Glossary: ISO, PayFac, and Merchant Processing Terms

Glossary: ISO, PayFac, and Merchant Processing Terms

Understanding the terminology is crucial in the payments industry. Here’s a quick-reference glossary of the most important concepts.

🔑 Core Terms

• ISO: Independent Sales Organization – sells merchant accounts and earns monthly residuals.
• PayFac: Payment Facilitator – allows sub-merchants to process under a shared master account (like Stripe or Square).
• Merchant Portfolio: A group of merchants generating residual income for an ISO.
• Residuals: The recurring revenue from a merchant’s credit card processing.

📈 Valuation-Related

• Churn Rate: % of merchants lost over time. Lower is better.
• Statement Access: Visibility into merchant performance – critical for diligence.
• Earnout: A payout structure tied to future portfolio performance.

💸 Fee Terms

• Interchange: The base rate charged by Visa/MasterCard.
• Basis Points: 1/100th of a percent, used in pricing residual splits.
• Buy Rate: What you pay the processor.
• Sell Rate: What you charge the merchant.

🧠 Bonus Acronyms

• VAR: Value Added Reseller – adds software or POS on top of payment services.
• NMI: A popular white-labeled gateway.
• ACH: Bank-to-bank payments outside of card rails.

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