Pricing is a top consideration for independent sales organizations when choosing processor and acquiring-bank partners, and many ISOs are not satisfied with their current relationships, according to a recent report from Aite Group LLC.

“Margins are thinning. ISOs are no longer making what they used to make,” Adil Moussa, Aite analyst and the report’s author, tells PaymentsSource. As the margins shrink, ISOs are trying to renegotiate their vendor contracts to “stop that thinning,” he says.

Acquiring banks should realize pricing will make or break a deal with an ISO, and processors should price fairly while continuing to invest in technology to attract ISOs, Moussa notes in the report “Inside the World of ISO Vendors.”

Aite surveyed 27 U.S.-based ISOs between July and October for the report. The surveyed ISOs processed roughly 18% of the total U.S. processing volume in 2009, according to the report.

Most participating ISOs, 92%, said financial considerations are most important when choosing a bank partner. Ninety-two percent of respondents also rated price as the lead factor they consider when choosing a processor, according to the report.

The focus on pricing among ISO respondents indicates a healthy supply of payment services is available but not enough demand for it, says Moussa. Additionally, it indicates the acquiring banks and processors largely deliver solid platforms and reliable services.

“People are not worried about wanting someone who is always reliable because reliability has become so good it is not a concern,” so the focus instead is on lower prices, Moussa says.

Additionally, 79% of respondents rated a bank’s reputation and stability as important, 38% preferred banks that do not have merchant-acquiring programs, 25% chose banks that have strong commercial-banking operations, and 8% placed importance on whether the bank is local, according to the report.

For their processing relationships, most respondents, 92%, also rated reputation and system flexibility as lead factors they consider when choosing processors. Additionally, 87% of ISOs chose financial stability and dedicated support staff as most important, 83% chose product range, 79% chose technical support and technology offered, 75% chose portfolio portability and security features, 66% chose legal ramifications, and 63% chose best practices in sales.

Forty-six percent of survey respondents were “not at all satisfied” to “somewhat satisfied” with their sponsor banks, while 54% were “satisfied” to “very satisfied,” according to the report.

One-half of respondents, 50%, were “not at all satisfied” to “neutral” regarding their front-end processor relationships, while 50% were “very satisfied” to “extremely satisfied.” Forty-two percent of surveyed ISOs were “not at all satisfied” to neutral about their back-end processors, while 58% were “very satisfied” to “extremely satisfied.”

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