MerchantPro Express Blog

Selling Merchant Services in the Wild West ISO Universe

Posted by on Nov 30, 2016 11:00:00 AM

Merchant Services Agent Agreement

How Good is Your Agent Agreement?

If you’re a merchant services sales agent, you generally love what you do. You love the transactional nature of your business. You love the freedom that comes with the job. You love the savings and consultative value you can add to your merchant customers. And, of course, you love the recurring revenue.

However, you probably don’t know about the hazards that could be buried inside your current agent agreement. The only way to spot these hidden dangers is to be aware of these items that independent sales organizations (ISOs) don’t want you to know.

Here are three questions to ask when reviewing your merchant services sales agent agreement:

 

1. What is your buy rate (aka “Schedule A”)?

Many ISOs boast about the massive percentage of revenue they give agents for boarding merchants with them. But many of those same ISOs also deliberately mislead agents about what they’re offering agents a percentage of. A 90% split might sound better than 70%, but it’s not necessarily better. In fact, it’s often much worse.

All ISOs have a cost—or buy rate—that processors charge ISOs for boarding merchant accounts on the processors’ platform. Not all buy rates are equal—typically, larger and more established ISOs are able to negotiate lower buy rates than smaller and less proven ones. So some ISOs give agents—in their Schedule A to their agent agreement—a percentage split of all revenue above the ISO’s actual buy rate. Others give agents a Schedule A that reflects a higher buy rate than the ISO is paying the processor, often resulting in lower commissions paid to the agents.

Because many agents are only concerned with the percentage split they receive, and either don’t understand or are unaware of varying buy rates, they end up getting paid less.

Here’s an example: Imagine 2 ISOs have the same buy rate with their processor.

  • ISO A’s Schedule A reflects their actual buy rate, and ISO A pays its agents a 70/30 split.
  • ISO B’s Schedule A reflects a marked up or padded buy rate, and ISO B pays its agents a 90/10 split.

Categories

ISO A

ISO B

Merchant Processed Volume

$1,000,000

$1,000,000

Number of Transactions

10,000

10,000

Number of Merchants

20

20

Buy Rate - Monthly Fees Per Merchant

$20

$30

Buy Rate - Volume/Fee on Processed Volume

.01%

.10%

Buy Rate - Per Transaction Fee

$.05

$.10

Portfolio Margin on Processed Volume

.50%

.50%

Portfolio Margin per Transaction

$.10

$.10

Portfolio Monthly Fees Charged per Merchant per Month

$30

$30

Total Revenue Generated By Portfolio Less Buy Rate

$5,600

$4,000

Revenue Commission Split

70%

90%

Total Commission to Agent

$3,920

$3,600

 

You need to find out, at a minimum, the key costs you need to overcome before the ISO starts considering your merchant accounts profitable and giving you your agreed-upon percentage split.

  • Volume/BIN Fee: Typically a small percentage of all volume processed. Can range from 0.00% to 0.10%.
  • Per Transaction/Authorization Fee: Can range from $.03 to $.10.
  • Monthly Fees: Statement fees, customer service fees, IRS regulatory fees, PCI compliance fees (all of them count!). Can range from $7.50 to $30.00.

In addition, many ISOs require agents to include hefty Early Termination Fees (ETFs), upfront Application Fees, terminal leases, and other fees that turn merchants off and don’t add materially to an Agent’s compensation.

Finally, some ISOs retain the right to increase merchants’ rates or upsell them equipment or services without your consent, all of which could cause your merchants to seek another provider.

You should ask about all of these items of any ISO you intend to board one or more merchants with.

 

2. Are your lifetime residuals really for life?

It is fashionable for ISOs to declare that they offer lifetime residuals for their merchant services sales agents. But upon closer inspection, some ISOs reduce agents’ percentage split unless they maintain aggressive monthly productivity standards. So while an agent might be getting paid for life on merchant accounts, they get paid less over time as their productivity falls. Don't get completely discouraged, though, because some ISOs will pay you residuals at your agreed-upon percentage split for as long as your merchants are processing with them, whether you submit 1 or 1,001 merchant accounts.

Find out if your ISO is offering you the same percentage split for life no matter how many merchants you board.

 

3. What happens if your ISO sells its portfolio?

Merchant services agents often neglect to ask this critical question, and the cost can be severe if you’re looking for your residual income to be a significant part of your retirement plan. Be sure to look for a provision in your agent agreement that assures that a sale of your ISO’s portfolio to a third party will either keep your agent agreement in tact or pay you out at a multiple comparable with the one the selling ISO receives for its portfolio. In the absence of such a provision, your residual income could suddenly evaporate the day your ISO sells.

 

As you already know, merchant services can be a fun, dynamic, and wealth-creating industry. However, given the lack of regulation that exists, ISOs have a lot of latitude and incentive to induce agents to board deals with them without compensating and protecting them fairly. Read your agreement, and don’t forget to ask yourself—and the ISO recruiting you—these key questions.

Looking for a merchant services sales job? Find out more about the opportunities we offer.

Topics: Agents

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