Mark Dunn
January 26, 2023
min read

In a previous blog, I covered the what, why, and how of becoming a wholesale ISO.  As I have had many conversations over the past six months with owners of retail ISOs about this subject, I thought it would be good to review the real benefits of moving up to a wholesale ISO or Full Service Provider (FSP).

What are the benefits that make becoming a wholesale ISO or FSP worth it?

Here’s my list:

  1. Let me start with the issue of limitations.  Business people who invest in becoming a wholesale ISO have reached limits in being a retail ISO.  They are being constrained by the underwriting policies of their retail ISO processor/bank partners.  It’s taking too long to get merchant accounts approved.  The ISO wants more control over the elements that will make them more competitive in the merchant services industry.  And they want to be faster to underwrite, board and get merchants processing.  We position them for greater control and flexibility to achieve their strategic goals.
  2. As I have said many times in my work with ISOs, there are two paydays in the ISO business.  Wholesale ISOs and FSPs have better margins on merchant services processing.  They pay lower fees to third-party processors and sponsor banks.  They are able to sign some moderate-to-higher risk, more profitable accounts.  Of course, it matters how much existing business the ISO is bringing to the deal and whether it can be converted over to the new processing agreement.  The third-party processor will be focused on how many transactions will be processed each month.  The sponsor bank will be concerned with how much dollar volume of processing there is and what the risk profile of the merchants looks like.  But the bottom line here is that the wholesale ISO is in a position to make more money every month – this is the first of the two paydays.
  3. Now for the second payday:  Wholesale ISOs get a bigger buyout offer than retail ISOs when they’re up for sale.  When you sell the entire wholesale ISO, your multiple increases significantly.   Selling a wholesale ISO typically means selling the entire business, not just the merchant portfolio.  Here we’re talking about a multiple of EBITDA (the annual earnings number).  And these multiples go well beyond those of retail ISOs.
  4. Wholesale ISOs get better data and a deeper understanding of where they are making money and why.  They know all components of their costs and have all the data they need.  They are not dependent on third-party processor’s difficult-to-understand profitability reports.  We build their understanding of their business.
  5. Wholesale ISOs can implement more aggressive pricing programs with their own set of controls and guidance.  For example, they can implement cash discount, surcharging, convenience fees, service fees, or other pricing models in coordination with their sponsor bank.  They get more flexibility to be creative in working with market verticals, such as government, healthcare, B2B.
  6. Owners of wholesale ISOs want to set themselves apart in the payments market.  They have a “go-big or go-home” attitude.  They often want to acquire other portfolios and build through acquisitions.  They know this puts them in an elite category and allows them to make better deals in acquiring other portfolios.  We guide them to policies and procedures that will allow them to feel confident about assuming the risk.

I’m often asked how many merchant accounts do you need to have to make becoming a wholesale ISO worthwhile?  It’s not so much a matter of how many accounts, as it is how much are you making from your merchant accounts each month.  Consider that your monthly spend for running a wholesale ISO can easily be $50,000 plus.  How many months of growth and how many new accounts signed will it take you to cover those kinds of expenses?

If you’re a registered retail ISO and you’re doing well, you may want to consider staying there for a while longer.  But if you’re ready to make the move to a registered wholesale ISO, please contact Field Guide Enterprises, LLC.

Why do our clients choose Field Guide to help them through the process?  Experience.  Personal attention.  Flexibility.  More value for the money.

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