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All About ISOs (Independent Sales Organizations)
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By:
Jack Chevalier |
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An ISO or an Independent Sales Organization, is an entity that acts more or less as middle men, helping formulate a Bank or Bank/Processor alliance. Within such an arrangement, an ISO has an agreement to sell the services of the Bank or Bank/Processor alliance, and is allowed to mark up the Fees and sign up merchants. Also known as a Member Service Provider (MSP), an ISO procures new merchant relationships for the specific bank. ISOs generally recruit Merchant Level Salespeople (MLS) to solicit merchants. MLS comprise of independent contractors who work for upfront commissions and the right to receive ongoing monthly residuals for the accounts they refer to the ISO.
Most merchants buy their processing services from an ISO and the ISOs buy their processing services from a backend processor. However, depending on the situation there can be a very different split between the responsibilities of the ISO and the processor. Each ISO is classified depending on how much of the responsibility they take:
Tier I ISO: Also known as Super ISO, Wholesale ISO, Full Liability ISO, and Full Service ISO, a Tier I ISO always does its own underwriting and risk-assessment and bears full chargeback liability for their merchants and provide full technical support to their merchants. Tier I ISOs usually have at least 10 salespeople and a few support staff.
Tier II ISO: These are shared liability ISOs. More often than not, they do not do their own underwriting, or at least are subject to underwriting approval from the ISO or processor with which they are contracted. With considerable technical support capabilities, they also have the support from the ISO or processor with which they are contracted. They are called a shared-risk ISO because they usually bear a portion of the chargeback risk of their merchants.
Tier III ISO: These usually comprise of only a few salespeople. With no technical support to provide to merchants, Tier III ISOs also do not not bear any chargeback risk. Since they don't bear any chargeback risk, they are subject to the underwriting guidelines of the ISO or processor with which they have contracted.
Implications:
1. Do not go with a Tier I ISO only because they offer their own technical support and underwriting. Instead, your business might be better off going with a Tier III ISO that really cares about your business and contracts with a Tier I ISO for technical support. So, while you're paying Tier III for services , you still get the technical support usually associated with Tier I.
2.While Tier I ISOs do more work, in exchange, they tend to keep a larger portion of each transaction for themselves than the Tier II ISOs. Similarly, Tier II ISOs keep a large portion of the transaction in comparison to the Tier III ISOs. Tier I and Tier II ISOs have more room to negotiate lower pricing, especially for larger clients.
For more information visit www.paynetsystems.com
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