The Green Sheet Online Edition

April 4, 2025 • 25:04:01

Legal ease

ISO international expansion - Flying the coop and winning legally

By Adam Atlas

– Attorney at Law

Once you have built a successful U.S. domestic ISO business, you might get the itch to enter foreign markets. The process can seem overwhelming from a legal perspective, but it’s not as hard as it seems. The purpose of this column is to identify a few legal threads that are relevant to an international expansion.

1. Acquiring rules the world

   It turns out the concepts such as the card issuer, acquirer, processor, payment facilitator and even ISO are written into network rules and replicated throughout the world. There are of course distinctions and exceptions, but at a high level, the key players are roughly the same.

   Looking specifically at acquiring, it’s noteworthy that in many non-U.S. jurisdictions, like Europe and (as of recently) Canada, the networks allow non-bank acquirers to process card transactions for merchants. In the United States a typical ISO agreement has three parties, the acquiring bank (for example, Wells Fargo), the acquiring processor (for example, Fiserv) and the ISO.

   In Europe, the bank isn’t necessary if the processor has itself become an actual acquirer. That process involves wrangling with the networks as well as local government regulators that mandate licensing, registration and many other requirements for acquirers. A typical U.S. ISO expanding to Europe or the UK won’t become an acquirer. Instead, it is likely to contract with an acquirer under an ISO agreement that is not altogether different from a U.S. ISO agreement.

   Note that portability (the right to move merchants to another acquirer on termination or perhaps before) is a new concept for European acquirers, so be prepared to fight for it.

   In Europe and Canada there are laws that give more rights to merchants to terminate their merchant agreements and take their business elsewhere. The effect is merchants are somewhat more empowered vis-à-vis ISOs.

2. Incorporation

   It usually costs only about $3,000 to incorporate a new company in Canada, Ireland (a good country from which to access the EU), the UK or continental Europe. Assuming you are not taking possession of funds or becoming an actual acquirer, the capital requirements will be nominal. Budget for annual corporate maintenance fees and annual tax filing fees, all of which could be about $3,000 per year.

3. Licensing

   Assuming you are not going to take possession of funds or become an actual acquirer, the most likely outcome is that a new ISO in Europe, the UK or Canada will not need any government licensing or registration (like money transmitters need).

   In Europe a handful of payments activities could render a business a payment institution, an electronic money institution or other form of government-regulated entity. It’s best to avoid that status, as it comes with significant cost and time, meaning $150,000 and two years of time.

   Similarly, in Canada taking possession of customer funds and other regulated payments activities requires registrations and licensing costing a similar amount and taking about six months.

4. Banking

   Believe it or not, the European banking market is more competitive than the U.S. market and offers new businesses a greater selection of banks ready to serve a new business. It shouldn’t be difficult to obtain regular commercial banking in Europe.

   In the United States, some banks will not bank ISOs because the banks sometimes confuse them with licensed money services businesses. European banks are less skittish.

   In Canada, there is little competition in banking, and banking is notoriously difficult to get. Canadian banks act as if they need to be convinced to bank you. Realistically, you will need a local business, processor or professional to walk you into a bank and help avoid the application going off the rails.

   The reason for the lack of competition in Canadian banking is that the banking industry has not been deregulated. On the bright side, Canadian bank stocks pay great dividends.

5. Contracting with an acquirer

   Before negotiating with a foreign acquirer, get to know the local pricing reality. For example, in Canada, debit payments run on a separate debit network, called Interac. Debit processing is sometimes offered separately from credit processing and is priced quite differently from credit. Also, surcharging rules differ from one region to another.

   Once you know the pricing landscape, you are ready to negotiate the business terms of the ISO deal. ISOs will find familiar negotiation points in ISO agreements overseas including: residual survival, non-solicitation, exclusivity, confidentiality, control of pricing and limitations of liability.

   As I mentioned above, outside of the United States, portability of merchants is a new concept and needs to be negotiated. Also, Europe, the UK and Canada all have stricter rules on non-public personal information.

   As a result, ISOs should add to their ISO agreements an undertaking by the acquirer to fetch the merchant’s consent to share merchant information with the ISO. My firm acted on behalf of a UK ISO that didn’t have the right to see merchant information on its own portfolio of merchants.

6. Culture

   Think of the difference between a sales call in Manhattan, New York versus a sales call in Des Moines, Iowa. That stark cultural difference offers a great window into how different sales cultures are in other countries. It’s a good idea to connect with local salespeople to learn about local cultural features.

   In one case, a New York ISO client of ours was doing telemarketing to merchants in Canada. The New York salespeople – using techniques that make sense in New York – resulted in Canadian merchants calling the local police to complain of harassment. It’s against the law to sell into the Province of Quebec in Canada without using French (although President Trump recently ruled that to be an illegal non-tariff trade barrier).

   Overcoming cultural and linguistic barriers is a challenge, but with open mindedness and local talent, it’s a walk in the park.

Naturally, any foreign ISO setup would not be complete without local legal advice. There are payments lawyers all over the world. When you expand overseas, don’t forget to take time to enjoy the local food and beverages, too. Cheers!

In publishing The Green Sheet,neither the author nor the publisher are engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. For further information on this article, please contact Adam Atlas, Attorney at Law email: , Tel. 514-842-0886.

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