Requirements for Merchant Processing Services Providers

Merchant processing services providers allow for-profit and non-commercial institutions to take credit cards, debit cards, checks and other methods of payment online, over the phone or in person. Whatever the card acceptance circumstances, a credit card processing service is needed to facilitate the process.

How Do you Become a Merchant Processing Services Provider

In order for an company to become a merchant processing services provider, it first has to be licensed by the Credit Card Associations of Visa and MasterCard. The registration process involves an examination of the credit files of both the applicant organization and its owners, a review of the business and marketing plans of the applicant. If the application is approved, the applicants are charges registration fees currently at $5,000 for each Association.

Why Don't Banks Do That

Well, actually some banks do offer merchant merchant processing services directly to the end clients. They are all members of MasterCard and Visa and can do that. However, they prefer contracting with third parties and focusing instead on what they do best: moving money around. By outsourcing the job, the bank assumes the role of a sponsor of the third party entity throughout the application process with the Associations.

>Merchant processing services providers are known in the industry as Independent Sales Organizations (ISOs) when they are registered by Visa and as Member Service Providers (MSPs) when they are registered by MasterCard. Typically, businesses apply at the same time for the two licenses, using the same sponsor bank.

ISO / MSP Relationship with the Processing Bank

Upon approval of the application, the sponsor bank becomes a "processing bank" for the newly fledged ISO / MSP. That means that the bank processes the sales and credit transactions generated by the merchants, signed up by its merchant processing services provider. Moreover, the processor is also responsible for the funding of the transaction amounts to the merchant, once it has subtracted its own processing fees as well as the interchange fees charged by the issuers of the cards. At the same time the processing bank sends a payment request, through the Associations, to the card issuer.

ISOs and MSPs are mandated to prominently identify the name of their processing bank (or banks in some cases) on all of their marketing materials, including all website pages. ISOs / MSPs typically display this statement in the footer of their websites, which makes it clearly visible from all pages.

Once registered, merchant processing services providers can contract with their own sales agents to look for merchants. These sales agents can only promote themselves as representatives of their ISO / MSP.