Is an Unregistered ISO the Right Structure for Your Merchant Acquisition Business?

Is an Unregistered ISO the Right Structure for Your Merchant Acquisition Business

To register or to remain unregistered? That’s a decision every independent agent will be faced with at some point in their career, and it’s one with big implications, both for short-term operations, and the long-term prospects for everything from marketing to company structure to growth, and beyond. The million-dollar question is, “is it worth it?” The answer to that isn’t always immediately clear, and depends on everything from an agent’s capital situation, to their earning goals, to work-life balance issues, and more. It’s also a question made more difficult by the fact the benefits and drawbacks of registration are often poorly understood. With that in mind, the following is a quick primer on the differences between registered and unregistered ISO, the major considerations involved with registration, and the potential pros and cons involved with each. Hopefully, it’ll help bring the issue into better focus for new agents faced with making the big decision today. 

 

The Primary Difference Between Unregistered ISOs and Registered ISOs

The differences between unregistered ISOs and their registered counterparts are simple but extremely important. Namely, unregistered ISOs are limited to marketing under their processing partners’ brands, and not their own, and can’t subcontract agents to help them with their merchant acquisition efforts. Effectively, an unregistered ISO and an independent agent are one and the same. 

Registered ISOs, on the other hand, can not only operate and market themselves independently, building their own brands, they’re also free to hire as many of their own unregistered agents as they want. Those additional benefits might make registering seem like a no-brainer, but the decision is not so clear cut. While registering certainly comes with a long list of significant pros, there are enough potential cons to make the decision regarding registration one worth serious consideration. 

 

The Cons of Registering

First, let’s take a look at the downsides of registering. While it would be nice for every ISO to enjoy the benefits of registration, there are costs and requirements that can make the process daunting enough that, in some cases, agents won’t deem it worthwhile. 

Con: It’s a Time-Consuming Headache

First and foremost, registering is a big effort. Aside from the requirement to find a processing partner willing to sponsor an agent’s application, becoming registered requires agents to apply for approval with the major credit card companies they want to hook their merchants up with. The card issuers are not risk-takers, and as a result, that application is extremely thorough, requiring agents to submit all of their financial histories – both personal and business – along with a mountain of other documentation. And because the vetting process is so thorough, it can take months to finish, with no guarantee of approval at the end. 

Con: It’s Not Cheap

Each card company charges a fee both for the initial application, and renewal of registration each year after that. The initial fee is $10,000 per processor, with five grand more due each year for as long as a registered ISO operates. To be competitive, registering with Visa and Mastercard – the two biggest players in card payments – is the absolute minimum. That means newly registered ISOs can expect to fork out at least $20k in year one, and at least $10k every year thereafter. That makes registering financially untenable for agents that either don’t have that kind of capital available upfront or who really only want to work independently and view registration as a “nice-to-have” rather than a strategic necessity. 

 

The Pros of Registering

With the cons in mind, the upsides of registering are so significant that they make it an easy choice for many ISOs, and a necessary choice for ISOs looking to maximize growth, revenues, and reach. 

Pro: There is No Cap on Growth

One of the biggest drawbacks to operating as an unregistered ISO is that it effectively limits the operator to running a one-person show. Merchant acquisition is a time-consuming gig, and a single person only has so many hours a day to dedicate to it. Throw in all the additional duties a single owner-operator is responsible for, and it’s clear that there is only so much growth an independent agent can hope for. Registered ISOs, on the other hand, can hire independent agents as they see fit, meaning as their ambitions and client rosters grow, they can simply bring on new help and keep growing. So, while staying unregistered may be easier, it will never offer the same kind of growth potential registering can. 

Pro: There is No Cap on Income

ISOs make money by earning small commissions on their merchants’ transactions, known as residuals. Residuals are owned for the life of the merchant’s business relationship with the payment processor, so one of the biggest drivers of long-term ISO success is how efficiently and effectively they can sign on a large roster of high-quality merchants. Because unregistered ISOs are severely limited in their ability to grow, they are, in turn, severely limited in their ability to generate large, diverse residuals portfolios. That removal of any potential ceiling on earnings alone is enough to make registration very attractive for a lot of new entrants.  

Pro: Owners Can Eventually Step Away from the Business

Because an unregistered ISO can’t ever farm out merchant acquisition, they’re stuck in the grind of their business for as long as it operates. So, even though residuals will continue to flow as long as their existing merchants keep selling, the second an unregistered ISO stops working, their residuals growth stops dead in its tracks. On the other hand, a registered ISO has the opportunity to both build their own brand and build their business up to the point that it no longer needs them around for day-to-day operations thanks to a small army of independent agents. That makes a registered ISO a true business, capable of eventually freeing its owner, whereas an unregistered ISO is really more of a job. 

While there are certainly two sides to the decision, it’s clear that registration offers some major long-term benefits that generally make the initial friction well worthwhile. Luckily, registration can be done at any time, and newer agents without the time, business history, or capital necessary to register right away can always just learn the ropes as an unregistered ISO and put going big off until registration is more within their grasp.

 

Whether you’re an independent agent content working on your own, a hopeful new registrant, or an established registered ISO, there is no better tool available to you than IRIS CRM. IRIS CRM is the payments industry’s leading customer resource management platform, designed specifically to streamline and enhance merchant acquisition, along with tackling all of the biggest operational problems ISOs face, from convoluted reporting, to time-consuming onboarding, to messy residuals calculations, and beyond. 

To find out more about how this revolutionary software can help you get more from each lead, ink more deals, and supercharge your residuals, schedule your free demonstration of IRIS CRM today.

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