Payment Processing ISO: What is an ISO & What is their role | Swipesum

If you've recently been approached by someone calling themselves an "ISO," you're not alone, and it can feel like stepping into the intentionally complex world of merchant services. You've probably heard the term Independent Sales Organization (“ISO”) tossed around... but what do they actually do? ISOs function as distributors of acquiring bank services: they sell and manage merchant accounts, earn commissions on transactions, and often offer a pre-packaged bundle of processing solutions.

At Swipesum, we don’t sell merchant services, we consult on them. Think of us as your fractional Chief Payments Officer, your trusted guide through an overwhelming payments landscape. We help you understand where and how ISOs operate, and when going through an ISO makes sense or when another provider might serve your business better. Imagine this: when a customer swipes a card at your point of sale, there's a complex flow of systems, gateways, processors, acquirers, networks, all working behind the scenes. ISOs play a role in connecting merchants to that ecosystem. But in most cases, they are sales organizations, not technical or strategic partners, and their income model is built on commissions, which can create conflicts and opacity.

In contrast, Swipesum is 100% independent. We audit your merchant statements using our proprietary software (Staitment), evaluate offers from over 70 processors, ISOs, and payment facilitators, and negotiate pricing on your behalf, all with no obligation and usually at no cost to you. Rather than selling you a product, we start with a free consultation, assess where you're overpaying, tailor a solution aligned with your business model, and guide you through implementation, integration, and ongoing optimization.

So, before you lock into a sales pitch from an ISO, let’s take a masterclass in understanding who ISOs are, how they fit into the payment ecosystem, and when you’re better off working with a payments consultant like Swipesum instead.

What is an ISO?

An Independent Sales Organization (ISO) is a third-party sales company registered with major card brands like Visa and Mastercard and sponsored by an acquiring bank. ISOs sell, manage, and support, merchant services accounts and related services helping businesses accept credit card and electronic payments. While they don’t process transactions themselves, ISOs serve as intermediaries between merchants, acquiring banks, payment processors, and gateways. Merchants can go direct to the source and avoid working with these distributors, and there are pros and cons to working with ISOs.

ISOs operate independently but maintain partnerships with banks and processors. This allows them to offer a wide range of services, including:

• Setting up merchant accounts
• Providing payment gateways and POS systems
• Ensuring PCI compliance and fraud protection
• Offering ongoing support and reporting tools

When an ISO signs your business up to accept credit cards, they earn residual commissions, known as payment processing residuals, based on your monthly processing volume and the rates they were able to sell you. They may also add markups or charge monthly service fees, depending on their pricing model.

While ISOs are not acquiring banks, they can play a critical role in the payment processing ecosystem. There are more bad ISOs than reputable ISOs. A reputable ISO ensures your business has the right tools to accept payments efficiently, navigate compliance, and stay competitive in today’s fast-moving market.

The Role of ISOs in a Merchant’s Payment Processing System

ISOs play a pivotal role in a merchant’s payment processing system by acting as a crucial intermediary between the merchant and the acquiring bank. They facilitate a variety of payment processing services, enabling merchants to accept credit and debit card transactions with ease and security. By partnering with member banks and payment gateways, ISOs offer a comprehensive suite of payment processing services, including credit card processing, ACH processing, and more. This partnership allows merchants to streamline their payment processing operations, reduce costs, and enhance overall efficiency.

Moreover, ISOs provide personalized support, guiding merchants through the complexities of the payment processing landscape. They assist with the setup and maintenance of a merchant’s payment processing system, ensuring everything runs smoothly. This ongoing support includes troubleshooting any issues that may arise, helping merchants to focus on their core business activities. Additionally, ISOs can help merchants expand their market reach by providing access to a broader range of payment processing services, thus attracting more customers and driving growth.

Top Ranked ISOs and Why You Should Use Them

Selecting the right Independent Sales Organization (ISO) is a crucial decision for any business, as the choice directly impacts payment processing costs, service quality, and the overall ease of transaction management. ISOs vary widely in their specializations, and the most successful ones cater to specific industries, providing customized solutions tailored to the unique needs of their clients. Below are two top-ranked ISOs—LawPay and Sonder Payments—that excel in different sectors, along with insights into which types of businesses they best serve and why they are must-use options.

