What everybody ought to know about ISO/MSP
The payment industry is replete with confusing terms, acronyms, concepts, and keeping up with them can be challenging for aspiring merchants looking to set up card payment processing. If you’re the one who needs to know more about what ISO and MSP are and what role they play in the payments industry, this article is exactly what you need. Let’s cut to the chase.
What is an ISO/MSP
Understanding the business needs of each merchant is a near-impossible task for card associations and banks since they specialise in finance, not an online business. To reach more clients and find an approach to them faster, acquiring banks rely on ISOs (Independent Sales Organisations) — third-party companies or individuals that have partnerships with Card Association member banks and provide merchants with payment processing services on their behalf. If ISO is what Visa calls its partners, Mastercard association members prefer to use the MSP (Merchant Service Provider) acronym to describe their partner organisations. In the payment industry, these two concepts are interchangeable. If the organisation resells both Visa and Mastercard services (the vast majority of them do), we can call it ISO/MSP.
ISO/MSPs aren’t financial companies, but they act as legal intermediaries between acquiring banks or payment service providers and merchants, helping the latter launch payment processing and accept credit cards from consumers. Having partnerships with Credit Card Association member banks (but not being members themselves), ISO/MSPs can find and onboard merchants, open MIDs for them, and set up POS terminals in physical stores. They’re also entitled to provide other value-added merchant services such as risk protection, fraud monitoring, management tools, etc. Meanwhile, ISO/MSPs don’t interact directly with merchants’ money but simply resell acquirer’s/PSP’s services to them.
Thus, ISO/MSPs are kinds of distributors of payment services among small and large e-commerce merchants. Basically, they help acquirers, payment processors and retailers find each other in such a huge e-commerce market and establish long-term partnerships.
How to get started as ISO/MSP
Getting started as an ISO/MSP is a rather laborious process. Organisations applying must provide the Card Association with comprehensive documentation, including financial statements, a detailed business plan, a complete roster of employees, sales materials, and more. Plus, they must pay a registration fee of $5,000 for each association and $2,500 per association annually to stay certified. Thus, becoming an official ISO/MSP will cost a minimum of $10,000 (to apply for both Visa and Mastercard). However, by gaining official reseller status, ISO/MSP will quickly recoup those costs thanks to the large flow of merchants who only want to partner with approved organisations sponsored by large card networks.
Visa and Mastercard have quite strict guidelines for their affiliated ISO/MSPs, which can be easily attributed to their role as brand representatives. Card networks require all registered members to list the name and location of their sponsor bank on their website and marketing materials. If this disclosure is missing, a fine of up to $25,000 may be imposed. Each ISO/MSP is audited annually to ensure it meets brand standards and other compliance rules.
The lifeblood of any ISO/MSP is residuals on each processed transaction. Minimum amounts of processed transactions and/or fees are also set by the card networks. Still, there are additional revenue sources for ISO/MSPs from the sale of value-added merchant services, such as risk management, invoicing, fraud mitigation, and others. The more merchants an ISO/MSP has signed up with, the more money it gets.
Why merchants should partner with ISO/MSP
There are sound arguments why ISO/MSPs are a perfect entry path for merchants into online card payments. Here are some of them:
- ISO/MSP partners with multiple acquirers and PSPs so they can choose the solution that best meets the merchants’ business needs
- Partnering with ISO/MSP is cost-effective for merchants who process a large number of transactions per month
- By working with ISO/MSP, merchants gain the reliability and security of large card networks
- ISO/MSPs are customer-focused, which means that merchants will receive timely support and quick solutions to any processing problems
Becoming an ISO/MSP is not easy in today’s highly competitive environment, but given the huge demand for payment expertise, the benefits definitely outweigh the costs. If you’re determined to start your journey as an ISO/MSP or are looking to expand your existing business, try Corefy’s white label payment solution specially designed to boost ISO/MSPs performance.