Turn on a financial news station or take a glance through your favorite business newspaper and you may find yourself bombarded with terms, acronyms, buzzwords, and more. Trying to keep everything straight can feel impossible at times, but it’s wise to expand your knowledge base and grasp the lingo. One important concept to understand is Independent Sales Organizations, or ISOs as they are often called.
In simple terms, an ISO is a business service provider that works with acquiring banks to provide payment processing services to merchants and other businesses, allowing them to accept payments, including those made with debit and credit cards. ISOs are considered a third-party and they partner closely with acquiring banks to ensure that businesses can accept payments. Let’s take a closer look at the benefits of ISOs and why merchants and banks should consider utilizing their services.
Why ISOs Are Important and Beneficial for Businesses
As merchants, banks, and everyone else in the industry already knows, cash is slowly going the way of the dinosaur as more and more consumers embrace credit cards, online payment systems, and even cryptocurrencies. Merchants, in turn, need to build up capacities to process these payments. This is typically accomplished by working with an acquiring bank and/or ISO.
From the point of view of a customer, card payments and online platforms are quite simple. Simply tap your phone/card or click a few buttons in a browser and voila the payment is sent and received. Behind the scenes, however, a lot is going on and multiple stakeholders, including card issuers, acquiring banks, and card networks, work together to make payments possible.
ISO Make Things Easier for Merchants and Banks
Running a business is hard. If an entrepreneur is looking to start a small business or trying to grow an existing one, they may quickly find themselves overworked with resources spread thin. Even large, established companies enjoying financial success often find themselves short on resources. This makes setting up and managing payment processing rather difficult for merchants.
That’s where ISOs come in. They can handle many of the payment processing hassles that crop up. As experts, they can reduce issues that can result in missed sales, chargebacks, angry customers, lost inventory, and more. ISOs can provide technical support as well and are often in a better position to respond quickly.
Perhaps most importantly, an ISO can help businesses bear burdens. ISOs help acquiring banks expand their reach by offering specialized merchant services. ISOs also help small and medium-sized businesses navigate payment processing without needing direct involvement from a bank. By taking care of payment systems, an ISO allows business owners and managers to focus on other tasks, such as setting up marketing campaigns, hiring staff, managing inventory, and much more.
Beyond benefiting merchants, this also shifts some of the burden away from acquiring banks. Banks may want to help their clients with all of the above. However, like merchants, banks face constraints and may simply not be able to dedicate as many resources as preferred or necessary.
Banks are often servicing a wide range of customers (businesses, private individuals, non-profits, etc.) and thus must cater to everyone. ISOs are often more focused in their client list. This allows the ISO to build up a strong specialization and targeted, streamlined services.
ISOs, Fraud, and Chargebacks
As payment processing experts, ISOs are very familiar with the threats posed by fraud and chargebacks. While it’s smart for merchants and managers to familiarize themselves with fraud mitigation and chargeback management, there are so many factors in play that it can take a long time to build up the necessary knowledge base. Further, even merchants with a strong grasp of fraud and chargebacks may struggle to allocate the resources necessary for prevention and mitigation.
Likewise, the staff at an acquiring bank may want to prevent and mitigate fraud, but may lack the resources to provide as much support as they’d like to. ISOs can support merchants and banks by offering tools and expertise to combat fraud and chargebacks in its many forms, including friendly-fraud and first-party fraud. This can save the resources of the merchant and bank and can prevent hassles.
All the while, banks can feel confident that their merchant clients are enjoying top-notch services. Fraud and chargebacks can have a major impact on banks as well and working with an ISO can mitigate risks.
Further, the fraud and chargeback environment is constantly evolving. A business owner may have an excellent grasp of the risks and other factors right now. Yet their skills and knowledge could become obsolete by next year. Banks often keep a close eye on developments, but even so, it can be hard to keep pace. Since ISOs focus on payments and issues like fraud, they’re often up to speed on the most recent developments.
Further, the best ISOs provide responsive customer service. Banks have a lot on their plate. An acquiring bank may want to respond to customer service inquiries regarding fraud from their merchants but may simply not have the resources to do so in a timely fashion. Since ISOs are more focused, they’re often in a better position to respond quickly.
An Investment That Pays Off
Independent Sales Organizations collect fees for the services they provide. However, the right ISOs provide exceptional value. Consider chargebacks. If a merchant gets hit with a chargeback, they’ll have to pay growing chargeback fees. Should an acquirer suffer too many chargebacks across their portfolio, card networks could hit the bank with further penalties.
The merchant’s chargeback ratio will rise as well, and banks may be forced to drop the client or charge them higher fees (which could force them to turn to another service provider). Unfortunately, this could narrow the bank’s client list and will hit the bottom line one way or another.
Ultimately, working with an ISO can benefit both banks and merchants. Chargebacks are a serious threat for every stakeholder, so it’s wise to find partner organizations that can help you manage and mitigate risks.