The Experience ISOs Need
At Global Legal, our complex litigation specialists are dedicated to providing expert help to our clients, and we’ve represented independent sales organizations (ISOs), credit card companies, agents, processors, and more in the world of commercial litigation. Each of our attorneys is a graduate of an accredited law school, and expertises range from security lawyers to insurance company lawyers.
Our practice areas cover all of business law including electronic payments, securities law, mergers and acquisitions, commercial collections, MATCH and TMF list issues, and much more. Our San Diego-based team helps small businesses and large corporations alike all across the United States, so when you think of business lawyers, think of us.
One of the main services we provide is assisting merchants with joining an ISO. An independent sales organization also called a member service provider (MSP), is a third-party company that’s contracted by a credit card member bank to establish new merchant relationships. This often involves helping them open new merchant accounts with the bank, and some merchants will even seek them out. The independent sales organization will then explain the terms and rates of the merchant account before signing each new merchant up.
Our law firm can help your organization become an independent sales organization and guide you through the benefits and help you reduce risks.
How do you register as an ISO?
In order to become a registered member service provider (MSP), you’ll need to register with credit card brands like Visa and MasterCard or find a large financial instrument to work for via referral. Registration may not be the best route for small business owners, since the process can be time-consuming and expensive. Small businesses may wish to operate as an unregistered entity, essentially making them resellers.
In order to go the registration route, you’ll need to find a processor you wish to resell for. Knowledgeable entrepreneurs will likely know several in their type of business. You’ll want to do your due diligence and research processors with good reputations who are known for paying their ISOs. An ISO attorney or financial advisor can help you with this.
The next step is the application process, which can take up to six months and comes with a $10,000 fee for the first year of registration and a $5,000 fee for subsequent years. Business owners should make sure the processor will be a good fit for them every step of the way, and it never hurts to have a business lawyer on your side from the start to make sure you’re being treated fairly.
Associated Risks
No business opportunity is without risk, and as a consultant and representative, you take on risks every time you connect with a new merchant. Independent sales organizations don’t operate under the same business law or best practices as actual banks.
Member service providers can either charge a high flat fee to process a merchant or accept a percentage of overall sales. Sometimes, merchants agree to this because an ISO is their only choice. When you sign on a new merchant, you assume liability and risk with all the services you provide. A business attorney can help you research potential partners, and they can advise you on the best way to move forward.
Of course, another huge risk ISOs take on is the fact that they may not be able to pay residuals to sales agents. The most common reason for this is if a merchant you signed on goes out of business, and you’re left holding the bag with multiple chargebacks and other merchant losses. Naturally, not paying salespeople is a breach of contract that can lead to disciplinary action, not to mention legal action and lawsuits.
Our legal services can help with these legal matters in order to protect your organization. We may even be able to help you pursue collections for the losses you incurred.
Minimizing Risks
Naturally, the best way to reduce the risk of serious issues is to, as previously discussed, follow a strict due diligence process of researching all potential partners. You’ll also need to consider your underwriting process as an MSP.
MSPs invite merchants into a community, and they all depend on you for survival. You put everyone at risk if you don’t have a thorough underwriting process to vet merchants that you take on. Naturally, this process also needs to be through to eliminate troublesome tax implications. It’s also worth considering that if you take on a dishonest merchant, you put everyone at risk for FTC legal issues. In the long run, having the right business attorney from the start helps you avoid negligence and other legal issues, and the trouble it saves is more than worth the initial attorney’s fees.
Benefits of Registering as an ISO
The primary benefit of registering as an independent sales organization is the money you stand to make from your sub-agents if your business is large enough to hire them. This is why registration isn’t generally considered the best route for small businesses, but if your company has expanded, you may find that the profits outweigh the costs of registering. Of course, becoming an ISO is also a great way to market your name and brand to even more people.
Industry driven, relationship-focused.
Our law firm can assist you with any legal questions you may have about any of the above, and our experienced business lawyers will fight for you both inside and outside of a courtroom. Use our contact form to schedule a free consultation.
