ISO’s Vs. Banks vs. Agents

You had a dream, and you made it come true, you are a true entrepreneur that helps drive our country. Not only that but you call the shots, set the hours, you are the boss, which means you also really understand the saying “open a store marry the door”. While you wear many different hats when running your business you are constantly the target of business to business salespeople hungry to land their next big deal, and credit card processing companies are no exception.

When you opened your checking account, your bank told you to open a merchant account with them, on top of which you are getting 10 calls a day from merchant providers, and door to door salespeople looking for a few minutes of your time, all of whom saying they are cheaper than the last company you spoke with. One company says one thing, then you’re told another, and everyone changes back again. It’s confusing and frankly makes you wonder who would best serve you. Don’t worry, let’s calm down and start making sense of who does what and where there key focus lies. From there you will be better educated and know more about how to find the best options that work for you and how you do business.

In the processing world you have 4 basic sales channels.

Processors

Credit card processors are the back-end payment systems that process all credit and debit cards. They are the ones who handle funding your bank account. No matter who you process your credit cards through they are going to be using a processing bank to handle your money. These are usually very large organizations who build and maintain the infrastructure to handle thousands upon thousands of transaction requests per second, and facilitate countless money transfers between business owners and card issuers.

Processors are effectively the wholesalers of the industry and “can” have their own internal and/or external sales teams, which makes you feel like your cutting out the middle man and going direct. If you sign up directly with a processor, you may be technically going direct, but the processor’s sales team is in a business in itself and needs to maintain profitability. It will have roughly the same costs of any other provider you will find in the industry. You are also not going to get direct support from your sales person, but instead be given their national or offshore call center for future support.

Independent Sales Offices

Many times referred to as ISO’s or MSP’s (Member service providers), ISO’s are companies registered with Visa and MasterCard to represent a processor or processors and solicit and support merchant accounts. ISO’s vary in size from small offices to large corporations, as large or larger than processors even. Becoming a registered ISO is not cheap and requires many steps and proof of technical and financial solvency. However, they in effect the retailers of the industry. These companies are sales focused and many do their own technical support and customer service in house. They may also carry some of the financial risk and liability related to their merchant’s processing accounts.

ISO’s sales forces and support teams generally lend themselves to more personalized service than larger processors. Instead of calling a national call center with hundreds of agents, your sales or support team will generally be small, and when talking to them, you’re likely to get the same people on the line. Many times, your sales person will remain your lead support contact as well. Your salesperson and ISO will also typically act on your behalf with the processor, handling research, tracking down funding, disputes, and tracking account changes are just a few of the things most ISO’s can handle for you so you don’t have to. This may seem insignificant until you try and navigate a processor’s support system or are never able to speak with the same person, requiring you to start from scratch every time you need support.

ISO’s sales operate similar to that of the processors, however they will have much greater flexibility with account pricing and account structures. ISO’s often have less staff but much more experience and lower employee turnover than larger organizations, automatically giving them an advantage in providing support and solving problems.

Traditional Banks

Many traditional banks can technically fall into either the processor or ISO category. It really depends on the bank and how they structure their credit card processing program. To the traditional bank, credit card processing is a value add, and so many, if not the vast majority, have farmed out the handling of their merchant’s services divisions to other companies. This way they can focus on the more traditional side of banking.

With any bank, don’t expect to be able to run down to your local branch to fix any problem you might have with your merchant account. While a few banks may have that ability, you will most likely be calling into a large call center for support, and that call center might be the processor, or an ISO.

However, since you are already a bank’s customer, the likelihood that you will sign up with them without checking other options, is greater, meaning they can charge more than others in the industry and still obtain new customers. Some banks may offer to lower fees for other services, which may off set high processing costs. And while it is an illegal practice called tying, some banks may require you to process with them in order to obtain a loan or other service. In any case, with any company, we strongly suggest looking at a few different options. We’ve seen more bad deals with banks than any other type of provider in the industry.

Sales Agents

This group is much like an insurance agent, a good one is worth their weight in gold, and a bad one will make you despise everything about the industry. Being a sales agent is a relatively easy way for a person to run their own business by selling merchant accounts and it requires very little but motivation, and on the job training, to get started. With an independent sales agent, the accounts they sign up will go through an ISO or a processor who is registered with card associations and the sales agent earns commission based on the accounts they write.

Outside Sales Agents should be your sales person and your first level support person the entire time you have an account with them. It’s not only their job to get you setup and running, but they are normally very interested in making sure you are well taken care of. Having an area rep who can look out for your account individually and will come by and help solve issues in person is a very nice thing to have access to. While there are some agents out there who will sign up an account, never to be seen again, most work for their merchants and advocate for their customers as if they were their own businesses.

Generally speaking, sales agent’s hard costs can very quiet a lot, but the better sales agents will have cost and pricing options comparable to ISO’s, and may sign accounts to multiple processors. Outside agents can have even more flexibility than processors and ISO’s because they carry some of the risks of negative revenue on accounts. But, they must conform to the systems in place by their sponsoring sales office. meaning they will have limits as to what they can assist you with personally on your account. Higher level support issues are typically referred to the ISO or processor.

When using an outside agent, one should really look for an agent that has been in business for at least a couple years, and can provide reference, ideally someone local. There is a large portion of outside agents that previously worked in the processing industry and wanted to apply their knowledge in building their own business. Many of these are some of the most knowledgeable and dedicated sales and support persons in the industry.

Equipment

One of the biggest areas where merchant account sales channels differ is costs for processing equipment and software. Banks and some sales agents tend to try and lease equipment far more than processors and ISO’s. While a lease in itself isn’t an end of the world situation, when you’re offered a 48 month, $100 lease, on a piece of equipment that costs only $300, you can do the math on how great of a deal this actually is.

We’ve seen a resurgence of leases in the past few years, and there are some downright ugly deals floating around. Make absolutely sure you understand the terms and the total cost of a lease and the approximate retail cost of the equipment you’re leasing. It makes little sense to spend many times the cost of equipment as well as getting stuck in a non-cancellable lease on equipment that you could easily purchase outright.

Conclusion:

Now you should have a good understanding of the industry and where pricing comes from, and that’s half the battle. Now when you talk to a sales person hopefully it won’t sound so Greek to you. All three options work, they will all allow you to run credit cards and put the money in your bank account. You just need to decide if you like the one stop shop or are freedom and leverage with the personal touch more important. Look at multiple options when shopping for processing and always request and check references to find out where each option may have short comings. Once you know the answers to these questions you should be able to make an easier educated choice.

As always, for information on the Merchant Store’s services, or for answers to additional questions please email, call us at: (866) 937-5973, or visit our website.

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