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Article published in Issue Number: 061201

Street SmartsSM:
The ins and outs of ISOship - Part I

By Michael Nardy, Electronic Payments Inc. (EPI)

There has been a great amount of debate on the GS Online MLS Forum as of late with a question that, in its core, has to do with how best to grow one's business in the payments industry: Is registration right for your business?

Almost as if you are taking away one's right to breathe, there are many on the Forum who feel very strongly that registration is the only route to success in this business. Some feel it is the best step they ever took, an essential stepping stone to being able to "run your own show."

It should be noted, however - and in defense of those who are anti-registration or feel it is unnecessary for their businesses - the numbers of people posting comments about registration as a positive step far outweigh those who claim it is a mistake.

In fact, the recent postings on the MLS Forum have abounded with pro-registration voices, and not one poster has said, in hindsight, that registration was wrong for his business.

I am going to try to take an objective approach and go over some real-world scenarios to help educate you a bit. Earlier, I wrote two columns about registering but included very little personal opinion about when it is the right decision or who the best candidates for registration are.

This topic deserves another look.

Let's define the terms

I think the best way to start is by giving my definitions of some common terms bandied about on the Forum, sometimes incorrectly or inaccurately.

· Processor: A processor is any entity that is physically processing a credit card transaction from swipe to settlement. In other words, a processor is a front-end network that enables a dial terminal, POS or gateway to connect to the Visa U.S.A. and MasterCard Worldwide systems for an authorization from an issuing bank.

Indeed, any back-end or settlement network that is receiving those authorizations and settling them to a sponsor bank is also a processor. Chase Paymentech Solutions LLC is a processor. Global Payments Inc. and First Data Corp. are processors. So, too, is Pay By Touch. Each of these companies has either a front end or back end, or both, and is involved in the physical authorization or settlement of a transaction.

· Acquirer: An acquirer (some may or may not agree with this definition) is an ISO/merchant service provider (MSP) that has a unique BIN/ICA relationship with a processor or bank, complete with BIN portability rights and merchant-relationship ownership.

This entity holds liability on its portfolio and is nearly on the same level as a bank with regard to scrutiny of its operation. It is also one of the two parties to the merchant agreement (the other being a bank). In other words, these entities "acquire" merchant contracts.

This definition separates those that actually have a BIN relationship with a bank - and are co-owners of the merchant relationship - from those that just registered and either don't have those rights or have had them assigned by their contract with their processor.

· ISO: This term is often used to indicate anyone selling bankcard services: Even Electronic Payments Inc. (EPI) calls its sales agents ISOs. For the purposes of this column, I would like to define ISO as an ISO/MSP or any entity that is a registered sales organization or MSP, regardless of whether it holds liability or has ownership in a merchant contract or relationship.

· Agent: An agent is an individual selling bankcard services for an ISO. The 1099 contractors and W-2 employees, telemarketers, and others who sell merchant services directly for any ISO, acquirer or processor are agents.

Now that they're defined, where do they fall?

When I was a kid learning the direction of the "greater than" and "less than" symbols in school, the teacher taught us that "Pacman always eats the greater number." In other words, take the greater than symbol ">" and draw a half-circle connecting each outward endpoint and you create a rudimentary Pacman.

Thinking along the same lines, picture Pacman mouths between the following terms:

processor > acquirer > ISO/MSP > agent

Think of a hierarchical structure starting at processor and ending at agent. Each of the preceding terms can be anyone that follows it, but you cannot go in a reverse direction. An agent cannot be a processor.

· Can a processor be an acquirer, an ISO/MSP and an agent? Yes.

· Can an acquirer be an ISO/MSP and an agent? Sure.

· Can an ISO/MSP be a processor? Nope.

· Can an ISO/MSP be an acquirer? No. But an acquirer can also be an ISO/MSP.

So, who are the processors, acquirers, ISOs and agents?

I mentioned Chase Paymentech as an example of a processor. It is also an acquirer, because it owns its merchant relationships; and it's an ISO/MSP, because it is registered and has a direct sales force of agents and employees.

Let's take a look at EPI: It is an ISO/MSP because it is registered. It is also an acquirer because it owns its merchant relationships and has a unique BIN/ICA. It also has agents from which it receives submitted merchant contracts. But EPI is not a processor because it doesn't physically handle the authorization or settlement of transactions, despite its holding liability or performing its own underwriting, risk management or tech support.

In an ISO/MSP relationship, you might picture any of the many registered ISOs of a First Data or Chase Paymentech as falling into that category. They are not in a true BIN/ICA relationship with a bank and are not parties to the merchant agreement.

They might have that right contractually assigned to them in their processing agreement, but there is a large difference between being able to move merchants from one back end to another by pointing a BIN to a new member bank and doing downloads or having new paperwork signed by the merchant in order to achieve the same result.

Finally, the many feet-on-the-street merchant level salespeople (MLSs) in the industry are classified as agents. They are working for an ISO/MSP, soliciting potential merchants on their behalf.

What about my ISO? Is it registered?

If you are wondering about where your ISO falls in the above categories, just ask someone at your ISO. The initial topic of this article was whether registering is beneficial to one's business. Most likely, if you are working through an ISO, acquirer or processor, it is registered.

If you are an individual agent submitting business to another agent, then you should be doing business in the name of the larger entity that both of you represent.

I think there are many questions about where your accounts are safest - is it better to submit your business to a processor like Chase Paymentech or an ISO like North American Bancard Inc., United Bank Card Inc., EPI, etc.?

It really isn't as hard a question as one might think, because the answer is truly derived from a more subjective than objective approach.

It's all about what makes you feel more comfortable as the ISO or agent.

Doing business directly with a processor or acquirer

Many of the recent posts have brought up whether it is better for an MLS to register and work directly with a processor or whether the numerous ISOs in the marketplace are still a safe avenue for your business.

Placing your business with a processor such as First Data isn't necessarily different from placing your business with one of First Data's ISOs. When you find an avenue for your business, bringing deals to a processor and bypassing the ISO/MSP working through that processor isn't necessarily making you more money or getting you a better deal.

Generally, the direct-to-processor path involves some hefty upfront fees paid for registration, some compliance and security audits, as well as significant documentation.

Essentially, in order to decide which route is better, you must amortize the costs against the number of monthly deals being done, the number of deals that you will increase over your current number, and the revenue you will increase over your current financial performance.

The basic economics of business must govern whether the expense of registration will be worth it for your business. In the next article, I will go into the economics of registration as it pertains to businesses looking to grow in the ISO space, as well as just in a local area but branded under their own name.

Michael Nardy is Chief Executive Officer of Electronic Payments Inc. (EPI), a founding sponsor of the National Association of Payment Professionals and one of The Green Sheet magazine's Industry Leaders. EPI is one of the nation's fastest growing privately held payment processing companies offering ISOs and MLSs profitable partnership programs and cutting-edge tools to help their portfolios grow. To learn more about partnering with EPI, visit or e-mail Michael at

Article published in issue number 061201

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