1. LawPay: The ISO for Law Firms

Overview: LawPay is a highly regarded ISO that focuses exclusively on serving the legal industry. Law firms, attorneys, and other legal professionals trust LawPay to handle their payment processing needs with precision and compliance. Unlike generic payment processors, LawPay was designed to adhere to the strict regulations that govern trust accounts and retainers, making it a go-to solution for law firms that need to ensure compliance with the American Bar Association (ABA) and other legal authorities.

Why Law Firms Should Use LawPay:

• Compliance with IOLTA Accounts: One of the biggest challenges law firms face is managing client trust funds. LawPay ensures full compliance with IOLTA (Interest on Lawyers Trust Accounts) regulations, keeping client funds separate from law firm operating accounts. This prevents the ethical and legal issues that can arise from improper fund handling.
• Tailored Billing Features: LawPay understands that legal professionals operate differently than typical businesses. Features like easy retainer billing, secure client portals, and recurring payments allow law firms to manage payments seamlessly without violating professional conduct rules.
• Trust and Credibility: LawPay has been endorsed by over 50 state and local bar associations and is recognized as the most trusted payment processor in the legal industry. This trust is crucial for law firms, where maintaining a solid reputation is essential for ongoing success.
• Client-Friendly Payment Options: LawPay offers clients flexibility in how they pay for services, with options for credit cards, ACH transfers, and online payment portals. This convenience helps law firms get paid faster and reduces friction in the payment process.
• Dedicated Customer Support for Law Firms: LawPay provides industry-specific support, meaning customer service teams are trained to understand the nuances of legal billing. If a firm encounters a challenge or has a question, they can rely on knowledgeable representatives to assist them.

Ideal Clients:

• Small and mid-sized law firms seeking a reliable, compliant payment processor.
• Solo practitioners who need a straightforward, ethical solution for handling retainers and trust accounts.
• Large law firms that require scalable solutions while adhering to legal industry standards.

Why You Must Use LawPay:If you operate a law firm, LawPay is not just an option; it’s a necessity. The platform is designed to ensure that legal professionals remain compliant with regulatory requirements while offering an easy, client-friendly payment experience. With its strong reputation, specialized support, and secure infrastructure, LawPay is the industry standard for legal payments.

2. Sonder Payments: The ISO with Subscription-Based Memberships

Overview: Sonder Payments is a forward-thinking ISO that has carved a niche by offering a subscription-based payment processing model. Instead of charging merchants traditional transaction fees, Sonder Payments provides a membership model where businesses pay a flat monthly rate. This unique approach is highly beneficial for merchants looking for predictable costs and transparent pricing.

Why Subscription-Based Merchants Should Use Sonder Payments:

• Flat-Rate Pricing: One of the main reasons businesses choose Sonder Payments is the predictability of their fees. Merchants pay a single monthly subscription rate, which covers all of their payment processing needs, eliminating the complexity of variable transaction fees. This pricing model is particularly advantageous for businesses that process a high volume of transactions.
• Cost-Effective for High-Volume Merchants: For merchants with a steady flow of sales, Sonder Payments' membership model can lead to significant savings compared to traditional processors that charge percentage-based fees. By eliminating per-transaction fees, businesses can retain more of their revenue, making this ISO ideal for high-volume operations.
• Transparency and Simplicity: Traditional payment processors often have a confusing array of fees—interchange, statement fees, and percentage-based charges—that can be difficult for merchants to navigate. Sonder Payments' flat-rate subscription removes these complications, offering full transparency and no surprise costs.
• Support for Subscription-Based Business Models: Sonder Payments is particularly well-suited for businesses that rely on recurring billing, such as subscription services, SaaS companies, and membership-based businesses. The platform integrates easily with subscription billing tools, making it easier to manage ongoing customer payments.
• Fast and Easy Setup: Sonder Payments prides itself on being easy to integrate with existing systems. Merchants can quickly get set up and start processing payments without extensive downtime, which is critical for businesses that can’t afford interruptions in their payment workflows.

Ideal Clients:

• Subscription-based businesses that need a predictable cost structure, such as gyms, SaaS platforms, and e-commerce sites with recurring billing.
• High-volume merchants seeking to lower their overall payment processing costs by avoiding per-transaction fees.
• Small and mid-sized businesses that want a simple, transparent payment processing solution without hidden fees.

Why You Must Use Sonder Payments: Sonder Payments offers a refreshing alternative to traditional transaction-based pricing. If your business handles a large volume of transactions or relies on a subscription model, their flat-rate structure can save you thousands of dollars annually. Beyond cost savings, the simplicity and transparency of their pricing model make Sonder Payments a must-use for businesses looking to streamline their payment operations without worrying about fluctuating fees.

