Business owners know that they need to accept credit cards to run a viable business. They may even understand they need a merchant account to accept credit card payments. But do they know if they need a merchant account ISO? Or do they need an MSP?
Merchants don’t often concern themselves with the various industry terms thrown around by members of the credit card processing industry. We use terms like merchant instead of business owner. We refer to members of the industry with terms like ISO, MSP, aggregator, PayFac, and so on. But why is it good for merchants to understand these terms?
These terms refer to the different types of institutions that bring credit card processing services to business owners. Understanding the terms helps merchants to differentiate the options they have for finding a solution for accepting credit card payments. And, of course, this will help them choose the solution that best fits their needs.
Today, we’re going to explain what ISO and MSP stand for and what role they play in the credit card processing circle.
What are merchant account ISOs and MSPs?
ISOs and MSPs are organizations that partner with the card associations (Visa, MasterCard) to bring credit card processing services to merchants.
Visa refers to these partners as ISOs or Independent Sales Organizations. MasterCard refers to these independent sales organizations as MSPs or Member Service Providers. But to confuse things more, many industry insiders also use the term Merchant Service Provider – also abbreviated MSP. But it doesn’t really matter, since all three terms are used interchangeably by people working in the industry.
Member/Merchant Service Provider is the most fitting because this is exactly what they are. They provide member services to all the merchants of the world that want to accept card payments.
What do ISOs/MSPs do?
ISOs work closely with the Credit Card Association members to bring services to merchants that enable them to accept card payments. Credit Card Associations grant ISOs/MSPs the permission to offer payment solutions to merchants as well as communicate with card holders. ISO/MSPs connect merchants with their own merchant account directly with an Acquiring bank.
In the simplest explanation, ISOs/MSPs can be considered middlemen. They provide the bridge between merchants and the Acquiring banks that take credit card transaction payments.
But they are also a bridge between the acquiring banks and potential new merchants. MSPs do most, if not all, of the heavy lifting of bringing new merchant clients to the acquiring banks. They facilitate much of the preliminary underwriting and onboarding of new clients. And they provide the merchant with customer service and support throughout the life of the account.
Acquiring banks only have to communicate with their registered ISO/MSPs. It is the MSPs responsibility to deal with the millions of business owners needing credit card processing services.
ISOs and MSPs assume increased costs, liability, and responsibility for merchant accounts.
ISO/MSPs must register with each card association member in order to provide services to merchants. They pay a $5000 fee to register with each association the first year and $2500 each year thereafter to re-register.
They also go through a rigorous review process before being granted registration. Acquiring banks and card brands expect ISOs and MSPs to adhere to strict rules for participation in the credit card processing network. During the review process all financials, marketing materials, security protocols, and even employees are fully vetted.
How do merchant account ISO/MSPs differ from payment aggregators?
This is very different from how merchant aggregators work. Merchant aggregators also provide merchants with the ability to accept card payments. They just do it much differently. Square and PayPal are two of the largest and most well-recognized merchant aggregators.
Merchant aggregators hold one merchant account under their own name that acts as a parent merchant account. They lump all the merchants they sign up under their own parent merchant account. So instead of each merchant having their own merchant account, they all process through one single account.
In addition, each merchant pays the exact same fee for processing. Business history and risk level do not come into play. If you’re a low-risk merchant with a long, clean business history, you’ll pay the same rate as a brand new business who brings a greater level of risk to the aggregator.
These types of accounts can be much less secure for the merchants. At any time, the bank can freeze or close the merchant account. Often, the processor will terminate the account with very little notice. This can happen due to something any one of the merchants under the account does. Therefore, you can fall victim simply because of something any one of the other merchants did that has nothing to do with you.
It’s also why aggregators don’t like to serve any business model that they consider higher risk. If they onboard a high-risk business, it could result in getting the whole merchant account shut down.
If a business is initially approved, then later found to be too high-risk, the aggregator will quickly terminate the account to protect the parent merchant account.
There are benefits and downsides of working with an ISO/MSP.
Unlike aggregators, ISOs and MSPs provide each merchant with their own merchant account. This means that they individually underwrite each merchant before they approve their merchant account.
Merchants have the ability to negotiate the best rates and terms based on their own merits. This means they are often able to realize significant savings compared to rates from an aggregator. It also means they’re less likely to close the merchant account unexpectedly since they’ve already vetted the business model.
Acquiring banks can impose large processing minimums on their registered ISOs. If for some reason the ISOs accounts do not meet those minimums, they must make up for it by giving up their profits. This could be financially devastating for a registered ISO/MSP. Which doesn’t translate to a very stable solution for the merchant.
Many times registered ISOs will only work with one bank. This isn’t necessarily a bad thing. It just means they bring fewer options for their merchant clients.
Merchant accounts are not “one size fits all”- merchants need options.
Acquiring banks can’t just open merchant accounts for everyone. They must be selective about the amount of risk they take on. Having multiple banking partners allows us to find the solution that will best fit the needs of each merchant. And those needs will change as the business grows and adapts to customer demands.
Sometimes the acquirer a business starts with doesn’t fit their needs as they change. Part of providing personalized customer service is having the solutions our clients need when they need them. This is just one more reason why we prefer to cultivate many trusted banking partners.
Bankcard Brokers chooses merchant service as its highest priority.
At Bankcard Brokers, we don’t work for the acquiring banks; we work for our merchant clients.
Throughout our decades of working in the credit card processing industry, we’ve cultivated several trusted banking relationships. Because of this, we are able to find the best solution for the merchant. We’re not forced to make our merchants fit with just one bank’s solutions. Instead, we’re able to custom tailor the credit card processing solution to our client’s needs.
Once we find the best solution, our in-house underwriting team reviews your application to help ensure the fastest possible approval. But it doesn’t stop there. Even after you’re up and running, your dedicated merchant account advisor will continue to provide ongoing merchant account management.
Keeping a lower overhead and no investor’s margins to meet enables us the flexibility to be more competitive. We pride ourselves on bringing transparent, reliable, and fair merchant account solutions to our merchants. And we top it all off with personalized customer service.
Our merchant clients are our cherished, loyal customers. They are not just another name in our portfolio. Like your regulars that patronize your business again and again, our clients are our regulars. We know your name, we know your business, and we work hard to fill your needs. That’s how we earn our loyal merchant clients.
Wondering if you have the right solution for your business’s needs? Give one of our ETA Certified Payments Professionals a call today. We’d be happy to audit your account and see how we can help you. And if your solution is perfect and your rates are great, we’re not afraid to admit it. Integrity.
“Experience The Bankcard Brokers Difference!”