Independent Sales Organization

An ISO does not process payments itself it partners with one or more acquiring banks or payment processors, then resells their services to merchants under its own brand, pricing structure, and commercial terms. In exchange, the ISO earns a share of the interchange and processing fees generated by the merchants it brings to the network.

How Does an ISO Work?

An ISO establishes a formal partnership with an acquiring bank or payment processor known as the sponsoring bank which authorizes it to solicit merchants, sign them up for payment acceptance, and manage the ongoing commercial relationship on the acquirer's behalf.

Once a merchant is signed, their transactions are processed through the sponsoring bank's infrastructure. The ISO handles the merchant-facing side of the relationship sales, onboarding, customer support, and account management while the acquiring bank handles the regulated financial and processing functions behind the scenes.

The ISO earns revenue through the spread between the rates charged to merchants and the rates paid to the acquiring bank, plus any additional fees it structures into its merchant agreements.

ISO vs. Payment Facilitator

Both ISOs and PayFacs serve as intermediaries between merchants and the acquiring banking system, but they operate under fundamentally different models.

An ISO signs merchants up for their own individual merchant accounts with the sponsoring bank. Each merchant goes through the acquiring bank's full underwriting process and holds a direct contractual relationship with the bank the ISO is the commercial intermediary, not the financial one. Settlement goes directly from the acquiring bank to the merchant.

A PayFac onboards merchants as sub-merchants under its own master merchant account. The PayFac is the financial intermediary merchants do not hold individual acquiring bank relationships, and settlement flows through the PayFac before reaching the merchant.

The ISO model offers merchants more direct control and typically better rates at higher volumes. The PayFac model offers faster onboarding and a more seamless experience, particularly for lower-volume merchants and platform-embedded payment use cases.

Types of ISOs

Full ISOs have a direct contractual relationship with the acquiring bank and take on significant compliance and risk responsibilities in exchange for higher revenue shares and greater commercial flexibility.

Sub-ISOs (or retail ISOs) operate under a full ISO rather than directly with an acquiring bank. They benefit from the full ISO's infrastructure and sponsoring bank relationship, in exchange for a smaller share of the revenue generated by their merchants.

Value-added ISOs differentiate by bundling payment processing with additional services POS hardware, business software, loyalty tools, or vertical-specific solutions creating a stickier merchant relationship that goes beyond the commodity of payment acceptance alone.

The ISO's Role in Merchant Onboarding

When an ISO signs a new merchant, the merchant still goes through the acquiring bank's underwriting process including KYB verification, business documentation, and risk assessment. The ISO facilitates this process and often provides the initial screening, but the acquiring bank retains final approval authority over whether the merchant account is granted.

This underwriting step is what distinguishes the ISO model from the PayFac model. Under a PayFac, the PayFac itself conducts onboarding and assumes the risk. Under an ISO, the acquiring bank conducts or approves the underwriting and assumes the merchant-level risk directly.