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This article appears in the April 9, 2009, edition of ISO&Agent Weekly.
Compensation packages acquirers and processors offer to ISOs and agents vary, which can make comparing prices and revenue challenging when choosing business partners. The lack of industry compensation standards requires ISOs to perform due diligence before entering into contracts to ensure they understand the agreements and are receiving fair compensation, according to industry insiders.
Pricing grids purposefully are complicated to make "shopping around" for better prices difficult, says Adam Atlas, a Montreal-based attorney with Adam Atlas Attorney at Law. "If you shop around to five different processors, you will get five different pricing grids," Atlas says.
To adequately compare rates and evaluate potential business partners, ISOs and agents should understand the aspects to look for in compensation packages and how to evaluate the agreements.
"There's no way to say what's an average" compensation agreement, agrees Curt Hensley, president of CSH Consulting Inc., a Phoenix-based executive-recruitment firm. Packages typically vary based on the types of merchants the ISO or agent targets and on the experience level required for the job and for the agent, he says.
Revenue Reconnaissance
ISOs and agents always should determine what their potential revenue may be within a specific provider's pricing grid before entering into an agreement, advise industry insiders.
ISOs should "take any pricing grid they're being given and analyze it against the typical kind of merchant they are going to sell to," says Atlas. Crunching the numbers themselves, and not relying on the provider to estimate earnings, gives ISOs an understanding of what their revenue will be with a potential contract, he says. "If you don't understand pricing, the chances you'll be taken for a ride are higher," says Atlas.
"You have to look not only at the price but at what you have left at the end of the month when you get your residual check and take out costs," says Joe Natoli, senior executive vice president of ISO sales with Louisville, Ky.-based National Processing Co.
During the turbulent economy, ISOs also should question potential business partners' financial stability, says Aaron Slominski, director of business development with Direct Technology Innovations, a Fort Lauderdale, Fla.-based ISO. "You have to feel comfortable with the people writing the checks," he says.
"It is important to ask questions," agrees Natoli, adding many ISOs are looking for stability in their business partners. ISOs and agents are asking different questions today than they were a year ago" because of the difficult economic environment, he says.
Negotiating Terms
Acquirers and processors rarely set their compensation agreements in stone, and ISOs and agents should negotiate contracts to ensure they fit both companies' business models, agree industry insiders.
"It's like anything—if you don't ask, you won't know," says Jill Miller, attorney and counselor with Jaffe Raitt Heuer & Weiss, a Southfield, Mich.-based law firm. "I find the processors are easy to work with, and they want to be fair."
Direct Technology Innovations uses a standard agreement for the foundation of a discussion, says Slominski. Contract points, such as the revenue split and whether there will be an acquisition bonus, are negotiable, he says. "Our contract is a two-way street," says Slominski.
North American Bancard bases negotiations on the "level of commitment" an agent is willing to make to the company, says Gary Rutledge, chief operating officer of the Troy, Mich.-based ISO and processor. North American Bancard makes "commitments to its sales partners," he says. "But we also want them to make a commitment to us" regarding how much business they are willing to bring in to the company.
Not all ISOs and agents, however, have the same levels of negotiating power, says Miller.
"A new ISO coming into the industry with no proven record, no sales experience and no grasp of the industry, that particular ISO wouldn't have a lot of negotiating power," Miller says. An ISO with a sales force and industry experience has greater negotiating leverage, she says.
For a novice agent targeting small merchants, a compensation package could be commission only or a 50/50 revenue split, says Hensley. With a few years of experience, an agent could earn a commission on top of a $30,000 or $40,000 base salary, he says.
As ISOs and agents gain more experience, they can renegotiate to gain better terms, says Hensley.
Comparing and attaining fair compensation packages in an industry without standard pricing grids can be challenging. However, by understanding the types of provisions included in compensation agreements, researching potential business partners and engaging in contract negotiations, ISOs and agents can reach profitable agreements with acquirers and processors.
