Merchant Accounts 101

To the best of our knowledge, we are the only gym management software provider who is not an ISO (independent sales organization), or in layman’s terms middle man for merchant services. Furthermore, we don’t have any kickback arrangements with ISO’s or merchant service providers. The normal course of business for a gym billing provider is to either be an ISO (broker) or have a working relationship with one or more ISO’s for opening and processing payment card transactions.

The merchant processing industry has developed its own language for common things such as brokers or middlemen who take a percentage every time you swipe or process a recurring charge on a credit card. While there’s nothing we can do about the nature of the credit card processing industry, we can at least shed a little light on who the interested parties are and who gets a percentage of every charge.

1. The merchant – that’s you! You’re the one with the customers who are paying you by credit card and you will be capturing sales. Capturing sales simply means that you’re swiping credit cards and or collecting recurring payments for your customers’ membership subscriptions.

2. Typically the next rung up the ladder is the company that sold you a merchant account. Generally speaking (but not always) the company that sold you a merchant account is what’s called an Independent Sales Organization (or ISO). The ISO’s primary job is selling merchant accounts. Although the ISO has little to do with the actual financial transaction, they are usually the face of your merchant account – meaning that for customer service issues you’re calling into your ISO’s office. ISO’s make their money by marking up the percentages and fees charged for your merchant account (meaning that they take a percentage of your transaction).

   Depending on which vendor you choose for your membership and billing software, you will likely encounter two flavors:

   a. The software vendor is also an Independent Sales Organization (ISO).

   b. The software vendor who has partnered with an Independent Sales Organization

   From our observation, both of the two mentioned arrangements are common. With option (b), the ISO will be providing a kickback to the software vendor generally meaning that you’re paying an even higher percentage than you would if you were working with a software vendor who is also an ISO.

3. Next up is the merchant processor. These are the companies that have formed relationships with the credit card associations that you’re familiar with like Visa, MasterCard, and American Express. They provide a technology platform for authorizing credit card transactions. What that simply means is that when you swipe a credit card, the merchant processor tells you whether or not the credit card and the transaction amount are valid (the customer has money on their card or in their bank account). The merchant processor also makes their money by marking up the percentages and fees charged for your merchant account (they take a percentage of your transaction). Working directly with a merchant processor will usually get you the best possible rates for merchant card processing (because you’re not going through any brokers). However, because merchant processors don’t do much direct solicitation for new merchant accounts you’re far more likely to end up dealing with an ISO (unless you know better).
4. After the merchant processor, you have the actual card associations like Visa, MasterCard, and American Express. The card associations set base rates for credit card and debit card transactions (the percentages that you pay). Everyone else in line marks up the percentages set by the card associations to make a profit. It is not possible to process Visa transactions directly with Visa – you must use a merchant processor (#3) to process your credit card and debit card transactions.
5. Finally, there’s you. We technically left out the banks who also get a cut of the transaction for providing the actual service of moving money from one place to another. Suffice it to say, after the software provider, the ISO, the merchant provider, the card organization, and the bank have all taken a cut, you get whatever is left over!

What sets us apart from our competitors is the fact that we are neither an ISO nor do we have any kickback relationships with ISO’s. In fact, if you call us and ask us where to get a merchant account, we will simply make introductions directly to top-tier merchant processors like First Data, TSYS, and Elavon (to name just a handful). When you work directly with a merchant processor you cut out several layers of middlemen, all of whom are taking percentages of your transactions.

Because we don’t have a dog in the fight either way, we always try to work with whomever you’re already processing your transactions with (typically an ISO). We won’t ever try to get you to switch merchant providers or open a new merchant account. We try to keep things as easy and seamless as possible.