ISOs and independent sales agents are two of the most important players in the merchant services industry, helping match individual merchants of all sizes with the right payment processing for their needs. But, the payments space is complex, which can lead to questions about not just the role ISOs and sales agents play in merchant services, but also what benefits each offers to the people inside the industry, doing the job. To help add some clarity, the following is a quick breakdown of what ISOs and agents are, how they differ, and the factors that go into deciding which is a better fit for professionals selling merchant services. 


How Payment Processing Services Get from a Bank to a Merchant

When a merchant decides to start accepting credit and debit cards, where do its payment processing services actually come from? The answer isn’t necessarily simple, as the payments industry is built in layers, with each level of service provider adding something unique and valuable to the overall process. 

First, a merchant’s actual bank account that funds flow into, known as a “merchant account,” is provided by an acquiring bank – a bank affiliated with the major credit card brands and approved to accept funds from transactions on behalf of merchants. But very few merchants actually go right to a bank for their payment processing. 

In most cases, acquiring banks hire out the work of actually dealing with merchants in one of two ways:

  1. The acquiring bank partners with a payment processor – a company specializing in providing the plumbing that electronic payments flow through. The payment processor then contracts sales and support to an independent sales organization, or ISO. 
  2. The bank contracts out its merchant sales and support activities to an ISO directly.

In both cases, the job of actually finding, recruiting, and serving end merchants almost always falls to an ISO and the independent sales agents working for the ISO.  In essence, the value chain has three levels:

Level One: Acquiring Bank – Merchant Account Specialist

Level Two: Payment Processor – Payments Tech and Logistics Specialist

Level Three: Independent Sales Organization – Merchant Sales and Support Specialist

Most merchants will never deal with level one or two of the value chain because there is no need for them to. Leaving the direct merchant relationship to the ISOs and agents on the third level simplifies everything. Segmenting the space and allowing each player to do only what they do best makes payment processing efficient and maximizes the quality of the end merchant’s experience. 


What is an ISO?

Clearly, ISOs have an important role to play in the payments ecosystem. But, what exactly is an ISO? The simplest answer is that an independent sales organization is a company that resells payment processing to merchants on behalf of a processor or acquiring bank. They’re the front line of merchant services. 

ISOs make their money on commissions – known in the industry as residuals. Residuals are tiny slices of the fees charged to merchants on each transaction they process – often as little as a fraction of one percent. Luckily for ISOs, those tiny commissions add up fast across hundreds or even thousands of merchants, each performing hundreds of transactions per day. They’re also owned by the ISO for the lifetime of the merchant’s processing, meaning even smaller ISOs can generate enormous residuals portfolios over the course of decades. 

But an ISO isn’t just an ISO. This is payments, so things have to be at least a little more complicated than that. Different types of ISOs exist, each performing the same big-picture role, but in slightly different ways. 

Retail ISOs are companies that are pure intermediaries. They find and recruit merchants, pass those merchants on to their processing partners, and are hands-off from there on out. While retail ISOs may continue to engage in ongoing support activities, they have no role whatsoever in a merchant’s approval, the processing going on behind the scenes, or the financial risks involved. 

Wholesale ISOs are larger independent sales organizations that take on some or all responsibility for underwriting – the process of vetting potential merchants to determine their risk profile and whether they’re worth working with. Wholesale ISOs earn a bigger slice of the pie, but their extra duties also add extra costs, complexity, and, most importantly, extra risk, since a wholesale ISO is ultimately responsible for any fraud or losses caused by bad merchants it let slip through the cracks.

Registered ISOs are independent sales agents that have gone through the registration process with the major credit card brands – generally Visa and Mastercard at a minimum. All medium-sized and large ISOs are registered, and, while registration is a difficult and expensive process, it offers some major benefits, like the ability to earn more, the ability to subcontract work, and the ability for an ISO to operate under its own brand.  


What is an Independent Sales Agent?

If there are registered ISOs, there must be unregistered ones as well, right? Yes and no. “Unregistered ISO” really just refers to independent sales agents – the individual sales professionals that work on behalf of registered ISOs to find, recruit, and close new merchants. 

Independent sales agents make money the exact same way as the registered ISOs they work with  – residuals earned on the transactions processed by the merchants they recruit. The agent’s share – known as their “split” – is either negotiated with the ISO, or preset in cases where the agent is joining a structured program. Like ISOs, an agent’s residuals are earned and owned for the lifetime of the processing relationship with each merchant they bring in. 

