If you are running a high-risk business, you likely already realize that being high risk means that your business will have a hard time getting a merchant account at a traditional bank, etc. On top of that, the bank will keep you on a short leash, and even just a slight increase in the number of chargebacks could result in your merchant account being closed, often without warning or explanation. The recommended way to deal with that challenge is usually to use an independent sales organization (ISO) as your payment processor. A good question, then, is “Why use an ISO for credit card processing rather than working directly with a bank?”
Banks tend to be reluctant to take on high-risk businesses as clients. There’s nothing surprising about that. The system is set up in a way that means the bank is taking on certain obligations and liabilities when providing a merchant account and payment processing services to a merchant. If things go badly, the bank could lose a lot of money and have its reputation seriously damaged.
An independent sales organization (ISO)—also known as a “merchant service provider” (MSP)—is essentially a middleman between the bank and the merchant, a risk-reducing extra layer of security, in a sense. An ISO for credit card processing works with banks to get a merchant account for your business when the bank is unwilling to provide it directly. The ISO assumes a large part of the obligations and liabilities that the bank would have taken on. That makes it less risky for the bank to provide services, in turn making the bank less reluctant to provide a merchant account and services. That’s critical if you are running a high-risk business.
The ISO creates partnerships with various banks, and acts as an agent of those banks to provide services to your business, while at the same time representing your business in the interaction with the bank.
As a kind of hybrid representative of both your business and the bank, what does an ISO do? What are the main services that are provided by an ISO?
Each payment processor is a little different, but the main things that an ISO does are getting your business a merchant account, arranging and/or conducting payment processing, and setting up and/or serving as a payment gateway. Some ISOs also provide the hardware needed to process payments, point-of-sale systems, online shopping systems, and merchant financing.
The use of cash for purchases, etc., has been decreasing for many years, and the use of credit cards and other non-cash methods of making payments has increased accordingly. McKinsey & Company’s “2021 McKinsey Global Payments Report” points out that the COVID-19 “pandemic accelerated ongoing declines in cash usage and adoption of electronic and e-commerce transaction methods.” Much of that has remained even as daily life has gradually gotten back to normal. It’s likely that the trend toward cashless transactions will continue.
Not surprisingly, that has increased the need and the demand for an ISO for credit card processing.
There are significant advantages to using an ISO even in the case of businesses that are not considered to be high risk. The benefits are even greater for high-risk businesses. High-risk payment processors have fewer legal and regulatory restrictions than traditional banks. That enables them to provide services to merchants with low credit ratings, for example.
That makes it possible for your high-risk business to obtain the equipment needed to process credit cards and accept payment using a broad range of credit cards/debit cards. Many services are provided remotely and electronically. The ISO also takes care of things such as compliance with PCI DSS, and other technical matters.
A high-risk payment processor can also save you money. The ISO will need to be paid a fee, of course, but it will free you from the inefficient and wasteful use of time on things that are not your specialty. More of your time and other resources can be dedicated to growing your business.
Because payment processing firms are usually relatively small, your business is more likely to get attentive personal attention. You typically won’t have to wait a long time for issues to be addressed, and the services will be designed to meet your specific needs.
Just as in any other industry, ISOs are not all the same. There are, of course, differences in the quality of the services and how well the companies are managed, but even two payment processors of similar quality can be very different. The experience, specialization, and approach of one of the payment processors may be exactly what your business needs, but the other might be a very bad fit. A non-high-risk ISO may be great for most things, but a disaster for high-risk businesses.
There are fewer high-risk payment processors than traditional banks and processors, but as mentioned earlier, the demand is growing, so you can expect an increase in the number in the near future. When selecting potential payment processors, be sure to ask questions and get clarification of anything you don’t understand. It will be a partnership, so pay attention to gaining a mutual understanding of expectations, requirements, and the details of services.
It’s important to find an ISO that has a wide range of technological tools, a solid commitment to thorough compliance with laws, regulations, and industry standards, and a secure payment system and gateway. A good ISO can alleviate many of your concerns about security and fraud. It can even help automate and streamline your business. Ultimately, that will do much to help you save money and retain customers.
Although it will often act in stead of a bank, a payment processor is not a bank. While using an ISO for credit card processing can include contracts with multiple banks, which engage in the actual handling of money. Zen Payments partners with many banks that have broad approval policies and reasonable requirements. That gives you a lot more flexibility and control over decisions about your business. Be sure to do your research and ask questions until you are satisfied with the answers. Our team at Zen Payments is excited to help you get your business on track and growing, so don’t hesitate to contact us.