What is a Payments ISO? Everything you need to know

Before we get started

There are over 60 Independent Sales Organisations (ISOs) operating in the UK, commonly referred to as merchant service providers. Some of the most well-known names in the industry include Handepay, Paymentsense, RMS, takepayments, and UTP. ISOs play a pivotal role in the payments landscape, accounting for over 50% of all new customer acquisitions for card acquirers.

The top five ISOs in the UK—Paymentsense, takepayments (previously Payzone), Handepay, UTP, and RMS—have established themselves as key players, especially among smaller businesses. 

In fact, over 90% of businesses onboarded by ISOs for card acquirers have an annual card turnover of less than £380,000. As businesses grow and surpass this turnover threshold, they are more likely to engage directly with merchant acquirers for their payment processing needs.

Choosing the right payment processing partner can streamline your transactions and reduce costly errors. The choice of payment processor can influence the speed of processing, the range of payment options offered to customers, and the quality of customer service provided. However, partnering with an ISO or payment processor isn’t just about payments—they can also help businesses strengthen security, optimise operations, and enhance the customer experience. In this article, we’ll delve into the differences between ISOs and payment processors, and how to select the best partner for your business.

What’s Covered in This Article?

• What is a Payment Processor?

• What is an ISO?

• Payment Processor vs ISO: Key Differences and Similarities

• Do ISOs and Payment Processors Work Together?

• Payment Processor vs ISO: Pros and Cons for Businesses

• What to Look for in an ISO

• How Do ISOs Make Their Money?

• Which Business Types Should Consider Using an ISO?

• Are ISOs the Same as MSPs?

• How Merchant Advice Service Can Help

• Frequently Asked Questions (FAQs)

What is a Payment Processor?

A payment processor is a third-party company that acts as an intermediary between your business and the financial institutions involved in a transaction. It facilitates the authorisation of transactions and ensures the smooth transfer of funds from customers’ accounts to your business’s account. This process involves communicating with the cardholder’s bank to confirm that the payment is valid.

What is an ISO?

An ISO (Independent Sales Organisation) is a third-party entity authorised to sell or lease payment processing services to businesses. Acting as an intermediary between businesses and the financial institutions that provide these services, ISOs offer a range of support, including setting up merchant accounts, supplying payment processing equipment and software, and creating tailored solutions based on business needs. ISOs are typically compensated through a commission or fee structure for each client they bring to a payment processor or bank.

Payment Processor vs ISO: Differences and Similarities

While ISOs and payment processors often work together to manage electronic transactions, their roles are distinct. Understanding the differences and similarities is essential when choosing the right partners for your business.

Both ISOs and payment processors aim to provide smooth, fraud-resistant transactions and must comply with regulations set by credit card networks and financial institutions. However, their focus areas differ:

• Payment Processors: Primarily deal with the technical aspects of transaction processing, such as transferring and authorising payments. They ensure that transactions are completed securely and swiftly.
• ISOs: Take on a more customer-facing role, acting as the sales force of the payment industry. They work directly with businesses to establish and manage the services provided by payment processors, often offering additional support and tailored solutions.

Do ISOs and Payment Processors Work Together?

Yes, ISOs and payment processors frequently collaborate to deliver comprehensive solutions for businesses. ISOs often acquire new business customers, help set them up with the required systems to accept credit and debit card payments, and provide ongoing customer support. Once the setup is complete, payment processors manage the technical side of processing transactions, such as transferring payment information, obtaining transaction authorisations, and ensuring secure fund transfers.

In many cases, the ISO and payment processor have a contractual relationship, where the ISO acts as a reseller of the processor’s services. The ISO typically receives a commission or fee for each client they bring to the processor.

Payment Processor vs ISO: Pros and Cons for Businesses

When deciding between an ISO and a payment processor, it’s important to consider the benefits and drawbacks of each option.

ISOs

• Pros:
  • Personalised Service: ISOs are known for their hands-on approach, providing tailored customer support.
  • Versatility: ISOs often work with multiple payment processors, allowing them to offer a wider range of solutions to fit different business needs.
• Cons:
  • Cost: Working with an ISO can sometimes be more expensive due to additional services and support they provide.
  • Dependence on Processors: ISOs rely on processors for transaction management, which can limit their ability to resolve certain technical issues.

Payment Processors

• Pros:
  • Cost-Effectiveness: Partnering directly with a processor can sometimes be more affordable, as you’re removing the intermediary.
  • Direct Control: Direct partnerships may lead to quicker resolutions for technical issues.
• Cons:
  • Customer Service: Payment processors, typically larger companies, may lack the personalised support ISOs can offer.
  • Limited Options: Payment processors might not provide the same range of services or customisation options as ISOs.

What to Look for in an ISO

If you decide to use an ISO for payment processing, it’s essential to research and compare different companies to find a service that aligns with your business’s needs and budget.

1. Technology: Your payment ISO should provide the necessary POS hardware and software, whether fixed or mobile, and integrate seamlessly with eCommerce platforms and payment gateways.
2. Security: Look for ISOs that follow security best practices, such as those set out by the Payment Card Industry Data Security Standard (PCI DSS), to protect your POS hardware and customer data.
3. Payment Methods: ISOs often offer additional payment types such as electronic transfers, recurring billing, and invoicing, which can be beneficial depending on your business’s requirements.
4. Loyalty Programmes: Consider ISOs that provide loyalty programmes and gift cards compatible with your POS system.
5. Pricing and Fees: Be clear on the total cost of service, including potential hidden fees. Compare the value-added services and customer support provided to find the best option for your business.

How Do ISOs Make Their Money?

Most ISOs earn revenue through a combination of commission and fees from the acquiring banks and processors they work with. Their earnings typically consist of:

1. Commissions: ISOs receive a percentage of the transaction volume processed through the merchants they onboard. This commission is generally paid monthly and is a percentage of the total card turnover.
2. POS Hardware Rental and Sales: ISOs may earn from leasing POS hardware directly or through third-party suppliers.
3. Payment Gateway Fees: Monthly fees for payment gateways and other software solutions can also contribute to an ISO’s income.
4. Value-Added Services: Many ISOs offer additional services, such as PCI compliance support or analytics tools, generating additional revenue streams.

Which Business Types Should Consider Using an ISO?

ISOs are particularly beneficial for small and medium-sized enterprises (SMEs) seeking comprehensive payment solutions. Statistics show that over 90% of businesses onboarded by ISOs have an annual card turnover of less than £380,000. As the turnover increases, larger businesses are more likely to go directly to acquirers.

Given that ISOs provide a variety of value-added services, they are well-suited to SMEs that want a one-stop shop for all their payment processing needs. ISOs typically refer around half of new merchants with an annual face-to-face card turnover of up to £1 million to acquirers, making them a vital channel for small businesses looking to streamline their payment operations.

Are ISOs the Same as MSPs?

ISOs are a type of Merchant Service Provider (MSP), but the terms can be confusing. While MSP is a broad term covering any company with agreements to sell services to merchants, ISOs are specifically authorised to sell merchant services by card networks like Visa and Mastercard. In some cases, Mastercard refers to these entities as Member Service Providers (MSPs), while Visa uses the term ISO interchangeably.

How Merchant Advice Service Can Help

Merchant Advice Service works closely with ISOs to connect businesses with the most suitable partners. Through The Payments Directory®, we help businesses find ISOs that match their unique needs and objectives. Our expertise ensures that you’re not just getting a service provider, but a trusted partner who can support your growth and streamline your payment processes. By leveraging our extensive network, we can introduce you to reliable ISOs with the capabilities to help your business thrive.