Choosing the Right ISO for Your Business

When selecting an ISO, it's important to consider the specific needs of your business. LawPay is a specialized solution built for law firms and legal professionals, ensuring compliance with industry regulations while providing an easy, client-friendly payment experience. For businesses that process a high volume of transactions or operate on a subscription-based model, Sonder Payments offers an innovative, cost-effective approach with its flat-rate pricing.

Ultimately, the best ISO for your business is the one that aligns with your operational needs, regulatory requirements, and budget. By partnering with the right ISO, you can ensure smooth payment processing, reduce costs, and offer your customers a better payment experience.

Understanding the Payment Processing Ecosystem

To fully grasp the role of an ISO, it's essential to understand the broader payment processing ecosystem and the other key players involved:

What is an Acquiring Bank?

• Acquiring banks (also known as merchant banks) are financial institutions that partner with ISOs, payment processors, and merchants to facilitate the acceptance of credit and debit card transactions. They process transactions on behalf of the merchant and ensure that funds are transferred from the cardholder's bank to the merchant's account.

What is a Card Network?

• Card networks (e.g., Visa, Mastercard, American Express) are the organizations that operate the global networks through which card transactions are processed. They establish the rules for transaction processing, facilitate the transfer of information between acquiring banks and issuing banks, and manage the settlement of funds.

What is an Issuing Bank?

• Issuing banks are the financial institutions that issue credit and debit cards to consumers. When a cardholder makes a purchase, the issuing bank verifies the transaction, authorizes payment, and eventually bills the cardholder for the amount spent.

What is a Payment Processor?

• Payment processors are companies that manage the technical aspects of processing card transactions. They provide the infrastructure and technology that enable merchants to accept card payments, including the transmission of transaction data, authorization, settlement, and reporting. Some processors work directly with acquiring banks, while others partner with ISOs to offer their services to merchants.

What is a Payments Agent?

• Agents are individual sales representatives or small businesses that work under the umbrella of an ISO. They help recruit and sign up merchants for payment processing services, often earning commissions on the accounts they bring in.

What is an Independent Software Vendors?

• ISVs develop and sell software applications that include integrated payment processing functionality. They partner with payment processors and ISOs to offer merchants seamless payment solutions within their software products, such as accounting software with built-in invoicing and payment capabilities.

What is a Merchant of Record?

• The merchant of record is the entity responsible for processing transactions and managing the funds from customer payments. In many cases, this is the business itself, but in some models (like marketplaces or subscription platforms), it might be a payment facilitator or another entity that manages payments on behalf of multiple sub-merchants.

What is a Payment Facilitator?

• PayFacs simplify the payment process by allowing sub-merchants to accept payments without needing their own merchant account. PayFacs take on the responsibilities of underwriting, onboarding, and managing sub-merchants, while providing them with access to payment processing services. This model is often used in platforms that serve multiple small businesses, like e-commerce marketplaces.

What is a Merchant Services Referral Partner?

• Referral partners are individuals or organizations that refer merchants to ISOs or payment processors. They earn a referral fee or commission for each merchant they successfully refer that signs up for payment processing services.

What is a Payment Processing Partner?

• Partners in the payment processing ecosystem can include a wide range of entities, such as technology providers, financial institutions, and service providers that collaborate with ISOs, payment processors, and merchants to enhance the overall payment experience. They may offer complementary services like fraud detection, data analytics, or customer support.

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Is an ISO a Payment Processor?

While structured differently, ISOs can work with multiple payment processors and may offer additional services. In terms of payment processing, the end result for your business is similar to working with a direct payment processor. ISOs handle credit card processing and other payment functions for many businesses, making them an integral part of the payment processing ecosystem.

It's important not to confuse ISOs with ISO 20022, a messaging standard for financial communication, which is unrelated to business payment processing.

ISO vs. PayFac: What's the Difference?

An ISO is a third-party company that refers merchants to acquiring banks or payment service providers. They typically work with a variety of acquiring banks, using those relationships to "resell" merchant accounts to merchants. Some ISOs also take an active role in facilitating payments.

A PayFac (Payment Facilitator), on the other hand, has a single account with an acquiring bank and assumes the liability for the merchants processing under that account. Unlike ISOs, which act as intermediaries, PayFacs function more like mini payment processors, offering sub-merchant accounts to businesses and taking on greater risk, including managing disputes and chargebacks.

