To the average person, ISO is the acronym used by the International Organization for Standards. To photographers, it describes the light sensitivity of a digital camera or a piece of film. But to banks and merchants it means something very different. In banking and payments, ISO stands for independent sales organization – a type of merchant services company that acts as an intermediary and matches merchants with the payment processing services they need. 

Even within the payments industry, ISOs and the role they play are often misunderstood. To provide some clarity, the following is a brief primer on what ISOs do, how they interact with larger payments players like processors and banks, and why they’re so critical to keeping the payments industry running smoothly. 


What an ISO Does in the Payments Space

Independent sales organizations – known as merchant service providers or MSPs by Mastercard – do primarily what their name suggests: sell. They are the players in the payments industry primarily responsible for finding and recruiting merchants to sign up for new payment processing services. 

In exchange for that work, ISOs earn a cut on the transaction fees each merchant generates. Those commissions – known in the industry as residuals – are owned and earned for the lifetime of a merchant’s processing, enabling large ISOs to generate potentially huge portfolios composed of mostly passive income. 

Aside from finding and closing new merchants, independent sales organizations often take on a variety of additional tasks. Many provide ongoing support for the merchants they recruit, effectively acting as the frontline provider for all customer-facing contacts, while the processing itself happens in the background. Wholesale ISOs take responsibility for performing due diligence on new merchants, earning a larger residual in exchange for taking on greater risk. 


How an ISO Interacts with Processors and Banks

Independent sales organizations sell payment processing, but they can’t actually provide it directly themselves. While there are a lot of roles ISOs handle in the payments space, they don’t provide any processing infrastructure, nor do they ever handle any of their merchants’ money directly. Those tasks are handled by the ISO’s partners – either payment processors or acquiring banks. 

Acquiring banks are the financial institutions that actually issue merchant accounts and accept funds on behalf of sellers. Payment processors are companies that provide the digital plumbing through which transaction processing flows. ISOs can either work directly with an acquiring bank or partner with a payment processor that acts as an intermediary between the ISO and the bank. But, in all cases, in order for an ISO to sell processing services, they must be in some way affiliated with an acquiring bank whose merchant accounts they can resell. 

Establishing those partnerships is no small feat, and is the primary barrier to entry for new ISOs. In addition to finding banking partners willing to work with them, ISOs also have to go through an arduous registration process with the major credit card associations before they can start selling merchant services. Registration can take months, involves extreme due diligence, and requires new ISOs to pay an initial fee of $10,000 to both Visa and Mastercard. 

One final type of company worth mentioning is “unregistered ISOs.” Unregistered ISO is just another term for an independent sales agent. Because they haven’t gone through the registration process, independent agents can only work on behalf of a registered ISO or acquirer. These agents are generally the payments specialists making direct contact with merchants, and, like ISOs, they earn a small slice – or split – of the transaction fees generated by each merchant they sign. However, while they perform important work for ISOs and are sometimes loosely referred to as ISOs themselves, independent agents are purely front-line sales professionals and don’t have any direct relationship with the card associations. 


Why Acquiring Banks Depend on ISOs so Much

Between the difficulty and cost of the registration process and the complexity of adding additional intermediaries to payment processing, it might seem like ISOs are more trouble than they’re worth. But, ISOs are a critical cog in the payments ecosystem that acquiring banks and payment processors depend heavily on for two reasons. First, ISOs enable a small number of processors and banking institutions to reach a large number of merchants, and, second, additional layers between a merchant and the bank help spread out risk. 

Help Acquirers Reach Further

Payment processing is complex, and the ability to specialize helps everyone in the industry operate more efficiently and serve merchants better. While there are millions of merchants around the globe in need of credit card processing, there are a relatively small number of acquiring banks and processors by comparison. That imbalance makes serving millions of merchants directly impractical at best, and likely impossible. By acting as a buffer, ISOs remove the burden of direct interaction with merchants from the companies handling the technology and money on the back end, helping the entire space run smoothly.  

Help Spread Out Risk

In the case of wholesale ISOs, the additional layer of due diligence and assessment helps mitigate risk in two ways. First, having a second set of eyes performing underwriting helps ensure more red flags will be caught, and risky merchants can be either rejected or correctly priced. Second, the wholesale ISO performing underwriting takes on responsibility for part of the liability in cases where something goes wrong. That helps redirect some of the risk away from the acquiring bank and insulates them to a certain extent from financial losses related to fraud. 



ISOs play an indispensable role in the payments industry, but their job isn’t easy. Oversaturation, tight competition, and highly substitutable products mean that ISOs looking to grow and thrive need to find ways to work smarter, do more with less, and outcompete potentially much larger rivals. IRIS CRM – the payments industry’s leading CRM system is designed specifically to help ISOs of all sizes accomplish each of those goals. 

IRIS CRM offers ISOs and payment facilitators a complete suite of sales, productivity, and management tools designed around the unique, industry-specific challenges they face on a daily basis. It takes the high-value sales and customer development features CRMs are known for and ups the value available to ISOs with features like lightning-fast merchant onboarding, automated residuals calculations, underwriting integration, and beyond. 

To find out more about everything IRIS CRM can do for your ISO or PayFac, schedule a free guided demonstration of the platform today.