AFTER LEARNING ABOUT THE TRANSACTION PROCESSING INDUSTRY, you may decide that you want to become
an independent sales organization yourself. While it certainly is doable, there are a number of considerations to
be made before you start your business.
Many of those considerations can and probably should be addressed in the proposed company's
business plan. A well thought out business plan is critical for ISOs to work with sponsoring banks, processors and
any financial and business partners.
Business plans can run many pages. Beyond the plans themselves, there are additional policies
(i.e., employee compensation) that should be in place - if not when the doors are first opened, then as soon as
practical thereafter. Because these plans and procedures can be very detailed and comprise several pages, the
purpose of this article is not to cover every possible strategic item you will need to consider, but to point out
some of the more important elements and some possible ways to handle them.
Though not written specifically for the ISO, there are several good business planning and
strategy books and courses that provide more in-depth information about developing business plans and procedures.
The following are some of the important factors the fledgling ISO should consider.
Scope of the Business
Figure out what business you want to be in. This is paramount in any business plan. Some railroads
failed because executives thought they were in the railroad business rather than in the transportation business. If
the organization doesn't define its business specifically or broadly enough, it will either try to do more than it
is capable, or will miss out on market opportunities.
An ISO needs to determine if it wants to handle all aspects of the business, just sales and
marketing or some other combination. That's not to say the ISO can't have an expansion plan whereby it starts in
sales and marketing for a year and then moves into other areas the second and subsequent years. But it is important
to have this plan to start with because decisions regarding personnel, contract structures, etc., should all be
tied to the overall business plan.
For example: An ISO starting from scratch, without a book of business from previous endeavors
can't realistically expect to close 100 deals a month right away, though it might not take long to build to this
The ISO also needs to decide if it will work with a processor, such as Nova, or will go directly
for bank sponsorship (with an institution such as Chase) or another sponsoring institution. The Electronic
Transactions Association has a complete list of sponsoring institutions.
When first starting out, unless the ISO has some deep pockets, its unlikely that it will handle
all aspects of the business itself, says Scott Andrew, Vice President of Marketing for Processing Source
International, a company that acquires ISOs for Chase Manhattan Bank. He recommends an agency relationship until
the ISO reaches 50 to 75 deals a month, when the ISO has sufficient size to handle all aspects including sales,
processing, customer support and equipment maintenance. Other ISOs may decide their strength still lies in the
sales and marketing end, so they may stay in those areas exclusively while working with other companies to handle
customer service and equipment maintenance.
If the ISO wants to go beyond strict marketing and sales, it is important that it have staff with
expertise in other areas.
Without marketing, most businesses won't survive for very long. While several different marketing
plans can work, the ISO should consider if it will use direct mail, telemarketing, electronic communications or
some combination thereof. The more comprehensive the marketing plan, the greater the return should be.
Marketing should be seen as an ongoing investment in the business rather than a one-time or
In today's economy, a technology plan is an important part of any business plan. While interactive
Web sites, online communications and e-commerce get plenty of press, what kind of return on investment will these
present for your company? While a certain amount of technology, like a communications system and a computer, are
necessary for just about any business today, there are different prices and functions for these and other
technologies (i.e., scanner, copier, etc.) that may or may not make sense for the business as it starts and grows.
Software and hardware can be very expensive. After deciding whether or not the ISO needs a
particular technology, such as sales tracking and risk management systems, consider the best way to acquire it.
For hardware, a lease may make more sense, at least initially. For software, it may be more effective to hire a
software expert to write applications specifically for your business rather than buying one of the vendor packages,
which often are very expensive and still need additional customization for a particular business.
No matter how much technology is used, people will still be a key part of an ISO's success. So
it's important to consider how you are going to hire, compensate and motivate salespeople and other employees. Some
companies interview as many as 20 salespeople to find one good one, according to Andrew. Some salespeople might do
the job for a couple of weeks, then falter. So it's important to make sure that they stay motivated. It's also
important for the ISO to retain good salespeople once it finds them.
One way of doing this is to tie compensation to performance, basing at least a portion of
compensation on commission. This way the salesperson knows he needs to perform to a certain level to be paid a
By adding bonuses after a certain amount of deals each month, the ISO can help to ensure itself
that salespeople won't work hard for a few weeks, then take it easy. Bonuses can be structured several different
ways, with straight cash, a share of residuals or trips and other prizes all being possibilities. Some companies
specialize in offering bonus trips at very reasonable rates, according to Reese Kimball, Vice President of Sales
and Marketing for Orion Payment Systems, a Houston-based merchant processor that opened its doors a year ago.
Similarly, compensation plans can be built in such a way to give salespeople a portion of ongoing
residuals. A good salesperson can eventually build hundreds to thousands of dollars a month in these residuals,
making it in his vested interest to stay with the company and to continue to build those residuals. So the
salesperson's business grows as the ISO's business grows.
Another way to retain salespeople is providing them with good service, Kimball added. By hiring
salespeople with industry experience, the ISO can sharply reduce its training costs and can get more immediate
results. Hiring experienced, qualified sales representatives also helps garner experienced, qualified business.
That limits the ISO's liability, Kimball said. "Your liability is pretty high out there," Kimball
added. "You're exposed for chargebacks for six months."
As the ISO grows bigger, it can command better deals.
Paperwork, including billing, invoicing, merchant applications, etc., is an area where technology
can be invaluable. While the "paperless" office is a concept that may never be achieved, using templates or
otherwise automating routine paperwork can help the ISO work more efficiently, with fewer errors, than more
traditional, paper-based operations. Of course, this efficiency needs to be balanced against the cost of the
technology needed to achieve it. Additionally, templates may not always work because they don't permit the
flexibility that may be needed.
The stronger the ISO's business, the better deal that it can strike regarding merchant contract
ownership, buy-rates, etc. Beyond merchant contract ownership and buy rates other terms to consider include
responsibility - which party is responsible for doing what.
The more responsibility the ISO takes on, the lower their buy-rate will be. So the ISO should
attempt to build as strong a business as possible in all of the areas above to command the best deal.
Even with all of the planning and experience in the world, the ISO will run into unexpected
challenges. It's important to know that challenges will occur and to face them head-on, Kimball advised.
Below is some of the important information for becoming an ISO.
Registration Costs: Visa, $5,000 for initial registration, $2,500 annual renewal fee; MasterCard, $5000 for
initial registration, $2,500 annual renewal fee.
For either, the sponsoring bank or processor may pick up part of the renewal fee if the ISO's
business is strong enough to warrant it.
Rules, Regulations: MasterCard and Visa require that an ISO and a member bank follow a formal registration
process. ISOs must be registered via the members using their services and both members and their ISOs must abide by
MasterCard and Visa rules and regulations, the scope of which encompasses an entire book, which sponsoring banks
have, but is not made available directly to ISOs.