An ISO fee is a charge imposed by an Independent Sales Organization (ISO) on businesses for setting them up and maintaining their ability to accept credit and debit card payments.
Understanding ISO Fees in Payment Processing
When a business wants to start accepting credit card payments, they typically work with a payment processor or an Independent Sales Organization (ISO) that partners with acquiring banks. The ISO acts as an intermediary, facilitating the relationship between the business and the banks that authorize and settle transactions.
According to arrangements made with the business, an ISO earns income not only from commissions on processed transactions (often called residuals) but also by charging specific fees directly to the merchant. They charge a percentage of each transaction or a monthly service fee, depending on the arrangement.
Types of ISO Fees Based on Arrangement
The structure of ISO fees can vary significantly based on the agreement between the merchant and the ISO. Common types include:
- Percentage-Based Fees: A charge calculated as a small percentage of the total transaction volume processed. This fee is added to other processing costs for each sale.
- Monthly Service Fees: A fixed fee charged regardless of the transaction volume. This fee helps cover administrative costs and ongoing support provided by the ISO.
- Other Potential Fees: Depending on the ISO and the service package, other fees might be included, such as account maintenance fees, statement fees, or gateway access fees, though the core ISO charge is often structured as a percentage or monthly fee as described in the reference.
These fees are distinct from the interchange fees set by card networks (like Visa and Mastercard) and assessments charged by those networks. The ISO fee is essentially part of the markup the ISO adds for its services.
Practical Examples
Imagine a business processing \$10,000 in credit card sales in a month.
- If the ISO charges a percentage fee: The fee might be, for example, 0.10% of the total volume, resulting in a \$10 ISO fee for that month.
- If the ISO charges a monthly service fee: The fee might be a flat \$15 per month, regardless of volume.
Often, the merchant agreement will specify which structure is used, or sometimes a combination of both might apply, depending on the specific contract negotiated with the ISO. Understanding the ISO fee structure is crucial for businesses to accurately calculate their total cost of accepting card payments.
