How to Become an ISO for Merchant Services in 12 Steps

There are many ways to process payments these days, from merchant accounts, peer-to-peer payments, and even payment facilitators. But there is another option for businesses who want to process credit card payments, among others, without owning the accounts or processes to do so. These customers may turn to an ISO, or independent sales organization. An ISOs role is to process these transactions on behalf of the business and keep a fee for their job well done.

Step 1: Research the Independent Sales Organization (ISO) Career Path

You’ll want to begin by understanding what it's like to grow as an Independent Sales Organization professional and the needs of the business. We will start with a high level overview of some of the key points. 

What Is an ISO?

An ISO, or Independent Sales Organization (ISO) is a business which processes payments on behalf of its customers. It acts as a middle person for your customers, who will sell goods to their customers. The ISO then accepts the payments from the buyer of the goods, and deposits those funds into your customers account.

What Do ISO Partners Do?

The ISO acts as a third party, accepting payments from your customers' buyers, and depositing those payments into your customers' business checking account. These funds being moved from the customers buyer to the customers business are not the ISOs funds, instead the service is only aimed to facilitate the transaction.

How Do ISOs Earn Money?

As the facilitator of the transaction you will keep a fee of the transaction as your own revenue. This means that if you were to set your price as 2% of the total transaction price, and a customer processes a $100.00 transaction using your service, you will earn as the ISO, $2.00, or 2% of the total fee, from the customer. 

How Long Does it Take to Become an ISO?

According to Best Practice.biz, the average process can take about three to six months to be certified as an ISO. This will depend on complexity, size and standards for the business. The level of documentation when applying and having a plan all help in the readiness of starting an ISO business.

Is Becoming an ISO a Good Idea?

The ISO certification certainly is a great business model if customer service is one of the pillars considered for success. ISOs are typically used by customers (organizations) because they do receive a higher level of attention and personal touch in their service. There are many things to consider if this model is right for you.

Step 2: Choose a Name for Your Business and Check Availability

You will need to be sure that the name you are choosing for your ISO is not already in use, and is not too close to a competitor or other name of a business. In your state, you can start by checking the secretary of state website to determine if a business exists with the same name already, as an example here is the Florida business lookup link.

Step 3: Select a Legal Structure for Your Business

You will next want to establish the legal structure of the business. Will you run this as an LLC, or limited liability company? These are great for a single member, or small group of owners looking to minimize the paperwork and filing requirements while gaining the benefit of protecting their own personal liability.

You also may want to consider stockholders, you can incorporate, or have the incorporated title; this may have more paperwork tied to it and different tax treatments from an LLC, but will allow new investors to seamlessly buy stock of the business and assume ownership.

If you are unsure which entity and structure best suits your business, it is always best to check with an attorney and consult.

Step 4: Register Your Business with the Secretary of State

When you are ready to start your business you will need to tell your local secretary of state. This process involves formally proposing to the state that you are seeking to create a legal entity. Minimal fees will be attached to this process and you can expect to wait up to a week for a response.

Another option here is to utilize a registered agent. A registered agent will take the inputs such as the business name, your personal information, and ensure it is filed appropriately with the state and the entity is created. While there is a fee for this process it can be worth looking into to ensure your paperwork is in order at all times with the state.

Step 5: Obtain an Employer Identification Number from the IRS

At this point you will be in order with the state and your entity will have been created. The next step is to receive an EIN, or employer identification number. This is a unique ID specifically tied to your business, similar to a social security number being tied to a person.

The EIN will allow you to establish a business bank account, appear legitimate to any businesses you seek credit lines from, and separate your personal and new entity taxes from.  

Step 6: Create a Detailed Business Plan

Once you have established a business legally, you will need a business plan. Business plans come in many shapes and sizes but typically outline the mission of the business, what the business is solving for, core competencies and weaknesses, and areas of opportunity in the market for the business. Be sure to give an overview of the owners and their competencies as well.

If you are seeking outside investment you may also consider including financial forecasts, or projections of how you expect the business to perform over time and why an investor may benefit from the investment in your business.

Step 7: Find a Member Bank of Payment Processor to Sponsor You

Unique to opening an ISO, you will need to find a partner bank which your ISO can utilize to process payments through. Many banks have strict requirements and proofs needed to allow an ISO to begin operating using the ecosystem of that bank. Be sure to read the initial requirements at prospective partners before applying and have your documents in order for this step. 

What Should ISOs Consider When Choosing a Partner?

Be sure to consider things like fees or costs associated with handling volumes of transactions at your partner's bank, and the level of service you would receive as a customer of your partner bank. If things go south, similar to insurance, you’ll want to make sure there's a friendly face or support team ready to assist. .

Step 8: Prepare for the Vetting Process

At this point you can expect the partner bank to check items like personal history and credit, the business entity and its legitimacy and purpose, and even the business plan you have written for the business. Partner banks are looking to weed out any short term thinking ISOs looking for specific use cases, or bad apples who may look for loopholes in the system. 

What Paperwork Is Needed to Become an ISO?

You may need items such as your EIN, articles of incorporation, personal drivers license, personal social security, business plans, and potentially personal banking or transaction history as part of this process. Each partner's process is unique, so be prepared to open up everything when applying.

Step 9: Apply for Registration with the Major Credit Card Companies

Similar to applying to a partner processing bank, you will need to apply to major credit card businesses in order to accept these payment types. Each process is different but you should accept a process similar to getting a partner bank. In this process the fees you will pay for transactions may be outlined so keep an eye out for these.

Step 10: Pay the Required Registrations Fees

You will be required to pay fees to major credit card companies when registering. This is one of the major costs an ISO will face when establishing, and each year you will need to renew and pay an ongoing maintenance fee. While they can vary from company to company you can expect four to five figure fees to get started.

Step 11: Wait for a Response

It will most likely take a few months after you have paid and applied to accept major credit card company cards. At this point you can focus on marketing and growing your customer base in the background as you wait for the decision.

Step 12: Launch Your ISO Business

Finally you are officially an ISO business, you can accept payments and have customers or are seeking them; at this point you can open your doors and begin processing transactions and building upon the infrastructure you have set out. The business plan is your best tool from here on out.

Benefits of Becoming an ISO for Merchant Services

Helping customers process transactions and building relationships is the biggest benefit of becoming an ISO. This business is built on quality and speed, and happy customers can typically be returning customers, meaning your book of business may only grow exponentially over time.

Risks of Becoming an ISO for Merchant Services

High cost is the initial risk that most people face when deciding whether this is the right business choice for them. Followed by industry knowledge and finding a place in the market as the model typically will compete on transaction fees for customers. Like any business there is inherent risk to becoming an ISO.

Becoming an ISO for Merchant Services: How to Know if It’s the Right Choice

A steady ISO business can grow steadily and requires minimal operational change regardless of transaction volume. There are a lot of benefits to the model and while fees and competitors may change, staying current is one of the biggest tasks at hand for an owner in the space.

Final Word

ISOs fill a unique spot in the payment transaction space, between self owner merchant accounts and payment facilitators, there is room to gain a customer base and process transactions on behalf of others. While the space is ever changing with digital products entering, there is something to be said for the strong relationship piece that will accompany owning an ISO business. If you’re people first and love transactions this might be a great fit for your next business.