Independent Sales Organization (ISO) – What are they?
At its most basic level an Independent sales organization is nothing more than a third party group who partners with various banks, who are looking to acquire, open and manage various merchant accounts on behalf of different businesses. In exchange for managing these accounts, the independent sales organization charges a higher fee, as well as a percentage of your actual sales. They are also known as merchant service providers in the case where they offer financial transaction processing services in addition to account management. Independent sales organizations are extremely lucrative in the business world, due to the fact they are able to offer merchant accounts to riskier individuals and merchants who cannot obtain them directly from the banks. They also charge significantly higher fees, since they are not subject to the same obligations in terms of laws and regulations as the actual banks are. In addition to working alongside of the acquiring banks who deal with the accounts, most ISOs also assume the majority of liability and risk associated with the services they offer to you as a consumer.
The vast majority of e-commerce these days involves credit card purchases, and with the overwhelming majority on a global basis focusing on e-commerce versus traditional forms of purchasing, the ability to accept credit cards as a form of payment has been vital to the sustainability of global businesses. When this first came into play, merchants discovered that in order to obtain the ability to accept credit cards as a valid form of payment, they needed to apply for special merchant accounts with acquiring banks. Once the account was established the acquiring bank could then begin accepting funds from card holding consumers whenever they made purchases related to that merchant. While there have been a number of various changes in the process, the system as it exists today is essentially the same, with money being transferred from the bank that issued the credit card, to the acquiring bank, and eventually to your account.
When looking at starting your own business, it is important to understand that security is of utmost importance to banks when considering providing a merchant accounts. Certain kinds of businesses are more prone to risk and credit card fraud than others, and for these types of businesses obtaining a merchant account directly from a bank can be extremely difficult. This is where the independent sales organization steps in on behalf of your business, because they can provide you with the necessary backing to acquire a merchant account, shouldering most of the risk in exchange for a percentage of your sales. According to the publication Auction Watch, in the early 2000s ISOs were responsible for opening roughly 80% of all merchant accounts, with banks only accountable for 20%. That number has only continued to rise in the 21st century as more and more countries around the world enter the marketplace, and regardless of where your business is located, an ISO is one of the easiest ways to set up your merchant account.