By Brandon Banks
The payment processing landscape continues to evolve, and software companies are constantly looking for new ways to enhance their customers’ experiences and streamline transactions. One option gaining traction is registering as a retail independent sales organization (ISO).
In this article, we’ll define retail ISOs, discuss their pros and cons, outline the registration process and responsibilities, and help you determine whether it’s the right move for your company’s integrated payment strategy.
What is a Retail ISO?
A retail ISO is a third-party entity that partners with payment processors to provide merchant services. Retail ISOs act as intermediaries between merchants and acquiring banks, selling and marketing payment processing solutions on behalf of the processor. This includes establishing and maintaining merchant accounts, providing customer support, and handling various administrative tasks related to payment processing.
Responsibilities of Retail ISOs
As part of their agreement with the payment processor, retail ISOs take on several responsibilities, including the following:
- Sales and marketing — Promote and sell payment processing solutions to merchants, often targeting specific industries or niches.
- Account management — Establish and maintain merchant accounts, ensuring smooth and secure transactions.
- Customer support — Provide ongoing support to merchants, addressing issues or concerns related to payment processing.
- Compliance and risk management — Monitor and manage financial risks, such as chargebacks and fraud, and ensure compliance with all regulatory and compliance standards.
Costs of Retail ISOs
While retail ISOs have the potential to generate revenue through residual payments and other compensation, they also incur costs to operate their businesses. Typical costs include the following:
- Setup and registration fees — One-time costs ranging from a few thousand to tens of thousands of dollars, in addition to ongoing processor minimums.
- Monthly fees — Ongoing fees covering services like payment gateway access, customer support, and account management.
- Compliance and security costs — Expenses for staff training, software upgrades, and regular security audits.
In addition, retail ISOs may face significant penalties if they fail to meet service level agreements or comply with all contractual obligations with their payment processor partners.
The Pros of Retail ISOs
There are several benefits to becoming a retail ISO, including the following:
- Increased revenue streams — Retail ISO registration allows software companies to generate additional revenue streams from their existing customer base through processing fees and other income sources, such as equipment sales or leasing.
- Enhanced customer experience — By offering integrated or embedded payment solutions, software companies can provide a seamless and convenient user experience, potentially increasing customer loyalty and gaining a competitive advantage.
- Customization and flexibility — As an ISO, software companies have greater control over their payment offerings, tailoring solutions to meet their customers’ specific needs.
- Marketing and branding opportunities — Retail ISOs can leverage partnerships with payment processors to expand their brand and reach new customers through co-branded marketing materials, joint promotions, and other collaborative efforts.
- Limited compliance and risk management — Monitoring and managing financial risks, such as chargebacks and fraud, and ensuring compliance with all regulatory and compliance standards is usually the payment processor’s responsibility.
The Cons of Retail ISOs
Despite the potential benefits, there are some downsides to keep in mind:
- Regulatory and compliance requirements — Retail ISOs must adhere to strict regulations and compliance standards, such as the Payment Card Industry Data Security Standard (PCI DSS), which can be time-consuming and expensive.
- Financial risks — As an ISO, software companies assume responsibility for financial risks associated with payment processing, such as chargebacks and fraud, potentially resulting in financial losses and reputational damage.
- Resource-intensive — Managing a retail ISO can be resource-intensive, requiring dedicated staff for sales, customer support, and administration.
- Limited autonomy — Retail ISO’s are really just a sales arm for the processor. They are not involved in underwriting or risk decisioning. The processor can refuse to provide payment service for accounts your sales team has already sold, which can cause increased frustration for your employees.
When Does Retail ISO Registration Make Economic Sense?
Becoming a retail ISO 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 customer base that can benefit from integrated or embedded payment solutions.
- You have the resources and expertise to manage regulatory, compliance, and risk management aspects of operating an ISO.
- The potential revenue streams from payment processing fees, equipment sales, and other sources outweigh the costs associated with setup, registration, and ongoing management.
- You can effectively leverage the partnership with the payment processor to expand your brand and reach new customers.
The Retail ISO Registration Process
If you decide that it is beneficial for your company to become an ISO, the next step is to register as an ISO with a payment processor or bank. The registration process usually involves these steps:
- Choose a payment processor — Research and select a reputable payment processor with competitive rates and robust support.
- Complete the application — Submit a detailed application to the payment processor, including information about your business structure, ownership, financials, and sales strategy.
- Compliance and security — Implement necessary compliance measures, such as PCI DSS, and ensure your software and systems meet required security standards.
- Sign the contract — Once approved, sign the contractual agreement with the payment processor outlining the terms and conditions of your partnership.
Final Thoughts
The choice to become a retail ISO can be a lucrative and rewarding move for your company. Becoming an ISO is an expensive endeavor so you must consider carefully how much of your revenue you’re willing to invest. Remember that success as an ISO hinges on your ability to provide seamless, secure payment solutions that meet the unique needs of your customers.
Take the time to thoroughly evaluate your options and choose the path that aligns with your business goals. As long as the cost of regulation doesn’t outshine potential ROI, retail ISO registration can be the right move for your integrated payments strategy.
If you want to learn more or seek advice on how to go about becoming a retail ISO, contact Nexio for an obligation-free consultation.