What is an ISO in Payment Processing?
Why it Matters for Your Business
If you've ever been left feeling confused by someone in a suit (or over the phone) calling themselves an ISO, you're not alone. The payments industry is full of acronyms and sometimes intentionally complex language that can make business owners feel out of their depth. But the reality is that an ISO can seriously affect you and your business. Understanding what an ISO is and how they make money could mean the difference between paying fair rates and unknowingly draining thousands of dollars from your bottom line each year.
Here we'll demystify ISOs by unpacking their role in payment processing, and explain what business owners need to know before signing a contract.
The Basics - What is an ISO
ISO is the acronym for Independent Sales Organization. An ISO is:
A third-party company registered with Visa and Mastercard.
Sponsored by an acquiring bank, which is a financial institution that processes credit and debit card payments for merchants.
A sales and service distributor that signs up businesses (like yours) for merchant accounts and other payment processing tools.
An ISO does not process transactions itself. They resell the services of processors and acquiring banks while adding their own layers of customer support, hardware/software solutions, and, often, extra fees.Why Keep Credit Cards on File?
Streamlines Recurring Payments, making it Ideal for subscription services, gyms, utility providers, salons, studios, medical offices, and businesses with ongoing customer agreements or repeat services.
Saves Time and Money: Automated payments reduce the hassle of chasing customers for recurring charges, help avoid last-minute cancellations, and reduce internal workload. No more chasing accounts, calls, emails, letters, or postage—automation takes over.
Customer Convenience: Customers enjoy uninterrupted services and faster checkout experiences, which can help with retention.
How Do ISOs Make Money?
ISOs can earn revenue in a few different ways, such as:
Residual Commissions: the ISO earns a percentage of every transaction your business processes.
Markup on Interchange: the ISO will add a margin on top of base rates (Interchange), which are set by the card networks. So it is base rate + ISO margin = your rate.
Monthly Fees: ISOs may charge statement fees, PCI compliance fees, or other "service" fees.
Bundled Hardware/Software: ISOs frequently sell POS systems, terminals, and gateways, sometimes at inflated costs.
ISOs are incentivized to maximize their profit from each merchant account; it is a sales-driven model, and sometimes at the expense of transparency.
Pros and Cons of Working with an ISO
Pros:
Convenience: ISOs help small businesses accept credit cards quickly and easily.
Bundles: Package deals are commonly offered by ISOs and could include any combination of hardware, gateway, compliance, and reporting tools.
Support: Have an issue? A reputable ISO can serve as the point of contact.
Cons:
Hidden Fees: Extra costs layered into contracts are commonplace.
Confusing Terms: Long agreements often hide actual processing costs.
Conflicts of Interest: ISOs profit from your volume and rates, so they may not always be motivated to secure the best deal for you.
Why This is Important to Know
Imagine this scenario: a new medical office signs up with an ISO after being promised "the lowest rate in town." A year later, they are looking to lower their operating expenses and contact PayStream. After an audit and analysis, they find they're paying thousands more per year in processing fees than their competitors. Why? Because the ISO's contract included:
Marked-up interchange rates,
Monthly statement fees, and
A multi-year contract with a steep cancellation penalty.
This isn't rare. It's the norm.
Without clear visibility into how ISOs structure their pricing, many merchants accept these costs as unavoidable. But the truth is: they are avoidable.
How You Benefit from an Independent Agent Consultant
When you use a consulting agent like PayStream, you benefit because we don't sell processing; we optimize it. We're not an ISO. We don't earn commissions on your volume. Instead, we:
Audit your statements to uncover hidden fees.
Benchmark your pricing against real processor rates.
Negotiate directly with processors to lower your costs.
Tailor solutions to your business model, not to a sales quota.
Our agent independence is your advantage. We represent you, not the bank, not the processor, and not the ISO. This difference can equate to significant savings for your business.
Thoughts
Independent Sales Organizations are everywhere in the payments industry. Some offer value, but too often, they thrive on complexity that keeps business owners paying more than they should. Before signing anything with an ISO, ask yourself: whose interests are really being served here?
At PayStream, the answer is simple: yours. We cut through the noise, strip away unnecessary fees, and give you clarity in a deliberately confusing industry.
Start with a free audit today and see how PayStream can help you increase your bottom line and transform your approach to payment processing.
FAQ
Q. Is an ISO the same as a payment processor?
A. No. ISOs resell processing services but do not move the money. Processors handle the technical transaction flow between banks.
Q. Do I need to work with an ISO?
A.Not necessarily. Many businesses benefit more from working directly with processors or by using a consulting agent like PayStream to cut through the complexity.
Q. What's the difference between an ISO and an Agent?
A An ISO (Independent Sales Organization) is a registered company sponsored by a bank to resell processing services. An Agent works under an ISO or processor's umbrella but does not hold its own registration. PayStream functions as an independent agent consultant, meaning we partner with processors but are not tied to one, allowing us to optimize your costs objectively rather than resell a single ISO's package.
Q. Are all ISOs bad?
A . No. Some reputable ISOs offer value, particularly if you require bundled hardware or specialized compliance support. But transparency is key. Go over all the fine print and ask questions.
Q. How do I know if I'm overpaying my ISO?
A . Check for layered fees, unclear rates, or contracts with high penalties. If your effective rate (total fees ÷ processing volume) is higher than 3-3.5%, chances are you're paying too much.
Q. Can I renegotiate my ISO contract?
A Often, yes, but it takes insider knowledge. PayStream can benchmark your agreement and negotiate terms.