Merchant Account Provider Requirements
In order for an organization, whether for-profit or not-for-profit, to be able to accept credit and debit cards, it needs a merchant account. Providers of this service enable organizations to accept cards in a card-present or in a card-not-present environment, using various software and hardware solutions. Merchant accounts cannot be set up for individuals, sole proprietors and their "Doing Business As" (DBA) names need to be registered.
Every entity that wants to become a provider of merchant account services must first be authorized by the Credit Card Networks of Visa and MasterCard. The authorization process includes a thorough examination of the credit histories of both the business and of its principals, a review of the applicant's business and marketing plans and the payment of the registration fees which are $5,000 for each Credit Card Network. Although banks, that are members of Visa and MasterCard, can and do provide merchant account services, more often they outsource this responsibility to third parties. By doing so, they become sponsors of these third parties in their applications with the Credit Card Networks. Merchant account providers are known as Independent Sales Organizations ISO) when they are registered with Visa and as Member Service Providers (MSP) when they are registered with MasterCard. Businesses apply for both registrations at the same time, through their sponsor bank.
Upon approval of the application, the sponsor bank becomes an acquiring bank for the new ISO/MSP. What this means is that it acquires the sales receipts that the merchants, using its merchant account services, generate and it is then responsible for paying the merchant the transaction amounts, minus its processing costs and the interchange fees. In the mean time the merchant processing bank submits a payment request, through Visa or MasterCard, to the bank that issued the card used in the particular transaction. ISOs and MSPs are obligated to display the name(s) of their acquiring bank(s) on every page of their website and other promotional materials. Usually this sign is placed in the footer of the website. Every year the ISO/MSP registration is reviewed and, upon renewal, a registration renewal fee is charged, in the amount of $2,500 per Credit Card Network.
Upon registration ISOs and MSPs can sign up sales agents to source merchants for them. The sales agents, however, cannot advertise themselves as providers of payment processing services. They are only authorized to represent the ISO/MSP and must identify themselves as agents to these companies. Visa and MasterCard are very strict in enforcing this requirement and violators can be fined a very substantial fee.