The payments industry is fairly complex, and even experienced merchants with years of experience in the game often don’t understand the inner workings of how a payment gets from a customer’s card to their bank account, or what each player in the process contributes to the whole. Independent sales organizations (ISOs) are particularly poorly understood, which is a problem because they’re often a merchant’s first (and sometimes only) point of contact in the payments ecosystem. With that in mind, this article will explain both the basics of how a credit card payment gets from point A to point B, and, most importantly, how ISOs add real value to that process. 


A Quick Primer on How a Credit Card Transaction Works

The first thing to understand is that the endpoints of all card transactions are banks. The “issuing bank” is the bank that gave the customer their credit card, and the “acquiring bank” is the bank that issued the seller their merchant account. These banks are all part of one or more credit card associations that enable them to work with the major players like Visa, Mastercard, American Express, and so on. 

But issuing and acquiring banks don’t communicate with each other directly. When a customer makes a credit card transaction, the online payment gateway or in-store terminal instead sends the transaction data through a third-party payment processor responsible for that merchant. The processor then sends all the key data like the card information and transaction details to the issuing bank, who verifies that everything is on the up and up and the funds are available. An approval or denial is then sent back to the payment processor and passed on to the website or terminal, resulting in – hopefully – an extremely satisfying beep and a happy customer. 

The day’s transactions are then processed together in a batch, and the funds are sent off to the merchant’s acquiring bank, completing the transaction. 


Where ISOs Fit Into the Picture

The payment processors act as intermediaries between issuing and acquiring banks because it simply wouldn’t be possible for the banks to deal with every single merchant on their own. First of all, there are way too many, and second, each merchant represents a potential risk. Banks reduce the work required and risk involved by spreading both out among various payment processing partners, who take on some of the infrastructure, the merchant services themselves, and some of the risk in exchange for a piece of the pie. 

ISOs, in turn, are the next level down on the pyramid. ISOs provide more or less the exact same utility to payment processors (or larger ISOs) that the processors provide to the banks. Rather than one payment processor – say TSYS, for example – trying to go out and serve the entire market on their own, they partner with ISOs who sell their services for them. 

The ISO recruits new merchants on behalf of TSYS (or any other processor they’re partnering with), handles most of the customer service and support, and, in some cases, even some of the underwriting responsibility. In exchange, TSYS shares a percentage of their commission with the ISO. So, effectively, ISOs act as a middleman for the middleman – an additional go-between providing support to the payment processors. 


Why Would a Merchant Choose to Partner with an ISO?

It might stand to reason that each new layer of middleman receiving a slice of the pie would drive up costs, so why would a merchant ever choose to work with an ISO instead of dealing directly with a payment processor? 

First and foremost, it isn’t always cheaper to deal directly with a processor than going through an ISO, and it isn’t even always possible. But there are two major benefits to working with an ISO that make it a worthwhile pursuit: service quality and options. 

Because ISOs work with a smaller number of merchants than the payment processors they represent, merchants can expect more personalized service from the smaller company. And because ISOs generally partner with a wide variety of payment processors, a merchant going through an ISO can be paired with the right processor for their needs (and the most competitive rate), rather than just being stuck with whatever a single processor has to offer. That ability to add value to the system on both the merchant and processor ends make ISOs an important part of the payment processing ecosystem.


Certain ISOs also offer value-added services that merchants can access, like advanced transaction reporting and analytics. For instance, ISOs that use IRIS CRM, the payment industry’s leading CRM platform, can offer their merchants one-stop access to a huge wealth of important business and transaction data through the CRM’s built-in merchant portal and reporting suite. 

To find out more about how IRIS CRM can bring additional value to payment processing for both merchants and ISOs alike, check out the IRIS CRM features page or reach out to a member of the team today!