless you have a solid business plan outlining how you intend to operate as a registered ISO. As a result, your business plan must be well-thought-out, detailed, properly projected, and professionally presented. That may seem difficult, especially if you’ve never created a real business plan before, but there is a plethora of free online tools that provide incredibly extensive, step-by-step instructions on developing outstanding business plans.
Find a Member Bank or Payment Processor to Sponsor You
When you’re ready to start the registration process, you’ll need to identify a sponsoring member bank or payment processor. You can always engage with new sponsors later on, but for now, this first sponsor basically vouches for you with Visa and Mastercard. They also assure that if the card companies approve your application to become a registered ISO, you have a partner to resell to.
Prepare for the Vetting Process
Once you’ve secured a sponsor, you’ll need to prepare for the difficult part: the vetting process. This process is usually triggered by an application to become a registered ISO with Mastercard and Visa. To the card companies, your company is unknown and thus a risk. To limit that risk, they’ll conduct extensive due diligence, and you must be prepared to offer them all of the information they require if you don’t want to make an already lengthy registration process much longer.
Before granting you registered ISO status, these card companies will likely request your personal tax statements, business plan, business financial statements, existing sales materials, and other paperwork.
Register with the Card Company
Once you’ve completed all of the prerequisites, you’re ready to apply to become a registered ISO with Visa and Mastercard. Your sponsor will most likely facilitate the application process, collecting and forwarding papers and assisting you as needed throughout the process. However, keep in mind that you pose the same risk to the sponsor as you do to these card companies, so don’t expect them to take the responsibility if your application falls short of the mark.
Pay the Registration Fees
If the card company accepts your application, the only thing left to do is pay the registration fee. Each card company charges a $10,000 registration fee to newly registered ISOs. Each year after that, each corporation must pay a $5,000 fee to continue functioning as an ISO. For most registered ISOs, paying these companies $10,000 a year isn’t a big deal once they’re up and running. However, the initial $20,000 investment required during the registration phase deters many would-be ISOs.
The Waiting Game Begins
Once everything is in, the agonizing wait begins. Expect your application to take at least a few months to be evaluated, validated, and approved by both card companies. However, it is not uncommon for applications to take six months or longer.
If the steps have seemed daunting thus far, that’s because it is. However, once completed, the benefits of becoming a registered ISO are massive because you will be able to hire as many independent agents as you need, develop your own brand, and grow significantly over time.
Final Thoughts
Setting up your own ISO and building a valuable merchant services portfolio involves a lot of work, but the grind doesn’t end once it’s all said and done. The approval process may appear to be the final hurdle, but the payment processing industry is very competitive, and margins are tight. To stay afloat, you’ll need to be willing to step in and carve out market share in any way you can. Once you are set up, the real work starts.
