How to become an ISO for merchant services
The boom in card payments in general and contactless and ecommerce in particular, combined with the rapid expansion of the digital economy, has changed the face of the global payments industry. Today’s consumers don’t just expect but demand aquick, seamless, instant access to products and services, so payment processors have had to change their operations to keep pace. This has given rise to a new breed of merchant services providers, payment facilitators and independent sales organisations (ISOs), which have combined innovation and technology to meet evolving customer expectations.
These new entrants to the payments market are changing the landscape and wrestling market share away from the bigger, more traditional providers by enticing merchants to their more agile and comprehensive solutions. Emerging technology has created opportunities for new ISOs to differentiate their service proposition, create niches and specialisms, and offer merchants quick and secure payment solutions that enable them to meet their end customers’ needs better. Here, we take a closer look at how to become an ISO for merchant services and make the venture a success.
What is an independent sales organisation?
Independent sales organisations are a valuable part of the payments ecosystem. They promote card services to (mainly) smaller businesses and connect them to the financial services providers that process their card payments face to face, online, by phone, or through new techniques such as order and pay at table apps.
ISOs act as the independent agents or brokers that represent banks, financial service providers and payment processors – generally known as acquirers. While they resell the services of the organisation they’re representing in return for commission, some are now looking to differentiate their proposition by adding value added services in a bid to attract more merchants.
This often includes enhanced customer service, hardware, software and technology solutions, integration with key business systems, and other tools or services that help merchants achieve more sales and become more efficient.
Once an ISO has successfully sold an acquirer’s services and the underwriting process has been completed, the merchant will have signed a contract with the acquirer who then owns the relationship and manages customer service interactions.
So, while ISOs are a crucial link in the payments value chain, they can find it difficult to build longer term relationships with merchants, meaning their long-term commission revenue can be compromised by the quality of the services provided by the acquirers they introduce.
How to become an ISO
The ISO marketplace covers a broad spectrum and offers plenty of opportunities for aspiring individuals and companies to innovate and bring something new to the table in a bid to attract and sign-up new merchants – and develop closer relationships.
There are a few simple steps to creating an ISO:
Start your business
As with any other commercial venture, the first step to becoming an ISO is to get your business up and running. This entails going through the usual process of starting a company, including registering the business as a legal entity and all the standard paperwork. This is a pretty simple process at Companies House, so you don’t really need to incur the expense of a company formation service.
Decide if you want to be registered or independent
There are two types of ISOs, introducers and registered. If you’re looking to get your business trading quickly, introducer is the way to go. Introducers are essentially agents who act as sales agents to larger, registered ISOs. They still earn residual commission on all the transactions their merchants make, but the merchant applications and formal introduction to acquirers will be managed by the registered ISO partner rather than your own business. This makes it quicker, easier, and less costly to set up as an introducer, however, your commission levels will almost certainly be lower.
On the other hand, Registered ISOs are registered directly with a number of acquiring service providers to sell payment services on their behalf.
While the application process to become a registered ISO is resource-heavy and time-consuming, the potential rewards are greater. Your revenue earning potential will be higher, and you’ll also be able to recruit your own network of independent sales agents and directly employed sales people to generate and manage leads and grow your business.
If you decide to become a registered ISO, there’s a lot of paperwork to get through, and you may be in for a long wait before your application is accepted. Acquiring payment processors see new ISOs as a potential risk, so will carry out sufficient due diligence to minimise the perception of risk before they decide to accept you.
The first step to becoming a registered ISO is to find a company willing to allow you to resell their merchant services. When looking for such companies, it’s vital to ensure there is a good synergy between your ISO and the business you’ll be representing. Your relationship with them will be key to making your venture a success, so choosing a partner with a similar target sectors and values to your own business will be an excellent place to start.
Once you’ve chosen the acquirer(s) you want to resell services for, you’ll need to apply to the card schemes – Visa and Mastercard. Again, they will want to vet your ISO plans to mitigate the risk before they take you on, which can be a costly and time-consuming process.
How does better merchant onboarding help ISOs?
Selling payment services is highly competitive, thanks to the way the market continues to evolve. While price is a consideration, it’s not as much of a race to the bottom it once was. With merchants needing to be set up quickly and so much choice available, simply being the cheapest ISO on the block is no longer enough to attract new business. Neither is offering a generic service. With so many introducers and ISOs competing for business and card payments still viewed as a commodity service, merchants need a good reason to switch providers. If ISOs can provide more value and differentiated services to merchants, they will earn more commission for a longer period, from more merchants.
However, even with a unique service proposition and the best technology, your sales will not be optimised if your merchant onboarding process isn’t on point. If an introducer or ISO cannot efficiently attract merchants, produce attractive but profitable quotes, take care of all their compliance and security requirements and get them up-and-running and taking payments quickly, getting them to switch from their existing provider will always be an uphill battle.
Datam’s platform is at the forefront of creating a whole new sales and on-boarding experience for merchants, introducers, ISOs and acquirers.
Our revolutionary approach to merchant journey management simplifies the entire process to help our customers and partners overcome their sales and onboarding process inefficiencies. As a result, merchants can be registered quickly, accurately and – above all – safely by the most relevant member of the distribution channel or value chain.
In fact, we can give you the ability to sign up new merchants in five minutes. We call it ‘Lead to Live in Five’. Click below to arrange a demo to find out more.