Retail ISO vs Wholesale ISO: What’s the Difference?

Small and micromerchants have always been challenging for merchant acquirers to reach and serve in a cost-effective way. Payment facilitators have emerged in recent years to help fill that gap.

But before payment facilitators existed, acquirers commonly focused on extending their reach to smaller businesses by working with independent sales organizations, known as ISOs.

At its most basic, the ISO model is a reseller relationship. The ISO is an intermediary signing up the merchants for the acquirer’s payment processing services. The contract is typically between the sponsor and the merchant, but the ISO may sometimes be included in a three-party agreement.

All ISOs are not the same, however. Sometimes a distinction is made between what are known as retail ISOs and wholesale ISOs. So, what’s the difference?

Mastercard and Visa rules do not distinguish between or provide any official definitions of wholesale and retail ISOs. All ISOs must follow ISO rules according to the card brands. But what they are allowed to do and what is expected of them can vary by acquirer. At the same time, not all ISOs fit neatly into one category or the other. The terms are used generally to refer to opposite ends of the spectrum.

The term retail ISO refers to the model in its most straightforward form. Retail ISOs recruit merchant customers and forward them on to the acquirer. Retail ISOs do not generally perform underwriting tasks or manage fraud and risk. They can even sometimes be a single individual.

But some acquirers allow their ISOs to perform more functions, and those that do are often known as wholesale ISOs.

Wholesale ISOs are typically providers that are interested in having more control over their own underwriting approvals and processes. They sometimes pay the acquirer for the right to use their BIN (bank identification number), the unique identification number that allows them to process transactions through the card networks.

Wholesale ISOs may have their own frontend onboarding and backend settlement systems. They also typically have their own teams of credit, risk and compliance experts. Taking on these additional roles requires more skill and expertise, as well as technical infrastructure, so wholesale ISOs are typically larger organizations.

While wholesale ISOs may perform many of the operations needed to process transactions, the bank remains ultimately responsible for losses and movement of settlement funds, so oversight from the acquirer remains a critical piece of the puzzle for any ISO relationship.

As the payments industry evolves, wholesale ISOs are becoming less common. Many organizations that are looking for more control over their processes and operations are choosing to become payment facilitators – a model with specific and more defined roles, rules and responsibilities laid out by the card brands – instead.