In December, MerchantPortfolios.com, a Boston-based brokerage company, launched a Web site for buyers and sellers of merchant portfolios.
At the time, Mark Dunn, president of FieldGuide Enterprises LLC, questioned whether the industry needed an intermediary for such transactions.
Now, apparently, he believes it does. On March 24, Dunn and his Hartland, Wis.-based consultancy unveiled a Web site, SellYourResidual.com, for buyers and sellers of residuals.
"What's changed since then is I am aware of the fact that there are many more buyers in the market right now who are looking for residual streams," Dunn tells ISO&Agent Weekly.
Residuals are monthly payments agents receive, typically from credit and debit card processing, but they also come from such products as gift cards and ATM programs.
Merchant acquirers might sell their residuals to generate cash to expand the business, to use for other business purposes or for personal reasons, such as retirement or to pay for a major expense.
"What I do through SellYourResidual.com is provide a quick, free connection to buyers," Dunn says. "I have a select group of buyers I work with–people I have come to know and trust who buy residual streams." Dunn declined to identify the buyers.
The service is free to independent sales organizations and agents selling all or part of their portfolios, says Dunn, who receives a fee from buyers. Dunn says one of the more-significant facets of his service is its nonexclusivity.
"If someone wants to come to me at SellYourResidual.com and get a quote [on their portfolio], they can go through that process, and I don't ask them to not shop that portfolio or residual stream to anyone else," he says, noting some companies offering a similar service require that they serve as the exclusive agents for the portfolios.
"It really came down to the fact that I had people who wanted me to find sellers," Dunn says. "I also felt I could provide a service to sellers. I wanted to do it in the context of providing a service and not like an auction site, for example."
Additional Resources
Dunn's service has potential as a resource for agents dealing with a complicated process, says Moses Heredia, president of Global Processing Systems, a San Dimas, Calif.-based ISO.
"I would definitely encourage agents to take a look at it because it would answer a lot of questions," says Heredia. "Any educational resources the agents have out there, more power to them." He notes that his agents have approached him with questions about selling residuals.
"I love my agents, but it takes a long time [to explain it] to them," Heredia says. "If there is another resource, I can tell them to check it out. It's a great tool."
Because of the intricacies of the deal, "it pays to get some help in understanding the offer and what it entails and being able to ask questions," says Dunn. "I provide that service free to the seller. The seller needs to understand what the offer is, and the buyer needs to understand what they're [potentially acquiring]."
But Internet brokerage sites provide more than additional marketplaces–they provide access to a greater number of possible buyers.
"What MerchantPortfolios.com and SellYourResidual.com have done is bring the brokerage online so that a potentially wider audience can access it," says David Fish, senior analyst with Waltham, Mass.-based Mercator Advisory Group.
"Portfolio brokers might be useful to those ISOs who lack the operational scope to manage portfolio buyouts in-house or to agents who want to buy their way into an expanded merchant base," says Fish.
Why Sell The Farm?
Agents can achieve business goals more quickly by selling their residual streams, observers say.
Perhaps an agent is "working out of his house and eventually he wants to get an office or get registered directly with a bank and he doesn't have the resources," says Michael Segura, owner of Group ISO, an Irvine, Calif.-based ISO.
"We're in the residual business," Segura says. "We should be trying to get more residuals, not get rid of them. But sometimes you have to take one step backward to take two steps forward."
Adil Moussa, analyst for Boston-based consultancy Aite Group, says merchant acquiring is cyclical. After a while, agents notice their portfolios fail to bring in as much in residuals as they once did.
"If I am a smaller ISO, I have to go back to those accounts and sell them ancillary products, and a lot of these ISOs don't," Moussa says. "There is only so much value they can extract from those merchants." An agent may decide to sell the residuals and begin seeking new accounts, he adds.
With more buyers, sellers will get better prices for their residuals, right? Moussa says not necessarily.
"Each deal is different," Moussa says. Every merchant category carries a different level of risk.
The portfolio of a travel agent, for example, generates little interest among potential buyers because that industry carries high risk.
"If your portfolio is made up of nice, healthy retailers and they process a [sizable] amount without a lot of charge-backs, you will get more for that portfolio," Moussa says.
