Agents should use their negotiation skills to angle for the best possible deals from ISOs on splits, commissions, fees, expenses and benefits, observers say.
Some ISOs lure agents with promises of 80%, 90% or even 100% of the profits, but companies offer those splits to attract salespeople who can generate their own leads so they don’t have to devote time and effort to providing referrals.
Because the splits come with caveats, merchant-level salespeople and small ISOs looking to boost their income should make trade-offs, sources say. Equipment and services cost ISOs money, and someone has to invest time and networking efforts to procure leads. Agents must be willing to do that work themselves or sacrifice some up-front income–and possibly some contract flexibility–to have someone else do it for them.
As president of Transaction Services LLC, an ISO in Newark, Del., David Leppek has encountered his share of salespeople who pay the price because they don’t understand all the terms and conditions of their contracts.
Agent contracts are full of provisions spelling out what share of the sale the rep and the organization receive, and how much risk each party takes. Agents who don’t read their agreements might end up with less income and more risk than they anticipated.
“Ours is an industry full of detail,” Leppek says. “And it amazes me that some sales agents who are very, very savvy at being able to manipulate the pricing that goes into a merchant account aren’t themselves conscious of how they’re being manipulated in their own residual split.”
Curt Hensley takes it as a good sign when prospective reps reject the leads his client ISOs have to offer. The CEO of Impact Payments Recruiting, a Phoenix-based headhunter, helps ISOs seek out reps who can generate leads from their own referral networks.
“That kind of self starter is very, very valuable to any ISO out there,” he says.
Splits with huge margins are not for everyone, though.
Before choosing a contract, agents should determine the kind of sellers they are, Hensley says. An agent capable of generating leads without any help should seek out a deal that offers the best split with the fewest fees taken out beforehand. This also allows the agent to hang on to residuals after moving on to a different ISO.
But for an agent who operates more like a farmer than a hunter when it comes to bringing in sales, it’s probably better to settle for a contract that offers lower splits and stipulates the ISO gets to keep residuals. In return, the agent will get great leads.
“Sometimes, a 50-50 split that gives you really good, qualified leads can be better than a 70-30 split that gives you unqualified leads,” Hensley says.
ISOs realize that settling for 20% in profits on reps who bring their leads is worthwhile because their portfolio will grow, Hensley says. “It’s better than not signing them and making zero,” he says.
Elbert Enrique follows an adjustable split model of his own as managing partner of Majestic Bancard, an ISO in Dayton, Ohio. The ISO usually pays the industry standard 60/40 split but ups the ante for reps who agree to handle their own customer service and certain operations, such as data entry, offering up to an 85% commission.
That’s not always the case with other ISOs because they prefer to keep customer service in-house. “We’re kind of selective in who we choose to sell for us, so we have a comfort level that they’re going to provide good customer service,” Enrique says.
Enrique ties performance bonuses to the rep’s contract to offer production incentives on certain goals. For instance, if a rep hits more than $5 million a month in processing, Enrique may offer the rep a couple more percentage points on their split.
When ISOs use massive splits as a carrot to dangle in front of recruits, reps don’t always realize that the figures are not realistic, Leppek says. An ISO wouldn’t be able to stay in business if it truly offered 100% of the profits to all of its sellers. “That fundamentally doesn’t make sense,” he says.
It’s easy to get caught up in promises of big profits when you don’t read the fine print, Leppek says. He cites the example of one ISO that advertises a 100% residual split. “The fine print says that’s for the first six months,” he says.
A 90/10 split may look great on paper, but it’s not always an accurate number, Hensley says. Some companies deduct fees, such as risk management and security compliance costs, before the agent’s split. Or the ISO might tack on its business costs, charging an agent the retail price for terminals instead of the warehouse price. Agents should understand such tactics. “It’s not just negotiating a split, but seeing what’s behind it,” Hensley says.
