Finding the right partner has long been one of the most challenging aspects of the payments business for ISOs and sales agents. ISOs tend to look for agents who can be immediate, prolific revenue producers, and agents seek ISO partners who treat them fairly and provide healthy margins and reliable residual payments.
For ISOs, the biggest issues include finding agents who share their ambitions and financial expectations. Some ISOs depend on agent partnerships and sub-ISO relationships for much of their revenue.
Payment Alliance International, which places ATMs and provides other services, has about 30,000 merchant accounts. Agents account for about two-thirds of the company’s business, says Don Apgar, the Louisville, Ky.-based ISO’s senior vice president of national sales.
The ISO uses a cautiously open-minded approach to bringing new agents into the fold. “The only hard requirement that we have for partners is we do a credit check and a background check on everyone that comes through the door,” says Apgar, who advises other ISOs do the same.
ISOs do not need a team of detectives and intelligence analysts to conduct background checks. Background reports from online services cost from $20 to $50, according to a Google search by ISO&Agent.
Beyond the background check, Payment Alliance does not place too many requirements on agents. The ISO does not require a minimum number of monthly deals, and in some instances it offers an activation bonus.
“The one thing you need to do as an ISO before you agree to work together is ask yourself if your company is a good fit with that agent,” Apgar says. “Ultimately, if I can’t give you as an agent the tools you need to meet your objective, then neither of us is going to be happy.”
In some cases, an agent’s experience can almost determine whether an ISO and agent will be a good fit.
Indeed, some ISOs hunt for only the most experienced agents, while others try out agents with little or no bankcard experience, says Mike McCormack, president of Palma Advisors, a Fort Lauderdale, Fla.-based consulting firm.
Experienced agents might be found through word of mouth and industry-focused advertising, while ISOs looking for new talent might trying posting jobs on Craigslist or Monster.com, he says.
Experienced agents typically hit the ground running, but less experienced agents can come with their own advantages, insiders say.
The ISO can play a stronger hand in developing a new recruit’s deal-closing abilities, and it can bring agents on at contract terms favorable to the ISO. “You will need a lot of simplification to the point where they are basically selling happy meals,” McCormack says.
Alpine Payment Systems works with a mix of agents with various levels of experience, says Bob Ensminger, president of the Vancouver, Wash.-based ISO that focuses heavily on pay-at-the-table systems. “We have 50 active agents across the U.S. that do 80% of the merchant accounts for us,” he says. “We also have hundreds of part-time agents.”
Agents new to Alpine get three to four days of classroom training in Vancouver. Once their training is complete, they work with a manager for a short introductory period, and Alpine assigns them a mentor. Alpine also provides the new agents a $3,000 guarantee on their first month representing the ISO, Ensminger says.
An agent looking to establish a new ISO relationship should look into the ISO’s reputation through Internet searches and by asking others familiar with the company, McCormack says. In interviews, they should discuss financial terms–buy rates, revenue splits and residuals, he says.
No standard contract exists between an ISO and agent that contains varying lengths and financial terms throughout the industry. However, Adam Atlas, a Montreal-based attorney working in the payments sector, says key considerations tend to be consistent from one contract to the next.
One of those issues is pricing. “There are two considerations there–the buy rate and the revenue split,” Atlas says. “The buy rate is when an ISO says to an agent, ‘You can sell processing at, for example, 1.6% (above the ISO’s price), and whatever you get above that is your profit to keep.”
The other issue is the revenue split. ISOs might agree to a 50-50 split with the agent, though the split can change depending on the effectiveness and reputation of the agent.
“We set up deals that meet the needs of the agent,” Apgar says. “We give the best guys a better revenue share.”
At the core of concerns for the agent is how the ISO calculates the figures for buy rates and revenue splits.
“You need to figure out how the ISO computes their buy rate and their net revenue,” McCormack advises agents. “There is no single definition in this industry for what net revenue is, so that makes it very hard.”
A hefty revenue share may look favorable to the agent, but the percentage itself does not tell the whole story, Atlas and McCormack both warn.
“If the revenue split is going to be 50%, it’s important for the agent to find out, 50% of what?” says Atlas. “The superstar agent can get high percentages, but you have to think about what goes into that.”
For example, the percentage may not account for security fees or IRS fees, among other possible add-ons, Atlas says. “The processor or the ISO can put whatever charges they want in there, so it’s important to find out what fees apply,” Atlas says.
Similarly, buy-rate calculations may involve extenuating factors, McCormack says. “As an agent, you can negotiate a good commission for yourself and the buy rate might seem manageable, but what if that buy rate is actually too high for you to sign merchants? If it’s too high, the buy rate can destroy your margins. The devil is in the details,” he says.
Negotiating financial terms is another instance in which an agent’s background can become a key factor in establishing relationships.
“A lot about the revenue split depends on the experience of the agent,” says Alpine’s Ensminger. “We are fairly open-minded about it if they have a lot of restaurant merchant experience.”
Moreover, “an experienced agent may have some negotiating leverage on the buy rate because ultimately the agent knows the ISO must compete for their business,” consultant McCormack adds.
