A Software Executive’s Guide to ISO Types and Registration

By Brandon Banks

As a SaaS company, staying ahead of the curve is crucial to not only staying relevant but thriving in the industry. Embedded payments — or integrated payments — have become the norm as customers demand seamless transactions within software. However, deciding which embedded payment model to choose can either limit or enhance your growth.

This is where registering as an Independent Sales Organization (ISO) comes into play. While this approach offers more flexibility, it also comes with significant responsibility. In this article, we will provide an in-depth definition of I, delve into the registration process, and weigh the pros and cons of this strategy to help you make an informed decision about payment processing for your SaaS business.

What is an ISO?

An Independent Sales Organization (ISO) is a third-party organization authorized by payment processors or acquiring banks to market and sell merchant services. They function as intermediaries between businesses — referred to as merchants — and the processors or banks. ISOs typically provide a wide range of services, such as payment processing, hardware and software solutions, customer support, and risk management.

Types of ISOs: Retail, Wholesale, and Full Service Providers

There are three primary types of ISOs your company could register as: retail, wholesale, and Full Service Providers (FSPs). Each type of ISO specializes in a different aspect of payment processing and serves merchants’ needs differently. There are distinct variations in risk management, contract agreements, asset ownership, pricing, and the level of service provided between the types of ISOs. Let’s explore the distinctions between these three types.

Retail ISOs: Competitive Pricing and Simplified Offerings

Retail ISOs specialize in offering competitive prices and simple payment processing solutions. These types of ISOs are responsible for setting up the merchant accounts with payment processors or acquiring banks.

• Risk management — Retail ISOs do not typically assume the same level of risk as wholesale ISOs. They often rely on their payment partners (i.e. banks and processors) to handle risk management and underwriting responsibilities. This can result in a more streamlined operation but may also mean they have less control over risk-related decision-making, and less flexibility in the merchants they can serve.
• Contract agreements — Retail ISOs usually have master agreements with payment processors, which outline the terms and pricing for the services they resell. Individual merchant agreements are often based on these master agreements, with little room for customization.
• Contract ownership — Retail ISOs do not directly own merchant contracts. Instead, the payment processor retains ownership, meaning that retail ISOs have less control over pricing and terms. This limits their ability to provide customized solutions but enables them to offer competitive pricing by leveraging their processor partnerships.
• Pricing — Retail ISOs can often provide lower pricing compared to wholesale ISOs due to their reseller status and reduced operational overhead. However, their service offerings may be more standardized and less personalized.

Wholesale ISOs: Customized Solutions and Personalized Support

Wholesale ISOs specialize in offering customized payment solutions to businesses. Typically, they cater to larger merchants with higher transaction volumes who require tailored and personalized support, including specialized risk management and underwriting. However, the level of service they provide often comes at a higher price point and requires a greater operational and administrative overhead than retail ISOs.

• Risk management — Wholesale ISOs work closely with merchants and are responsible for underwriting and managing risks associated with merchant accounts, such as chargebacks and fraud. They typically have stringent risk management policies and dedicated teams to monitor and mitigate risks.
• Contract agreements — Wholesale ISOs negotiate and sign contracts directly with merchants. These contracts outline the terms of the relationship, including fees, service level agreements (SLAs), and support provisions.
• Contract ownership — Wholesale ISOs own the contracts with merchants and retain control over the pricing, terms, and conditions. This allows them to be more flexible in tailoring solutions to merchants’ unique requirements.
• Pricing — Wholesale ISOs may charge higher fees to cover the costs of their personalized services and comprehensive offerings. However, they can also provide value-added services that help merchants optimize their payment processing and overall business operations.

Full Service Providers: Comprehensive Payment Solutions and Advanced Technology

FSPs specialize in providing comprehensive payment solutions and advanced technology to businesses. FSPs are responsible for setting up merchant accounts with payment processors, as well as negotiating and signing contracts directly with merchants. They offer tailored services that meet the unique requirements of each business.

FSPs offer a wide range of services, including payment processing, hardware and software solutions, customer support, and value-added services such as analytics, reporting, and security features. They often invest in advanced technology to improve the efficiency and security of their services.

• Risk management — FSPs assume a significant level of risk by directly managing the entire payment processing ecosystem, including underwriting, risk management, and fraud prevention. FSPs have dedicated teams and advanced technology to monitor and mitigate risks associated with merchant accounts.
• Contract agreements — FSPs establish direct contractual relationships with merchants. These contracts outline the terms of the relationship, including fees, service level agreements (SLAs), and support provisions.
• Contract ownership — FSPs own the contracts with merchants and retain control over pricing, terms, and conditions. This allows them to customize solutions to merchants’ unique requirements.
• Pricing — FSPs may charge higher fees to cover the costs of their comprehensive service offerings and advanced technology. However, the value-added services and cutting-edge solutions they provide can help merchants optimize their payment processing and overall business operations.