The primary advantage of using a PayFac over an ISO is that the PayFac takes on the associated risks and losses, offering a more streamlined and faster onboarding process for merchants.

ISO vs. MSP: Are They the Same?

ISOs and MSPs (Member Service Providers) are often discussed together because they are very similar entities. The main difference is that Visa refers to its approved merchant account providers as ISOs, while Mastercard prefers the term MSP. However, in practice, ISOs and MSPs function similarly, and the terms are often used interchangeably.

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ISO vs. Agent: Understanding the Differences

In the payment processing ecosystem, both ISOs and agents play crucial roles in helping businesses accept payments, but their responsibilities and structures are distinct. Understanding the difference between an ISO and a payment processing agent can help you make more informed decisions about your payment processing needs.

What is a Payment Processing Agent?

A payment processing agent, also known as a sales agent or independent sales agent, is an individual or a small team that works on behalf of an ISO to market and sell payment processing services to merchants. These agents act as intermediaries between the ISO and the merchant, helping businesses find the right payment solutions to meet their needs.

Payment processing agents are typically responsible for:

• Merchant Acquisition: Agents identify and reach out to potential merchants, educating them about payment processing options, and guiding them through the process of selecting a payment provider.
• Account Setup: Once a merchant agrees to work with the ISO, the agent assists in setting up the merchant account, ensuring that all necessary paperwork and processes are completed smoothly.
• Ongoing Support: Agents often provide ongoing customer support, acting as the first point of contact for merchants who have questions or need assistance with their payment processing services.

ISO vs. Agent: How They Work Together

While ISOs are larger organizations that have direct relationships with acquiring banks and payment processors, agents are more focused on sales and customer interaction. Here's how they differ:

• Role and Responsibility: ISOs are responsible for managing the relationships with banks, negotiating processing rates, and ensuring compliance with industry regulations. Agents, on the other hand, are focused on merchant acquisition and customer support, working to expand the ISO’s merchant base.
• Relationship with Banks: ISOs have formal agreements with acquiring banks, allowing them to offer payment processing services to merchants. Agents do not have these direct relationships; instead, they leverage the partnerships established by the ISO to bring in new business.
• Revenue Structure: Both ISOs and agents typically earn revenue through commissions. ISOs earn a commission on the transactions processed by the merchants they sign up, and agents earn a portion of this commission for each merchant they bring to the ISO. In some cases, agents may also earn a recurring monthly fee based on the merchants’ transaction volume.
• Independence: Agents are usually independent contractors who work under the umbrella of an ISO but operate their own businesses. This independence allows agents to work with multiple ISOs if they choose, though many prefer to establish a long-term relationship with a single ISO.

The Reality of Agents in Payment Processing

Agents, essentially resellers of ISOs, act as one-person distributors, often referred to as “feet on the street.” While they may seem to offer a personalized service, they typically come with higher costs because they are distributors of a distributor, leading to increased pricing for merchants.

The primary advantage of working with an agent might be having a local salesperson, though this is becoming increasingly rare. In some cases, merchants may benefit from a personal relationship with the agent, but beyond that, the value is limited when compared to more direct and cost-effective payment processing options.

Conclusion: Choosing Between an ISO and an Agent

When evaluating the roles of ISOs and agents in payment processing, it’s important for merchants to understand the key differences. While agents can provide localized, personalized service, the added costs often outweigh the benefits, particularly when compared to working directly with an ISO. ISOs offer stronger relationships with acquiring banks, more competitive rates, and a more streamlined, direct approach to managing payment processing needs. For merchants looking to optimize their payment solutions while minimizing costs, partnering with an ISO directly typically offers the best value. Ultimately, the choice depends on a merchant's priorities—whether they value local, personal relationships or more efficient and cost-effective service.

ISOs/MSPs can also recruit sales agents to help sign new merchants. Additionally, ISOs can sign other ISOs under themselves. These agents must introduce themselves as representatives of their ISO/MSP and are not allowed to advertise their own business names as service providers.

This structure allows each organization to focus on its strengths, ensuring customers receive the best possible service.

Swipesum helps businesses find the best payment solutions. Our experts consider price, service quality, and your unique business needs. We help eliminate credit card processing fees, negotiate contracts, monitor fees, and optimize payment workflows.