The Green Sheet Online Edition
April 24, 2017 • Issue 17:04:02
Should you register as an ISO?
Most independent sales agents, also known as merchant level salespeople (MLSs), enter the merchant services industry with ambitious goals, and in many cases the path to fulfilling those goals involves becoming a registered ISO. I am often asked by MLSs if they should start their own ISO and go through the registration process. While becoming a registered ISO may be very gratifying, the answer is a little more complicated than a simple yes or no.
In this article I would like to share with you a few of the pros and cons of registering as an ISO, so that you may determine if registration is the right choice for you, or if you're better off working as an agent for another ISO. For the purposes of this article I'm going to focus on small ISOs, and I will assume that you do not have millions of dollars in startup capital.
The first question I always ask those interested in starting their own ISO is, "Why do you want to become a registered ISO?" Unfortunately, an overwhelming majority of the answers I receive indicate the reasoning is flawed.
The most common response I hear is that the aspiring ISO owner believes he or she will receive better pricing by simply becoming a registered ISO and working directly with the processor. While this may have been true some years ago, it is no longer the case for small ISOs. In fact, you are often able to negotiate much better terms working with another ISO than you would by going direct to the processor. I will discuss negotiating your pricing agreement in another article.
Going direct to the processor requires that you agree to heavy production commitments to obtain favorable pricing, so unless you already have an established sales team and you are assured of consistent production, then that is something you must seriously take into consideration. In addition, registering directly with one processor limits your business to that processor's particular platform.
Going direct also often means less support and more work on your part, which directly translates into more staff and higher overhead for your company. Conversely, if you instead partner with a good ISO, your ISO partner will handle most of your servicing needs, thereby helping you run your business more efficiently. And you will be able to place more of your attention and energy on growing your sales channel.
The next most common reason for wanting to register as an ISO I usually hear is, "I want to have my own brand." While this may seem like a more plausible rationale, it's also not a good enough reason to register unless you have sufficient capital to establish a brand and make a name for yourself in the market. It is often much easier to sell under an established name that is recognized in today's market than to market under an unknown brand. Depending on your business model, you may find this to be an uphill battle both when dealing with merchants and when attempting to recruit new sales agents for your company.
Now, before I share some of the benefits of registration with you, let me point out that my own company Finical Inc. is a registered ISO of Wells Fargo Bank. However, my goal in this article is to help you make an informed decision, because in addition to the $10,000 annual registration fee, you will also have far more responsibilities, and you will be exposed to much more liability than you otherwise would be as an MLS.
There are certain scenarios where registration is really the only option, depending on your goals for your business and your sales model. For example, if your company is generating most of its business by recruiting experienced agents, then you should seriously consider registration, as most experienced MLSs would prefer to work with a registered ISO, and generally frown upon working as an MLS of another sales agent.
There are also companies that focus on a niche market, and it sometimes makes sense for them to register in order to effectively establish a brand within that niche. In short, there are many scenarios in which registration is the right option. And, frankly, if your company is well funded then you certainly should register. But if you're a small sales office, your primary focus should be on growing your sales channel, because the upside of registration may not justify the cost and added liability for your small company.
Now, if you have decided that registration is in the future of your business, you may be wondering at what point you should register. This question also depends on your business model. If you generate all of your business from your internal sales team, then you may not need to register at all. I've worked with offices producing over 200 new merchant accounts per month that were not registered.
However, you shouldn't consider registration unless your company is generating, at minimum, 100 new merchant accounts per month on a consistent basis. Keep in mind that the card brands want you to register from day one, so I am simply sharing my opinion with you, and this should not be construed as legal advice.
In closing, make sure that your reasoning for registration is in the long-term best interest of your company, not influenced by misinformation such as being able to obtain better pricing through registration. Most importantly, prior to moving forward with registration, consult with an industry attorney to make sure your interests are protected. If you need a referral for an industry attorney, feel free to send me an email.
For additional perspectives on ISO registration, see the following articles written for publication in The Green Sheet by prior Street SmartsSM authors and other industry experts:
- "ISO versus MLS status in 2017: The stakes are high," by Adam T. Hark, Jan. 9, 2017, issue 17:01:01
- "Becoming Registered," by Adam Atlas, Aug. 11, 2008, issue 11:08:01
- "Ruminations on ISO registration," by Dee Karawadra, July 9, 2007,
- "What is registration anyway? By Michael Nardy, – Parts I, II and III, April 24, 2006, May 8, 2006 and May 22, 2006, issues 06:04:02, 06:05:01 and 06:05:02, respectively
Aaron Nasseh is the founder and Chief Executive Officer at Finical Inc. His extensive sales and management experience includes having previously served as the General Manager of CardPayment Solutions and Vice President of Sales at iPayment Inc. He may be reached at firstname.lastname@example.org or at 818-330-4055.
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