What one is best suited for you?

The different types of ISOs offer different advantages for software companies looking to become a payments company. Choosing the right model depends on a variety of factors, including the following:

• your company’s personnel and expertise
• revenue goals
• value enhancement
• operational efficiency
• customer experience
• conversion rate optimization
• control requirements

Before deciding which type of ISO to register as, you should carefully evaluate your company’s specific needs, resources, and goals to determine the option. By considering these factors, software companies can choose the model that best aligns with your objectives and requirements.

• Retail ISOs — This model is best suited for software companies with limited payment processing expertise that are seeking cost-effective solutions and operational efficiency. While they provide a more standardized service with less personalized support, they can help maintain business operations and drive conversion through competitive pricing.
• Wholesale ISOs — This model is ideal for software companies with payment processing expertise and a diverse client base, and are also seeking tailored payment solutions and personalized support. By offering customized payment processing services, you can enhance the value of your company, improve customer experience, and drive conversion. However, because they assume higher risk, wholesale ISOs must also charge higher fees.
• Full Service Providers — This model is a perfect fit for software companies looking for an all-inclusive payment processing service that offers advanced technology and comprehensive solutions. It is well-suited for ambitious companies aiming to retain control over all aspects of their payment processing.

When Does ISO Registration Make Sense for SaaS Companies?

For software companies considering ISO registration, it’s important to weigh the benefits against the costs and risks involved. Registering as an ISO might make sense in one or more of the following situations:

1. Your company has a large and diverse client base that could benefit from tailored payment solutions.
2. Your company wants to enhance its product offerings and add value to its services by providing integrated payment solutions.
3. Your company has the resources and expertise to navigate the complex landscape of payment processing, compliance, and risk management.
4. The potential revenue generation from transaction fees and other payment-related services outweighs the initial investment and ongoing costs of ISO registration.

Pros and Cons of ISO Registration

Pros	Cons
Enhanced offerings — By registering as an ISO, software companies can expand their product portfolio and offer a comprehensive suite of payment solutions to their clients.	Initial investment — The registration process, infrastructure development, and compliance requirements can be costly.
Revenue generation — ISOs can earn residual income from the transaction fees paid by merchants for using their payment processing services.	Ongoing costs — ISOs must pay annual fees to card networks and maintain a certain level of financial stability.
Flexibility — ISOs have the flexibility to negotiate pricing, tailor their services, and create customized solutions to meet the needs of their clients.	Compliance and risk — ISOs must comply with the rules and regulations set by card networks, acquiring banks, and payment processors, which can be complex and time-consuming. They also assume the risk associated with merchant accounts, such as chargebacks and fraud.
Credibility — ISO registration can enhance the credibility of a software company by demonstrating adherence to industry standards and commitment to providing reliable payment solutions.

ISO Registration Process

Registering as an ISO involves several steps, including the following:

1. Choose your partnerships — Start by selecting the payment processors or acquiring banks you want to work with. This decision will largely depend on the services they offer and the target market you plan to serve.
2. Draft a contract — Create a formal agreement with your chosen processors or banks outlining the terms and conditions of your partnership.
3. Register with card networks — As an ISO, you must register with major card networks like Visa and Mastercard. This process involves submitting your ISO application, undergoing a background check, and paying a registration fee.
4. Meet the requirements — You must comply with the rules and regulations set by the card networks, acquiring banks, and payment processors. This includes maintaining a certain level of financial stability, obtaining the necessary licenses, and implementing robust security measures.
5. Build your infrastructure — Develop the necessary infrastructure to support your services, including software solutions, customer support systems, and sales and marketing strategies.

Final Thoughts

Choosing to obtain ISO registration is a major decision for software companies. Because of the potential opportunities it offers, many businesses are now looking into the process and understanding how it works. With a clear sense of the benefits and drawbacks that come with becoming an ISO, companies can decide if this is the right move for them.

While ultimately, it will come down to your business’s needs and goals, we hope that our article has shed some light on all aspects of ISO registration, so you can make the most informed decision possible.

If you need any more information or help, don’t hesitate to contact Nexio. Our embedded payment solution is designed to give SaaS companies a path to ISO registration without taking on all the additional risk and operational costs up front. We’ll help you gain the payment experience that is necessary to have long-term success as an ISO. Don’t hesitate to join the forward-thinking companies who have already made the switch. Contact us today!