Merchant: An organization, such as your business, which sells a product or service and accepts customer payment via credit card. For the ability to accept credit cards as payment, merchants pay between two and four percent of the total cost of the sale when all the costs are considered.
Credit Card Association or Company: There are just five major credit card programs: Visa, MasterCard, American Express (a.k.a. Amex), Discover and Diners Club. Visa and MasterCard are actually associations whose members are banks who, through membership, gain access to the card program and thereby issue credit cards of the Visa or MasterCard type. American Express, Discover and Diners Club are companies (not associations) and they issue their own credit cards (i.e. they’re not issued by banks). However, Amex has recently begun offering a program to banks … so you may begin seeing Amex Cards issued by a bank.
Merchant Processor: When you, as a business (i.e. merchant), sign a merchant service agreement, you enter into the agreement with a merchant service processor. The processor is the company who analyzes the information captured from the customer credit card, checks the validity of the card account, issues approval or denial of the requested transaction, processes the transaction, collects from the credit card holder’s bank, deposits the money in the merchant’s account, assesses and distributes the appropriate fees, and issues a monthly statement to the merchant. Once a transaction is approved, the processor bears the payment risk. There are only a few processors and they are very large companies including First Data, Global Payments, Vital and Paymentech.
Independent Sales Organization (ISO): Processors often utilize independent representatives to acquire merchant accounts. Large organizations that gather merchant accounts for processors are referred to as independent sales organizations (ISO) or merchant level sales organization (MLSOs). ISOs may in turn hire independent sales reps referred to individually as merchant level salesmen (MLS). The difference between a MLS and a MLSO is the former is usually a one-man organization and the latter is made up of many MLSs. ISOs and MLSs make money through application fees and set-up fees (when the agreement is signed), equipment sales and leases, and through residuals generated by transactions run on the merchant account established through the efforts of the ISO.
This article originally appeared in The Business Owner Journal, the periodical of choice for owners of small and midsize private businesses. All rights reserved, D.L. Perkins LLC. © 2012.
This publication is intended to provide general information on the subject matters covered. It is sold and distributed with the understanding that neither the publisher nor any distributor or advertiser is engaged in providing legal, tax, insurance, investment or other professional advice. The advice of a qualified professional should be sought before any reader applies a concept presented herein to his or her particular situation or business.
D.L. Perkins, LLC is solely responsible for this content.
