Understanding Players in the Payments Industry

Most businesses know the name of their credit card processor or merchant services provider based on the name listed on their monthly merchant statement. What most businesses do not realize is that majority of the companies selling merchant services are resellers, independent sales agents, or referral agents who act as intermediaries for large payment processors. To get the most out your merchant services relationship, it is helpful to understand the makeup of the payments industry.

According to The Nilson Report,

the top 7 payment providers processed over 90% of the Visa and MasterCard credit and debit sales in 2007.

These large processors dominate the U.S. market through their own sales organizations and a network of resellers, bank partners, and referral relationships with various associations and organizations.

Top 7 Payment Processors in 2007
] Chase Paymentech Solutions
2 First Data Merchant Services
3 BA Merchant Services
4 Elavon
5 Fifth Third Processing Solutions
6 Global Payments
7 Heartland Payment Systems
First, there are somewhere between 1,000 and 2,000 registered resellers in the United States according to The Green Sheet, an industry publication. These resellers are called ISOs (Independent Sales Organizations) or MSPs (Member Service Providers or Merchant Service Providers) and are typically registered with one or more payment processors to sell merchant services under the reseller’s name. For instance, if you type in “credit card processing” in, two of the top five results are and Both of these companies are ISOs for Wells Fargo. ISOs are required to disclose their relationship with the bank that is sponsoring them to sell Visa and MasterCard processing services. So you will typically see, “Intermediary X is a registered ISO/MSP for FDIC insured Bank Y” at bottom of an ISOs website.

ISOs can take on varying degrees of involvement in their merchant services portfolios. Some ISOs perform sales, underwriting, customer service, terminal deployment and support, and manage a degree of liability if the merchant goes out of business. Some ISOs also provide valuable services that may not be found at a large payment processor – such as support in foreign languages and support of a niche Point-of-Sale system or software. Some ISOs, however, are simply customer facing sales offices with all the back-end functions being handled by the sponsoring processor. The strength for most ISOs is selling and servicing small to mid-sized businesses since they have the greatest number of “feet on the street.”

Secondly, there are somewhere around 17,000 banks (banks of all sizes, community banks, credit unions, S&Ls, etc.) in the U.S. Most of the large banks exited the merchant services business over the last 20 years, and simply refer all of their clients to their processing partner. In fact, over 99% of the banks do not manage merchant services internally. They have a referral or resale agreement with a third party. For instance, Citibank and SunTrust refer all of their merchant business to First Data, and Wachovia and KeyBank refer all of their merchant business to Elavon. In return, the banks get a percentage of the payment processing profits. Banks in essence act as exclusive sales distribution arms for large payment processors and are not typically involved in the sales, service, or support of merchant services. In the ISO example above, Wells Fargo has a partner agreement with First Data. So a merchant enrolled with ultimately has his transactions processed by First Data.

Lastly, the large payment processors and large ISOs have relationships with most of the commercial associations in the U.S. For instance, the American Dental Association endorses Chase Paymentech and The National Restaurant Association endorses First Data. When an association endorses a payment processor, the processor gains immediate creditability and typically has the ability to do marketing campaigns to association members (direct mail, trade shows, newsletter advertising, etc.). The value proposition for the association is that they can leverage their buying power and get competitive rates for their members. As importantly, the association gets a percentage of payment revenue generated by its members. Wholesale clubs (BJs, Costco, and Sam’s) fall into this association group. Read our post about wholesale clubs.

These four groups are interlinked but compete with each other very aggressively. Most merchants reading this post probably want to know which group offers the best pricing or best value. Based on our experience and research at Optimized Payments, we have found that large merchants can get more competitive offerings from processors or large banks.  Small to mid-sized merchants can be served well by any of the groups mentioned above. However, every merchant should take the time or find expertise to really understand and compare the pricing and value offered by different providers. Good due diligence upfront could save you tens to hundreds of thousands of dollars per year.

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