In acquirer contracts, ISOs often assume risk for acquiring losses. MasterCard, however, ultimately holds the acquiring member responsible for the risks associated with its acquiring program. If, for example, the ISO has insufficient financing to absorb a merchant failure, the member must absorb the loss. MasterCard has therefore established comprehensive rules to ensure that members maintain direct and active control over their acquiring programs when they work with ISOs. Following are key MasterCard rules regarding ISO management.

Registration

   Under MasterCard rules, ISOs are a type of Member Service Provider or MSP. Members must register an MSP with MasterCard before the MSP may provide services to MasterCard members, which may include merchant solicitation or customer service.

ISO Use of Independent Contractors

   MSPs may hire independent contractors (individuals that provide MasterCard services for the MSP), provided that the contractor represents himself as working for the MSP, and receives all compensation for MasterCard services from the MSP. An individual representing him or herself otherwise is considered to be subcontracting, a practice prohibited under MasterCard rules.
    Independent contractors must register as MSPs with MasterCard if they work under their own corporate name or employ more than one individual.

ISO Agreements

   The member and the MSP must have a written agreement that documents their relationship. The agreement must detail, among other things, the member's responsibility for establishing all program policies, the MSP's agreement to comply with all MasterCard rules, termination provisions and protection of MasterCard's trademarks.

Settlement

   Under MasterCard rules, ISOs are not permitted to handle settlement funds.

Program Materials

   The member must approve all acquiring program materials used by its ISO, including merchant applications, merchant agreements, merchant settlements, and marketing materials.

Program Control

   The member must demonstrate active control over its acquiring program, including merchant solicitation, application processing and transaction processing procedures, credit policy, and merchant agreement terms.

Merchant Agreements

   The member must be a party to the merchant agreement, with its name and contact information clearly disclosed. Three-way agreements, among the member, the merchant and the MSP are permitted, but must be reviewed and approved by MasterCard staff (before being used) as part of the registration process.

Merchant Fees

   The member must approve in advance any merchant fees associated with its acquiring program, and must disclose them in writing to the merchant. Additionally, fees must be collected directly by the member.

Penalties

   MasterCard may take several courses of action to enforce rules and policies with regard to the MSP program, including the imposition of fines ranging from $5000 to $50,000, de-registration of the MSP, termination of membership, and legal action.

This is a partial summary of key rules pertaining to Independent Sales Organizations and merchant establishment requirements. Your current or prospective acquirer can provide additional rules, detail, or clarification. An ISO's understanding of relevant MasterCard rules, and its ability to articulate them to its sales representatives, is an important element of a successful ISO-acquirer relationship.