Banks vs. ISOs: Comparing Merchant Account Providers

Merchant Account Providers (MAP's) fall into two broad categories:

• Banks
• ISO (Independent Sales Organizations)

So who should you get your merchant account from? Ahhh... there's the million dollar question!

Let's answer by asking another question:

Which are you a bigger fan of: Star Wars or Star Trek? (stay with me here!)

Picture in your mind how starchy clean and rules oriented the Star Trek universe is (think Prime Directive). And then picture how open and rough-and-tumble-gritty the Star Wars universe is.

Can't picture it? Not a sci-fi geek like me? Oh well. I'm betting you get the point: Banks and ISOs operate quite differently.

Banks

Banks are the trekkies of the merchant account providers universe.

Banks love rules. Unlike ISOs, they operate in a highly structured and highly regulated environment. And let's face it, many people are simply more comfortable with this, "although it must be admitted," saith Mr. Spock, "that the appearance of stability does not ensure that it exists."

Because they are the more regulated merchant account providers, banks tend to have much stricter, and more complicated, merchant account applications and application requirements.

Don't even think of showing up at a bank without your articles of incorporation, business plan, and financial statements.

ISOs

ISO merchant account providers are definitely Star Wars folks. They're an awful lot more laid back.

As they are not as highly regulated as banks, ISOs are much more likely to accepting higher-risk businesses. In addition, many also offer associated services, especially to online businesses, such as shopping cart capabilities.

And while they may not be as familiar as the bank down the street, ISOs tend to have much simpler, and less invasive applications. Many of them allow you to apply for free and waive their start-up fees.

Because they vary in quality, as well as services and packages, you will need to be willing to shop around and price ISOs. If you are not willing to do this, I suggest you seriously consider using a bank if you can. Banks typically have higher fees, but are also more consistently reliable.

So, with those thoughts in mind, there's only one thing left to do...

Pick your poison...

The first step is to look into local banks. If you have an established relationship with a local bank, especially, sit down and apply for a merchant account through them.

Generally, the application is low-cost or no-cost. And if it is a reputable service, it does not lock you into anything. So there is no reason not to look into it. For all the price advantages of ISOs, at the end of the day, it's nice to know you have a person you can talk to instead of an 800 number to call.

That said, you should also apply with several ISOs. Each merchant account provider will have different packages, each will assess risk differently, and each, therefore, offers the possibility of being the most affordable merchant account for your business.

... and as always

Choose carefully.

Make sure you have all the fees thoroughly explained to you. Many providers will lower their fees in one area only to inflate them in another (see the article on Rates and Fees).

So be picky! Some merchant account providers are seedier than a Tatooine cantina (sorry, couldn't resist).

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