The biggest difference between a sales agent and an ISO is how each goes about finding merchants and generating those residuals. While a registered ISO can hire as many independent sales agents as it wants, independent agents are not allowed to subcontract or hire anyone to work for them. They also can’t operate under their own names or brands; they must sell under the name of the registered ISO they’re working for. 


What is a Payment Facilitator?

Payment facilitators, or PayFacs for short, are a newer type of merchant services model that falls somewhere between a traditional ISO and a payment processor. Like ISOs, payment facilitators resell merchant services. Like ISOs, PayFacs also earn commissions on the transactions they process. They can also hire independent agents to help them land business. But, unlike ISOs, PayFacs don’t just pass merchants on to one of their processing partners. Instead, PayFacs bring on their clients as sub-merchants, processing transactions under the PayFacs’s own master merchant account. 

The unique relationship PayFacs have with their merchants exposes them to more risk than your average ISO – even more than most wholesale ISOs – but, in return, PayFacs gain a lot of control over how they price and who they work with. 

The PayFac model is also very attractive to independent software vendors. ISVs are companies that make some type of software product that integrates a payments solution and whose users are sellers of some type. Examples might include website-building tools or specialized business management software. Whereas in the past, the end user would have to find payment processing services from a third party, today, more and more ISVs are opting to become PayFacs in order to offer more vertically integrated solutions and provide those necessary payment services to customers themselves. 


Is it Better to be a Registered ISO or an Independent Sales Agent?

While almost all new entrants to the space will start as independent agents by necessity, there is no requirement to eventually register as a full-fledged ISO, and many agents opt to stay unregistered even as their portfolios and networks grow larger and larger. The question of whether it’s better to become a registered ISO or remain an independent agent really comes down to balancing the rewards of registration against the additional risks and responsibilities it carries. 


The most obvious benefit to registering is the potential to earn significantly more. Because an independent sales agent can’t hire help, they can only handle as many merchants as they can individually serve. That puts a significant limit on potential earnings. The lifetime nature of residuals still enables sales agents to build healthy portfolios that earn them well into the six-figures every year, but registered ISOs have the potential to build portfolios that earn six figures or more every month. The only way to unlock that potential is to register and, ideally, eventually become a wholesale ISO. 


On the other side of earnings are costs. Not only does running a registered or wholesale ISO cost significantly more than operating as an independent agent, just becoming registered is extremely expensive. The registration process – which can last months and almost always requires lawyers or consultants to be retained – requires potential ISOs to lay out $10,000 per card brand they register with. And since offering both Visa and Mastercard is the minimum, new registered ISOs can expect to lay out at least $20,000 upfront just to get their paperwork processed. Add to that the costs of spinning up a company, hiring agents, leasing space, and all the other expenses involved, and becoming a registered ISO represents a journey that many independent sales agents decide just isn’t worth it. 


The volume of business a potential registered ISO can do is a big factor playing into whether registration is worthwhile. Because of the significant costs mentioned above, new registered ISOs don’t really have time for growing pains, and need to be able to hit the ground running and start building a large roster of new merchants and a large volume of transactions as quickly as possible. Seasoned independent agents with deep sales experience in the space and a large network of contacts might have no issue with that, whereas newer entrants may find that they just can’t produce that kind of volume. Registration is only worthwhile if an agent expects to be able to generate significantly more business than they already are. Without that additional volume materializing quickly, registration just adds complexity with no real benefit. 

Long-Term Value:

An important question for anyone in the payments space to ask themselves is what they plan to do when it’s time to exit the space. Because residuals keep coming in as long as merchants keep processing, entire portfolios can be sold, often for a significant multiple of monthly earnings. But how many months of earnings a portfolio is worth depends on a number of factors. A small, less established portfolio might only be worth a few months’ earnings, while a large, diversified portfolio with low turnover might be worth 40x earnings or more. Registration greatly increases the likelihood that an ISOs portfolio will be strong and well-established when it comes time to sell, and that long-term value should factor into the decision to register or remain independent.  





IRIS CRM is the payments industry’s leading customer resource management system. Designed specifically to meet the unique needs of the payments space, it offers ISOs, PayFacs, and independent sales agents all the tools they need to get more from their leads, streamline the sales process, close more deals, and serve merchants better. In short, IRIS CRM maximizes residuals and portfolio value while minimizing the time it takes to do effectively everything involved in selling payment processing. 

To find out more about how customer resource management software can help your company work smarter, save time, and boost your monthly residuals, schedule a free guided demonstration of IRIS CRM today.