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"In New York, there are a lot of sales people running around and without EPI, I couldn't compete. Their free terminal programs have helped separate me from the other sales people and as a one man show, I need that. Working with Electronic Payments as one of my ISOs is great for me and my merchants."
Michael
New York City
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The following was taken from an article entitled "Top 10 Contract Pitfalls" as written by Electronic Payments' CEO Michael Nardy. Mr. Nardy has written the StreetSmarts column for the GreenSheet Magazine (www.greensheet.com) since April 2006 not including several articles written as a guest columnist during NAOPP's (National Association of Payment Professionals) sponsorship.
No Liability, No Risk
Taking liability in today's marketplace is not appropriate for most ISOs unless they have years of experience and large reserves to balance against potential losses. For the average MLS, holding the liability and managing a risk on their portfolio is something that shouldn't even be considered. The risks, literally, are just too great for an MLS to jeopardize their residual stream. What you should look for are programs that do not involve liability. Non-liability programs are the standard in this industry today, however, potential ISOs should read their documents carefully to make sure there are no clauses that transfer responsibility for unpredicted losses onto the ISO or MLS.
Residuals Paid with No Minimums or "Quotas"
Every MLS should be 100% vested from the first day they start working with a processor. If you send in a deal, your residuals should be protected and paid on-time (or per the ISOs payout schedule) without any vesting period to receive residuals. Another thing to look out for are agreements that have minimums to be paid. For example, an ISO must receive $300 in residual to receive a check or ACH. Some processors may cut off their ISOs completely; others may just wait until your residuals accumulate to that $300 minimum mark to be paid a check. From the processors standpoint, this may be a way to "trim the fat", so to speak, but it puts a sour taste in any ISOs mouth to have even a small residual cut off. The name of this business is recurring revenue - it should recur no matter what.
Residual Stream Ownership and Transferability
While merchant contracts may be owned by the processor and bank, the ISO can and should own their residual stream. Having that feature in your ISO agreement, you would be able to sell your residuals, hold them and keep getting paid, pass them along to your heirs and assigns, or get a loan against them. A potential problem for any MLS is if they should pass on or become disabled. If you have a will that goes through probate, your heirs should be able to pass notice to the processor notifying them of a new account to pay residuals into without a problem. Similarly, if you are unable to perform as a MLS or ISO per your agreement, you should have transferability rights that allow another to take over your ISO agreement.
Non Exclusive Contract
Send deals in anywhere. The most common thing I find about exclusive agreements is not the desire to leave a processor, but the need to explore other options. What I find is once you are comfortable with a processor, you'll stay there. However, I do get calls saying "I'm happy, but I'm not." If there is something missing in your relationship and you should be able to explore other options without feeling like you are going to be "cut off".
3rd Party Sell Rights
This goes along with the ability to transfer your residuals and contract to another party. While your processor may not wish to buy your residuals at the time you want to sell, you should still be able to offer your residuals for sale to a third party. It is not uncommon to have your processor request the right for a first refusal, however, whether you are transferring to another party or to a leasing company for a portfolio loan, the transaction should be allowed by your processor.
The Big "What If?"
The future of your processor should always be a consideration when choosing which ISO to sign with. While your processor may wish to sell or merge with another company, how does that affect you and your residuals? If your processor sells their accounts, residuals or the company, make sure you are protected.
What we (EPI) and other processors have done is implemented a contract that allows for three levels of protection should we decide to sell:
- Take a buyout the processor suggests - a one-time buyout for all your accounts can put money in your pocket and can leave you on good terms with your processor.
- If you didn't want to take the buy-out your processor suggested, negotiate your own buyout because you have 3rd party sell rights.
- Finally, should your processor sell, you should have the right to keep operating under your renewable ISO agreement as your former processor was operating. In other words, keep getting paid as per your original ISO agreement. If your processor sold, then they may not accept new business from you because there new Schedule A may be different than your older one, however, they should still pay you according to your old Schedule A.
When businesses are bought outright, you are selling liabilities as well as assets. These liabilities would also include (in my opinion) your contractual liabilities, that is to say, the ISO Agreements a processor has outstanding. Anyone giving you an agreement should expect you to read it and make some comments on pricing, terms, etc. If they are unwilling to negotiate with you or at least hear your side of the coin, how willing are they going to be to talk two years down the line when they are about to cut you off because they just sold their portfolio.
No Requirement to Buy Equipment From Your ISO
You should be able to purchase supplies and equipment from any company you choose without hurting the relationship with your ISO. There may be special programs that your ISO offers and the requirement is to buy the terminal or software from them to enjoy the benefits of a particular program, however, on a continual basis, you should be able to buy equipment from the vendor of your choice.
Contractually Accurate Residual Reporting
I think this is a crucial and far underestimated part of the ISO signup process. A particular ISO may have a great program, but if they do not have the residual and online reporting to back it up, then how can you check the accuracy of your residual amounts?
One of the first things to do when looking over an ISO agreement and pricing is to check out their online reporting of residuals before anything is signed. Make sure you understand how they report residuals and when they pay them. Knowing your ISO's practices with regards to how and in what format residuals are displayed is crucial in making sure what you agreed to is actually how you are being compensated.
Paying to Become a Sales Representative
You should not have to pay to become a sales representative. There are many programs that exist that charge a fee of several thousand dollars to join up, but most provide sales reps with tools and information that you can readily receive from most ISOs that would not charge you. Buying a equipment or leasing a terminal to gain "industry knowledge" is not a necessity in today's marketplace, so looking at other programs that don't require upfront purchases or commitments can help you avoid the wrong ISO program.
Communication Is Key
An open dialog with your ISO is essential for a successful processor-ISO relationship. But an open dialog extends beyond just negotiating your ISO agreement with your processor. Being able to call or email "the boss" or your ISOs upper management is one step in keeping that dialog open. Always make sure your agreement comes back executed with a signature of someone in the upper management, i.e. the CEO, COO, etc. I can tell of first hand stories of contracts coming back signed with fake signatures of the ISO owner and where negotiations made in good faith were not honored by the ISO.
On an end note, there are many good ISOs to choose from when deciding where to place your business. Growing with the right ISO is a rewarding experience and you can achieve success in this industry if you follow some key points about negotiating your ISO contract. Should you need any guidance or help, my office phone and email is always available.
To speak to Mr. Nardy directly, please call 1-800-966-5520 ext. 221 or e-mail him at: mike@elecpayments.com.
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