There are many “myths” about what it means to be registered as an independent sales organization (“ISO”) with the card associations. People mistakenly believe that if they register they will get certain benefits. Actually, registering really provides very few benefits. Below I will dispel some of the myths about what it means to be a registered ISO.
What is Registering?
Registration is the process whereby an ISO makes an application to Visa and MasterCard to be put on their lists of registered ISOs. Visa and MasterCard have a process whereby they take the application to register on behalf of the sponsoring bank that is associated with the ISO. If the ISO clears all the requisite hurdles, it can become a registered ISO.
The actual process of registering is not that difficult. The sponsoring bank will generally send over a checklist of items that the potential registered ISO will need to provide. The items generally include financial records for the company and the principals of the company, including tax records, a set of contracts designed to protect the card associations that are non-negotiable and other types of information-gathering type items.
Once the package is complete, it is forwarded to the card associations for approval. I have heard some are denied registration, but in my experience I have no direct knowledge of a single person being denied registration. If you are accepted, the process also includes payment to the card associations of a $10,000 first year fee and then $5000 every year thereafter to maintain registration of the ISO.
There are many myths about the effect of registering. One is that you get better pricing if you register. Some people mistakenly believe that unless they register they will not get the best pricing from a particular processor, which is completely false. Pricing has nothing to do with whether or not you are registered. I know of many companies that offer the exact same pricing to their sales agents regardless of whether they are registered or not. That is not to say that registered ISOs don’t have better pricing than a feet on the street sales agent that is not registered. But that is more a function of being higher up on the food chain than anything related to the ISO being registered.
Another myth is that somehow the registration process is linked to merchant portability. Some believe that only registered ISOs can get the right to move merchants from one processor to the another. Now I will admit, if you are registered that it is more likely that you would be able to get the right to move merchants. But, I have seen unregistered sales agents that had the right to move their merchants, including the right to have the processor assign the merchant agreements in question. Again, this is another instance where the fact that a company is registered or not has no direct impact on the right to move merchants.
There are many other myths, that I have heard over the years. One client was under the impression that if he place merchants with a company that was not registered, he was free to move those merchants any time he wanted regardless of contrary provisions in his agent agreement. I had a caller once become quite angry when I disagreed with her contentions that only registered ISOs were able to sell their residuals.
Another myth is that you cannot take risk for merchant losses unless you are registered. This is simply not true. It is a symptom of the general state of lack of information in our industry that these myths continue to evolve and multiply.
So What Does Registration Give You?
There are some tangible benefits from being registered but they are fairly limited. The first benefit of registering is that only registered ISOs may use their own name for marketing purposes. If you are not registered, per the card association rules, you must market all credit card processing services under the name of the registered ISO that you are working with. So, registration allows a company to set up its own brand name and build value in that name, something an unregistered sales agent cannot do.
The next benefit flows from the same issue namely that if you are not registered, any sales agents must be employees of your company, and not independent contractors. Only registered sales agents are allowed to have independent contractor type sales agents. The logic probably has something to do with the fact that the card associations want every independent sales agent to be overseen by a person that has gone through the registration process.
From a practical perspective, once they reach any size, most all the sales agents register with the card associations. Although not required to take risk and have some meaningful level of portability, most companies that take risk and have a right to move merchants are registered ISOs. So, while registration may not be necessary in most cases, each ISO must make its own determination if the benefits of registration outweigh the costs.
The information contained herein is for informational purposes only and should not be relied upon in reaching a conclusion in a particular area. The legal principles discussed herein were accurate at the time this article was authored but are subject to change. Please consult an attorney before making a decision using only the information provided in this article.