Working with an ISO vs. a Third-Party Payment Processing Company

In the B2C world, accepting credit cards is no longer an option – it’s essentially a requirement.

During the Pre-COVID era, the vast majority (80%) of consumers reported that they prefer to use credit cards. Post-COVID, many businesses have eschewed cash altogether. Even more, buyers have become accustomed to the practice of using credit and debit cards for contactless payments.

A business has to have an established relationship with a payment processor to accept credit cards. Business owners have several options for processing credit card payments. The choices include working with an ISO, a third-party payment processing company, or your bank. There are pros and cons to each, and the best solution often depends on your business model.

Whichever solution you choose, what’s important to keep in mind is that you want to process payments seamlessly. 

In this article, we’ll review the differences between direct ISO and third-party payment processors. We will also discuss why we believe that a direct ISO solution is the best choice for most businesses today.

What is an ISO?

An Independent Sales Organization (ISO) functions as an intermediary between merchants and the banks that collect credit card transactions. An ISO will market its service to attract merchants so that, ultimately, the bank can offer those merchants payment processing services.

ISOs benefit both banks and merchants. From a banking perspective, the volume of credit card transactions that get processed every second is overwhelming. An ISO serves as a kind of organizer to aggregate and streamline those transactions.

Banks also rely on ISOs as a layer of protection against risk. For example, many merchants might not qualify to work directly with a bank, so instead, they’ll contract with an ISO.

Regardless, a merchant who does meet a bank’s qualifications may still prefer an ISO’s services and support.

The Most Significant Difference Between an ISO and Third-Party Payment Processing Company

A third-party payment processing company follows an aggregator model. This means there is only one merchant account, and it’s used for many different businesses. All of the merchants are under the payment processor’s umbrella.

On the other hand, an ISO provides a dedicated merchant account and ID number unique to your business. However, this does subject a merchant to an underwriting process to verify aspects of your business model and credit history.

By contrast, anyone can set up an account with a third-party payment processor without having to provide much information. However, avoiding the underwriting process can have unintended consequences, namely, higher fees and less control over your funds.

A third-party payment processor may be best for a company that has a low volume of transactions. However, an ISO is almost always a more appropriate solution for a steady stream of daily transactions.

A salon merchant accesses her payment processing system provided by an ISO company.

Benefits of Working with a Direct ISO Company

While a third-party payment processing service enables you to process transactions, an ISO provides an entire suite of valuable services. We’ll explain some of the benefits of ISO’s below.

Cost Savings

While an ISO withholds a percentage per transaction, the fees tend to be less than third-party payment processors like Square, Stripe, and PayPal. Further, a third-party processor, also called a merchant services provider, tends to lump all their merchant clients together, charging them a uniform rate.

As a result, smaller businesses are subsidized by other clients who absorb that risk. By contrast, an ISO underwrites each merchant account on an individual basis. This practice allows an ISO to set different transaction rates based on the type of business. 

Because of individualized analysis, many businesses get access to much lower rates. For example, firms with a large volume of transactions may qualify for lower fees than a third-party payment processor can offer. Even a fee reduction of 1% can have far-reaching benefits for your business. It’s a common misconception that you have to be a giant merchant to qualify for reduced rates. But the reality is that most established companies can save money on fees.

Personalized Solutions

ISOs differentiate themselves by providing software and service solutions that a credit card processor typically doesn’t. Examples could include a virtual terminal, a hosted payment page, or an e-commerce plug-in that helps facilitate transactions from online stores.

Many ISOs also offer CRM and software integrations to help your organization track transactions and utilize custom visual dashboards.

Expert Advice

When you work with a merchant services provider, you’re often subject to their one-size-fits-all solution. An ISO recognizes that every business is unique by developing customized solutions.

ISOs focus not only on providing services that streamline transactions but also function as a partner to help your business grow. From determining the best payment service to figuring out the optimal way to handle recurring subscriptions for minimal churn, an ISO can help your business get to the next level. After all, when you win, they win.

Customer Support

Third-party payment processors have a reputation for shutting down accounts or freezing money. Volume changes or what they perceive is a high level of chargebacks can trigger a shutdown. Anything that their algorithm smells as “suspicious” can halt your business’s ability to accept payments or access cash indefinitely. It’s a scary situation to be in.

When something like that happens, you’re at the mercy of these companies, and your customer service options are limited.

You might not even have a phone number to speak to a live person. Even for minor issues, it’s ideal to have a consistent service representative on call.

One Thing to Note About Payment Processing Companies

It’s only fair to present a balanced picture of direct ISOs versus a third-party payment processor. ISOs can take 48 hours to begin processing a payment, which does delay when you receive funds in your account. The delay may be worth waiting for the lower transaction fees and custom-tailored programs specific to your business.

Get Started with Accredited Interchange

At Accredited Interchange, we provide payment processing solutions to businesses of all sizes, from small businesses to large enterprises and everything in-between. As a family-run business, we also treat our merchants like family. We pride ourselves on putting businesses in positions where they can achieve growth and efficiency.

Curious how much you can save by working with Accredited Interchange as your ISO solution? We offer an in-depth savings analysis on your current processing solutions!