The Handbook to Wholesale ISO Registration for Software Companies

By Brandon Banks

The payment processing landscape is constantly evolving, prompting software companies to seek innovative ways to stay ahead of the curve and optimize their revenue streams. One such opportunity lies in registering as a wholesale ISO (Independent Sales Organization).

This article will delve into what becoming a wholesale ISO entails, its advantages and drawbacks, the registration process, associated responsibilities and costs, and the circumstances under which it makes economic sense for software companies to consider this option.

Understanding Wholesale ISOs

A wholesale ISO is an entity that acts as a third-party agent for a larger payment processor or bank and is responsible for selling the processor’s services to merchants. For software companies, this involves embedding payment processing capabilities within their software and offering it as a value-added service.

Responsibilities and Costs

Wholesale ISO assume several responsibilities, including the following:

• Compliance with industry regulations, such as PCI-DSS and Know Your Customer (KYC) requirements.
• Managing risk and maintaining a chargeback and fraud monitoring system.
• Providing customer support and resolving disputes.
• Ongoing management of their merchant portfolio.

Wholesale ISOs incur several operating costs in order to maintain the responsibilities mentioned above. Operating costs can vary, but generally include the following:

• Application and registration fees.
• Legal and underwriting fees.
• Ongoing compliance costs (e.g., PCI-DSS, KYC).
• Software development and integration costs.

Advantages of Wholesale ISO Registration

Becoming an ISO allows software companies to exercise greater control over their clients’ experience. Other benefits include the following:

• Increased revenue — Becoming a wholesale ISO enables software companies to generate income from various sources, such as transaction fees, monthly fees, and other ancillary services, diversifying their revenue streams and potentially increasing overall profitability.
• Customized pricing — Wholesale ISOs have more control over pricing, allowing them to create competitive and flexible pricing plans tailored to their clients’ needs.
• Enhanced branding — Registering as a wholesale ISO allows software companies to brand their payment processing services, thereby increasing brand visibility and solidifying their market position.
• Comprehensive support — Wholesale ISOs can offer direct support to their clients, enhancing the customer experience and fostering long-term business relationships.

Drawbacks of Wholesale ISO Registration

Every decision carries with it its own risks and downsides, and becoming a wholesale ISO is no exception. Despite the potential for substantial benefits, there are potential drawbacks to consider, including the following:

• Increased responsibility — Wholesale ISO registration comes with greater responsibility. Software companies must ensure compliance with all relevant laws and industry regulations, maintain a robust risk management strategy, and handle chargebacks and fraud monitoring.
• High upfront and ongoing costs — Registering as a wholesale ISO requires a significant upfront investment, including application fees, legal fees, and underwriting fees. Most agreements will also come with fairly significant multi-year contractual minimums and escalation clauses. Additionally, ongoing costs, such as maintaining PCI compliance, can be substantial.
• Complexity — Managing a merchant portfolio can be complex and time-consuming. Software companies need to be prepared to handle various operational aspects, including customer support, dispute resolution, risk and fraud management, and account management.

When Does it Make Economic Sense to Become a Wholesale ISO?

Wholesale ISO registration is economically viable for software companies when the potential revenue and advantages from payment processing surpass the costs and disadvantages. This typically occurs in one or more of the following situations:

• Your company has a large, established client base that can generate significant transaction volume.
• Your company can leverage its payment processing services to attract new clients or increase the lifetime value of existing clients.
• Your company is able to effectively manage the additional responsibilities, financial and operational burden, and complexities associated with being a wholesale ISO.

The Registration Process

If you determine becoming an ISO makes sense for your company, the next step is to register with a payment processor or bank as an ISO. The registration process typically includes the following steps:

1. Choose a payment processor — Identify a suitable payment processor to partner with. You should consider factors such as technology, pricing, and support when evaluating potential partners.
2. Complete an ISO application — Completing an ISO application typically requires extensive documentation, including financial statements, marketing materials, and business plans.
3. Undergo background and credit checks — Payment processors will conduct background and credit checks on your company and its principles to ensure you meet payment industry standards.
4. Sign an ISO agreement — Upon approval, you will sign an ISO agreement outlining the terms and conditions of the partnership.
5. Embed your payment processing solution — You will need to embed your payment processing solution so it seamlessly integrates with your software. Be sure to adhere to all regulatory and industry standards.

Final Thoughts

It’s important to take a strategic approach when evaluating whether your software company is ready for wholesale ISO registration. Understanding what it entails and considering the necessary resources will help ensure that you are making decisions that will lead to long-term success. With knowledge and preparation, you can capitalize on the opportunities presented by wholesale ISO registration.

Why Partner with Nexio?

When it comes to payments, experience is everything. Nexio offers software companies a chance to gain valuable experience in the industry without immediately taking on the responsibilities and operational expenses associated with payment processing.

We offer the ability to test the waters before introducing additional operational costs or risks. Our experienced team will handle the nitty-gritty aspects of payment processing until it makes economic sense for your company to bring it in-house. With Nexio, you have the freedom to focus on scaling your business on your timeline, not ours. Contact Nexio today for an obligation-free consultation.