Independent Sales Organization (ISO) | B2B Finance Glossary

Aug 14, 2023 by Zazil Martinez

What is an Independent Sales Organization?

An independent sales organization (ISO) is a specialized third party that sells credit card processing services outside a financial institution. While ISOs are not directly part of any bank or other type of financial institution, they will work with businesses to help them sign up to accept credit cards in exchange for a percentage of the merchants’ sales.


How do ISOs Work?

ISOs help businesses by working with them to decide which types of credit cards they accept and determining the interchange fees from credit card transactions and any markups or processing rates that may apply.

ISOs can also assist businesses in acquiring any specific equipment and terminals needed to process credit card transactions. ISOs also function as the main point of contact for customers experiencing credit card issues or for customers filing disputes. This means that ISOs are responsible for providing support for customers who are making credit card payments to your business, so the ISO you choose should have a robust support system that you feel comfortable using as a point of contact that represents your company.

Once an ISO signs your company up as a merchant, it will use a payment processor to do the necessary work required to process these transactions since the ISO is not a financial institution that can process these kinds of payments on its own.

The primary goal of an ISO is to sign up as many companies as possible as merchants for their processing accounts and then provide any help these merchants might need to start accepting credit card payments (ie, offering any physical or virtual terminals that would allow businesses to take payments from customers via credit card).

It’s the payment processor’s job – not the ISO’s – to run the business’s credit card transactions and offer any technical support the business might need to ensure payments from its customers are going through.


How is Working With an ISO Different From Working With a Merchant Service Provider?

A merchant service provider is the same thing as an ISO. They simplify the business payment process and allow merchants to accept credit card payments from customers more easily. In addition, merchant service providers help businesses by providing them with important data (just like ISOs).

So, when a business engages with a merchant provider such as Stripe or Square, that business is working with an ISO. The merchant account that a business establishes with a merchant service provider allows it to accept credit card payments from its customers.


Who can Become an ISO?

There is a strict vetting process for companies that want to become an ISO. An association member bank needs to ensure that the potential ISO is legitimate and secure to process payments safely and legally.

For businesses considering potential ISO partners, ensuring that the candidates being considered only come from the list of registered ISOs is important. This is because non-registered ISOs usually are not sponsored by banks; they’re just subcontractors working for registered providers.


What are the Pros and Cons of Working With an ISO?

ISOs offer several benefits to businesses, including the following:


ISOs Provide a Necessary Option

Not every business can get a merchant account. That’s because merchant accounts have a specific application process with many requirements, including asking your business to submit to underwriting.

Therefore, not every business will be approved for a merchant account, which means partnering with an ISO might be one of your only options when it comes to accepting credit card payments from customers.


ISOs Are Highly Customizable

ISOs are very flexible and can be tailored specifically to your business. For example, if your business has particular requirements, the right ISO will help you find the specific service providers, hardware, and terminals you need.


ISOs Are Very Versatile

ISOs can be more flexible than banks since they do not need to adhere to the same regulations as banks. As a result, ISOs tend to partner with many acquiring banks simultaneously and with many merchant service providers and payment vendors.

This can be helpful when it comes to negotiating payment rates – something that is likely to be unsuccessful with big banks.


ISOs Can Offer Much-Needed Support

Not every bank can support businesses when taking credit card payments. Since ISOs tend to be smaller than major banks, they can operate in more nimble ways, which means they can offer support in whatever specific way your business might need it to come in.

At the same time, there are some downsides to ISOs. These include the following:


Being One of Many Customers

Because ISOs take on so many customers at once, they may not always prioritize your business’s inquiries when you need them to. If response time is your number one concern, it might be beneficial to partner with a smaller-scale ISO to ensure you get the customer service you need at any given time.


Higher Costs

ISOs tend to work on a commission basis, which means they receive a cut of each transaction that goes through the merchant. Before choosing the ISO you want to work with, it’s a good idea to understand its fees and how they compare to others on the market.

Since ISOs do not have to adhere to the same laws and regulations as banks, their fees can sometimes be much higher than banks.


Increased Processing Times

ISOs can take 48 hours before they even start processing a payment, which can delay when funds appear in your business’s bank account. Before choosing your ISO, be sure to ask how long payment processing periods last.


Maintaining Compliance

Again, ISOs are not banks, so you must be sure your business is observing proper compliance regarding contracts and other legalities. You’ll have to ensure that both your business and your ISO operate in a way that complies with the IRS and any applicable local and state regulations.