📘 Glossary: Credit Card Processing, ISO, and PayFac Terms

This glossary defines the key terms, acronyms, and structures you need to understand the world of merchant processing, ISO portfolios, and PayFacs.

🔑 Core Industry Terms

• ISO (Independent Sales Organization): A company or individual authorized to sell merchant accounts and earn residuals. Core to our business — ISOs build and sell merchant portfolios.
• Merchant Portfolio: A group of merchants actively processing payments under an ISO. This is the asset being bought/sold.
• Residuals: The monthly recurring income ISOs earn from their merchants. Typically valued at 3x–6x TTM cash flow.
• PayFac (Payment Facilitator): A company that lets sub-merchants process payments via a shared master account (e.g. Stripe, Square).
• Processor / Acquirer: Companies like Fiserv, TSYS, or Elavon that actually move the money and manage risk.
• Gateway: A tech layer (like NMI or Authorize.net) that passes payment data securely to the processor.
• MID (Merchant ID): Unique ID for each merchant. Portfolios are composed of MIDs.

💸 Payments, Pricing & Profit

• VAR (Value Added Reseller): A tech + payments reseller offering POS or SaaS systems bundled with processing.
• Interchange: Base fee paid to issuing banks (Visa/MC). Not negotiable, but marked up by processors.
• Basis Points (bps): 1/100th of a percent. Used in pricing (e.g. 50 bps = 0.50%).
• Buy Rate: What the ISO pays to the processor (e.g. 1.5%).
• Sell Rate: What the merchant is charged (e.g. 2.25%). Residuals = sell – buy × volume.
• Split / Agent Split: % of residuals shared with sub-agents or junior ISOs.

📈 Portfolio Valuation Factors

• Statement Access: Ability to see monthly merchant activity. Critical for diligence.
• Churn / Attrition Rate: % of merchants that stop processing. Lower = higher portfolio value.
• Merchant Reserve: Funds held to cover chargebacks. Can affect cash flow or valuations.
• PCI Compliance: Required security standards. Often bundled as a monthly fee = more residuals.
• Contract Assignability: Whether the ISO’s merchants can be transferred to a new buyer.

🔌 Tech & Infrastructure

• SaaS + Payments: Software companies that embed payments. Often use white-label PayFac models.
• NMI: A popular gateway platform used by ISOs for white-labeled payment experiences.
• ACH (Automated Clearing House): A non-card payment system (bank-to-bank). Often bundled with card services.

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