The weak economy, decreased transaction volumes and margin compression in the payments industry are increasing the importance of up-front revenue streams for independent sales organizations and their sales agents instead of revenue purely from residuals, industry insiders say.
Residuals are a portion of the transaction fee that represents revenue for the ISO and sales agent. Agents typically begin receiving residual income from an account after a merchant with which they have signed a contract begins processing card transactions.
With up-front revenue streams, agents may receive a bonus or a portion of anticipated transaction revenue when they initially sign a merchant contract. Up-front revenue also can come from agents selling certain products, such as terminal leases or cash advances.
Some agents struggle because it can be “three months down the road” from when the merchant signs the contract to when an agent begins receiving residual income, says Joyce Cook, president and CEO of International CyberTrans, a Brentwood, Tenn.-based merchant-service provider. It also can take an agent a long time to build a steady stream of residual-based income from multiple contracts, she notes.
“The economy and same-store sales are down; therefore, commissions are down. Revenue is down,” says Cook.
Margin compression is affecting how ISOs pay their agents and the portion of residuals they give them, agrees Michael A. Peters, senior vice president of independent sales services at Dallas, Texas-based TransFirst LLC. Because of this, some agents “are looking to up-front money and less emphasis on back-end residual money,” he says.
Few agents can survive solely on residual income, says Peters. There are roughly “100 to 200 agents in business that can survive on their residual streams and don’t need up-front money,” he says.
International CyberTrans launched an up-front bonus program for its agents roughly six months ago, says Cook. Agents receive an up-front bonus when they sign a merchant based on the anticipated monthly revenue from the client. “If we anticipate they will earn monthly revenue of $100,” the agent will receive 50% of the amount, $50 in this example, up front and will receive the remaining portion after 90 days, she says.
If the monthly revenue only reaches $75, the agent only will receive $25 after 90 days. “We adjust the remaining balance due based on actual revenue,” says Cook.
