August 16th, 2006 by Jamie Estep
Become a merchant account ISO
I am frequently asked about the process in becoming an ISO (Independent Service Operator) by businesses and sales agents alike. Here is a brief description of the actual process to become a registered ISO.
There are two types of ISO’s in the credit card processing industry, Registered and Unregistered. The real-world difference between the two, is that an unregistered ISO is essentially a sales agent, and a registered ISO is an independent company. Unregistered ISO’s are not allowed to have sub-agents working beneath them. Registered agents can have sub-agents, as long as those agents operate under the name of the ISO. Registered ISO’s are normally much larger than unregistered ISO’s.
To become a registered ISO, a business or individual must register themselves with Visa and MasterCard, and find a sponsoring processor, or larger ISO to resell for. This process is very time consuming and expensive, and is not the right direction for the majority of sales agents. Once registered, that company can have sub-agents, and generally has the ability to provide lower rates on credit card processing services than a sales agent. The major benefit of registering as an ISO are better buy rates to resell credit card processing services, more control over prices and residual payment options, being able to have outside agents that represent the main company and generally being able to establish a independent brand and company.
The application process:
The first step in becoming a registered ISO, is to find the company (either a processor or ISO) that you want to resell for. There are probably a hundred or more companies that can provide this ability. Depending on the needs of the agent, there are a variety of good companies that they can resell for. Any agent that has been in merchant services long enough to know the industry, should know who the better processing companies are, who has the best support, and the general provisions in signing with particular companies. It is equally important to sell for a company with a positive business image, and a very positive history of paying their ISO’s. Also, some processors don’t allow new ecommerce or card-not-present businesses, which could leave a gaping hole in an ISO’s ability to provide services. Some processors have high fees, or poor reselling rates. The differences between companies is completely unique to that individual company. A very good amount of research should be put into finding the best company to resell for.
Once the processor or ISO to resell for is chosen, the agent must then begin the registration process. I would honestly suggest allocating for no less than 6 months for the registration process. It may be shorter, and it may be longer, but either way, it takes a long time to complete the registration process. It is also a very good idea to hire an attorney that has experience in forming ISO’s to help with understanding and completing the application process. The repercussions from not fully understanding the provisions of the application could easily devastate a sales agent or small corporation.
To apply with Visa and MasterCard, the application itself is very lengthy, thorough, and expensive. The business history and any personal history of the owners will be closely scrutinized. Profit and loss statements, and any available financials for the business will be required. The business’s and owner’s personal assets and credit will be looked at, as well as any prior criminal or civil history. Basically, any available information for the business and owners is taken into account in the application.
Next comes the fees. The initial registration fee for registering with a single ISO or processor is $10,000 for the first year, and $5,000 for each subsequent year. If a company is registering with more than one company, which is common, it costs the same amount for each registration.
At the same time as the Visa and MasterCard applications, the agent will be applying with the ISO or processor, which is a similar but slightly less stringent application process. The Visa/MasterCard registration is separate from registering with the processor., and Visa and MasterCard are separate themselves, so there are essentially three applications.
Finally done with the application!
Once the application is completed, it’s time to wait. Visa and MasterCard will begin their lengthly process to qualify the organization as an ISO. Hopefully there isn’t a backup with Visa or MasterCard. The last time that I helped a business through the process, Visa took seven months to approve the ISO. MasterCard took about six weeks. If there are any major issue’s Visa and MasterCard will contact the sponsor. The sponsor will then come to you for whatever it was that needs attention, and they will send it back to Visa and MasterCard once complete. Visa and MasterCard will never communicate directly with a registering ISO, so making sure that you are registering with a solid company is important in getting your application processed quickly. I wouldn’t say it’s a fact, but probably 99% of the time, Visa or MasterCard will need some additional information.
Now you’re an ISO:
After several months of headaches, you’re finally an ISO. Now what?
That’s completely up to you. You will probably have gone through some extensive training with your sponsor by now. Obviously if you reach this point in the credit card processing industry, you have things pretty much figured out. You can now recruit outside sales agents, and you are your own company. Congratulations, and get to work.
Lastly, if you get to this point, don’t make the mistake of thinking you can transfer your current portfolio of clients to your new sponsor. Do not ever transfer your existing customers to a new processor, exclusively for that purpose. You can risk loosing your residuals from all of your existing accounts, and you can be fined, and sued.
So You Want To Register As An ISO?