Mark Dunn
January 26, 2023
min read

In a previous blog, I covered the what, why, and how of becoming a registered retail ISO.  Now I turn my attention to the details of becoming a registered wholesale ISO.  You need to have a firm idea of the requirements and benefits to move on this opportunity.

Let me say at the outset, you’re going to need experience selling merchant services in order to qualify as a wholesale ISO.  Ideally, you will want to be a registered retail ISO for some time – a few years is recommended – before making the move.  Also, you need to be able to check several boxes before it makes sense.

Here’s what you should be able to affirm:

Box 1 – You have the resources and are ready to invest the time, money, and effort it takes to run a million-dollar business.  You may end up spending half a million to a million dollars during the ramp-up and first year.  We know of several well-organized, experienced companies that have done it for less.

Box 2 – You have experienced guidance.  You’ve hired a consultant who makes it their business to make sure you know what you’re getting into and who will get you started correctly.  Also, you will need experienced operations and underwriting staff – they are paid well for making your ISO work.

Box 3 – You are willing to take the risk.  You will be signing up many merchants processing hundreds of thousands of dollars a month and you will be on the hook for any losses or fines.  It’s important that you have great guidance on risk issues.

Box 4 – You are not easily frustrated by significant compliance requirements, policies, and procedures.  Some new wholesale ISOs take a year before they sign their first merchant.  There are many hoops to jump through upfront and ongoing.  We have helped ISOs cut the time it takes to get started.

Box 5 – You should be developing the sales engine with the pipeline of new accounts to make your investment get to break-even quicker.

Box 6 – You have reached limitations on your registered retail ISO that make it reasonable to seek more control over the process of getting merchants approved, boarded, priced correctly, processing and profitable for you.  You need wider latitude in the types of merchants you can sign.

Let’s assume you have checked all the boxes.   What’s next?

I have an extensive checklist of actions to get your registered wholesale ISO up and running.  Rather than go through all of these, I’ll sum up:

  • Get your business plan, sales plan, and proforma together.
  • Put your sales, operations, and customer support teams in place.
  • Get an agreement in place with a sponsor bank whose risk policy matches your approach to signing merchants.  Apply for card brand registration and pay fees.
  • Sign a processing agreement with a third-party processor.
  • Make certain all required policies, procedures, and plans are in place for sales, operations, customer service, etc., and all staff is trained.  Compliance programs must also be in place and followed.  Operations software, tools, and IT infrastructure must be acquired and installed.  Using a valid QSA company, complete all PCI-DSS requirements to become certified or in the process to become compliant.
  • Fund reserves, get final sponsor bank approval, run some first live accounts to check that everything is working correctly and begin.

Once again, this process typically takes 12 months or more.  With our help, most of our clients move faster than that.

Why do our clients choose us to guide them through the process?  What are the benefits that make becoming a wholesale ISO worth it?

Here’s my list:

  1. Let me start with Box 6 above.  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.  We position them for greater control and flexibility to achieve their strategic goals.
  2. 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.   We build their ROI.
  3. Wholesale ISOs 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.  We negotiate for them.
  4. They 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. They can implement more aggressive programs with their own set of controls and guidance.  For example, they can implement cash discounts, surcharging, convenience fees, or other pricing models in coordination with their sponsor bank.  With our program, they get more flexibility.
  6. They want to set themselves apart in the payments market.  They have a go big or go home attitude.  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 $50-100,000.  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.

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