Acquiring Bank vs ISO

In my last post, I introduced the three types of merchant account providers. Today, I will talk more about the differences between an acquiring bank and an Independent Sales Organization (ISO).

This post is a little more advanced, so I suggest you read my previous post first if you are new to credit card processing. Click here to read.  

Acquiring Bank

To obtain a merchant account, you need an acquiring bank (aka “acquirer”) or a company that connects to one. Acquirers provide businesses with a merchant account. They can do this because they are the ones who are registered members of card associations such as Visa and MasterCard. The card associations connect these acquirers to your customers’ banks. The banks issuing your customers’ credit cards are known as issuing banks.

Acquirers accept debit and credit card payments on behalf of their customers (i.e. businesses like yours) from the issuing banks. Therefore, acquiring banks get your money first. They temporarily hold your funds in your merchant account before depositing them. This is because they assume the risk of the transactions their customer’s process. If your business closes its doors and customers have not received all the goods or services they purchased, the acquiring bank may need to reimburse your customers to make them whole if your business cannot. 

You can read more about acquiring banks here.

To summarize, acquiring banks maintain merchant accounts. However, smaller acquiring banks have become too overwhelmed by the growth of credit card processing. To attract more customers and compete with the big banks, they may sponsor an Independent Sales Organization.

Independent Sales Organization 

An Independent Sales Organization (ISO) is registered with an acquiring bank to advertise and sell merchant services, as well as manage credit card processing. Unlike an acquirer, ISO’s are not card association members. Therefore, they partner with one or more acquiring banks. ISO’s may work with multiple acquiring banks because not every acquirer accepts the same types of businesses.

ISO’s issue their own merchant accounts and manage all their customer’s transactions. ISO’s also assume the risk of their customers. However, their sponsoring bank is on the line too. So, if the ISO cannot cover a client’s financial loss, the sponsoring bank steps in to make all cardholders even.

ISO’s must disclose their sponsor banks. Many of them will put this sort of disclaimer on the footer of their website:

“Maverick BankCard, Inc. is a registered ISO/MSP of Esquire Bank, Garden City, NY and a registered ISO of Mission Valley Bank, Sun Valley, CA.”

There are probably a few hundred ISO’s today. In fact, some acquiring banks only issue merchant accounts through ISO’s so they can focus on other core banking services.

Conclusion

Regarding credit card processing, there is not much difference between an acquiring bank and an ISO. ISO’s outnumber acquiring banks and advertise more aggressively, so more businesses are setting up merchant accounts with ISO’s.

In my next post, I will explain the difference between a traditional merchant account and a merchant aggregator. Thanks for reading!