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The Green Sheet Online Edition

December 26, 2007 • Issue 07:12:02

Legal ease
MLS or ISO: Which one are you?

By Adam Atlas
Attorney at Law

Gather a group of merchant acquiring agents and ask them how they define themselves. Most often they'll say they're ISOs. But, in fact, they could be more specifically characterized as processors, sub-ISOs or merchant level salespeople (MLSs).

There are, however, certain indicators that identify a sales office as either an ISO or an MLS.

Many interpretations exist as to what constitutes an ISO, so my observations are not necessarily the last word on the subject. My positions are based on customary use of the term ISO in the payments industry. I offer my thoughts only to help individuals find the category that best represents them.

Signed, sealed, registered

The first thing you should know is that ISOs register. Registration is perhaps the best indicator of whether a merchant services business is an ISO or an MLS.

The term ISO means independent sales organization, which is a title given to merchant services businesses that register with a bank affiliated with either Visa Inc. or MasterCard Worldwide.

If your business is registered as an ISO, then congratulations - you're an ISO. As most readers know, a registered ISO is obligated to identify itself to merchants as "ACME ISO, a registered ISO of XYZ BANK."

These days, some processors are instructing ISOs to omit a reference to the processor's name in marketing material and refer, instead, only to the bank name.

What's in a name?

Generally speaking, if you are a merchant services sales organization that does business under your own name - keeping in mind, of course, that your processor and acquiring bank must give you that legal right - then, without a doubt, you are a registered ISO.

But also remember that, by law, no sales organization is permitted to use any name except the name of a registered ISO when promoting merchant services.

Unfortunately, that does not reflect real world practices; some sales organizations do not respect this rule. It is important, therefore, for MLSs and those new to our industry to make sure if they are entering into an agreement with a sales organization that uses its own name, that the organization is actually registered.

Consider this example: Bob becomes an agent for ACME ISO. But ACME is not registered. So, when Bob solicits merchants under the name ACME, Bob is exposing himself to liability for hefty fines levied by card Associations.

In a perfect world, every ISO that uses its own name would be registered. However, the world is not yet perfect, and there is no evidence that it will be anytime soon. So, save yourself time and money before you sign a sales contract with a merchant services business claiming it can use its own name. Make sure it is registered first.


Some sales organizations might wrongly assume because they have taken legal steps to protect themselves against liability in case of merchant fraud and chargebacks, they are an ISO. This is wrong.

Whether you have or do not have liability has no bearing on whether your business is an ISO. As I have written many times in the past, if you're new to the merchant acquiring business, avoid liability for at least one or two years so that you can learn:

  1. The very real cost of liability

  2. Underwriting skills (to avoid liability in the first place)

Direct processor relationship

An ISO does not need to have a direct relationship with a major processor to be referred to as an ISO. Some ISOs take it upon themselves to have their sales offices become independently registered. These registered satellite offices are commonly referred to as sub-ISOs.

You're probably wondering why a sales organization that is big enough to sell under its own name wouldn't take its business directly to a processor rather than register under an existing ISO.

There are a few reasons why this might occur:

  1. The newly registered sub-ISO may have a good working relationship with the sponsoring ISO, which makes continuing that relationship more profitable than starting afresh with a direct processor.

  2. A sub-ISO might find that, for its purposes, it can acquire better pricing by remaining a sub-ISO than by going into a direct relationship with a processor.

  3. The sub-ISO may be under an exclusive agreement with the sponsoring ISO that prevents the sub-ISO from starting an independent and direct relationship with a processor.

So, just because you're an ISO does not necessarily mean that you have the correct referral relationship with a processor.

By the way, as I have written before, avoid exclusivity. In other words, do not put all of your eggs in one basket (for more information, see "The ISO/Agent Relationship: What's the Deal?" by Adam Atlas, The Green Sheet, Oct. 24, 2005, issue 05:10:02 and "Facing Your Worst Fear: Wrongful Residual Termination," by Adam Atlas, The Green Sheet, Dec. 24, 2004, issue 04:12:02).

Your own roof

Having your own physical space or address from which to operate has nothing to do with your ISO status. There are plenty of unregistered MLSs who operate out of independent offices with distinct addresses.

In addition, some registered ISOs work from offices of other registered ISOs. This observation may seem obvious, but it does make the point that having your own sales office has no bearing on whether you're actually an ISO as defined by the payments industry.

Your own agents

Just as operating out of your own office does not change your status from MLS to ISO, having agents working for you does not necessarily give you ISO status either, which brings me to an important observation concerning MLSs who have other agents working for them.

If you're not a registered ISO but you operate under a registered entity with agents working under you, please take a moment to reflect on:

  1. Your contractual relationships with those agents under you

  2. The extent to which the ISO above you needs to have knowledge of your agents and have those agents registered

In recent years, acquiring banks have been registering not only ISOs, but also all of the independent contractors (ICs) who work under them. On one hand, this is a good way to keep track of ICs who have a legitimate right to offer the services being promoted.

On the other hand, any ISO that hands over its list of agents to a processor knows it is exposing itself to losing those agents if the processor takes advantage of the information.

No matter where you are in your company's chain of command, be wary of disseminating lists of your MLSs or information concerning them. A list of agents is as valuable as the processing business of every merchant those agents have ever signed.

Whether you're an ISO or an MLS does not really matter as long as you understand the rights and obligations incumbent on you and then act accordingly. If you're not an ISO according to the above criteria, make sure that you do not mislead merchants or MLSs into thinking you are. end of article

In publishing The Green Sheet, neither the author nor the publisher is engaged in rendering legal, accounting or other professional services. If you require legal advice or other expert assistance, seek the services of a competent professional. For further information on this article, e-mail Adam Atlas, Attorney at Law, at atlas@adamatlas.com or call him at 514-842-0886.

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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