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When you initially applied for your merchant account or the bank account that enabled you to accept credit and debit cards as payment for your products or services, you may have noticed that there was a credit card processor, ISO, or MSP that was a party in the agreement. Most business owners today are familiar with what a credit card processor is since they provide their customers with the option to pay by credit or debit card. But what exactly is an ISO or an MSP and what roles do they play in your merchant account agreement.
ISO is the abbreviation for Independent Sales Organization and is a term that describes an individual or organization that is not a bank (credit card industry association member). However, they do have an established card relationship with the different member banks. An MSP or Member Service Provider is not a credit card association member but is registered by a credit card corporation (MasterCard, VISA, etc.) and can provide program services to other members. Just remember that ISO’s and MSP’s are not banks.
ISO’s and MSP’s do not handle a merchant’s funds. Only the processing banks that the ISO or MSP has contracted with can do this. If an ISO/MSP is going to be registered by a credit card association, only a processing bank that is a MasterCard and/or VISA member can sponsor them. In most cases, these banks are association members and are registered with MasterCard and VISA associations from the very beginning. Additionally, multiple member banks can sponsor the ISO/MSP.
Sponsorship by a Member Bank
When the ISO/MSP is sponsored by a member bank, they are allowed to market different merchant accounts. The member bank has to verify that the company is financially stable before they will be allowed to do any marketing on their behalf. In order to register with MasterCard and VISA, they have to comply with all regulations regarding the marketing of the product and pay a fee as well.
You can easily check if the ISO/MSP is in compliance by reading their marketing materials or visiting their website. There should be a disclosure stating that the company is a bank registered, FDIC insured ISO/MSP of a particular city and state. This is required by the two major credit card companies and if the disclosure is not visible, the ISO/MSP could be fined up to $25,000. When you are applying for your merchant account, make sure that this disclosure is pointed out to you.