Merchant services Independent Sales Organizations (“ISOs”) are widely thought of as the wild west of the payments industry. Plagued by unscrupulous executives, vague or thorny agent agreements, poor back office support, and uncertain business plans, ISOs are notorious for recruiting and ultimately driving from the industry once successful merchant services sales reps.
ISOs regularly attempt to lure the best and brightest merchant sales consultants from large processors by offering glitzy upfront signing bonuses and/or disproportionately large commission splits. To accomplished merchant sales reps who earn modest base salaries and small commission percentages that disappear after merchants have been on the company books for three years, the income potential that ISOs offer appear – and often are – exponentially higher. Too often, however, reps take the ISO plunge before knowing what sort of operators they’re dealing with, and ultimately earn less, not more, than they were at their considerably more stable former employers. In addition, they are forced to watch helplessly as their trusting merchants get hit with hidden fees and locked into long-term contract with brutal termination fees.
Of course, fears about ISOs are often exaggerated and likely stoked by large processors who want to prevent their best internal salespeople from leaving for an ISO. ISOs that care about their reps and merchant customers do exist, obviously. But the risks are real, and proven sales reps who value their merchant relationships would be wise to look long and hard at any ISO they consider submitting deals to. Christopher Briller, President and CEO of New York-based ISO, MerchantPro Express (“MPX”), has seen it all: “ISO sales aren’t for everyone, and not all ISOs are worth partnering with. We advise all prospective sales reps to do their homework – to fully know the company they’re planning to get into bed with. There are many bad actors out there, and getting entrenched with them can be hard to unwind. I’ve seen this drive very good reps right out of merchant services.”
Here are some tips on finding the right ISO:
1. Know who’s processing the payments.
While credit card processing may well be perceived as a commodity to merchants, the payment platform really can make a difference. MPX’s General Counsel and Chief Operations Officer, Sean O’Neil, adds, “There are only a handful of processors capable of offering the full array of bells and whistles in the payments industry. Does your processor have mobile payments? What about Apple Pay, online reporting, and next day funding? These are demands we hear from prospective merchants all the time – and the list is growing. You don’t want to limit what you can offer your customers. If your processor cannot do it all, then you should probably look elsewhere. We use First Data’s platforms, for example. First Data processes over half of all payment transactions in the world and are at the cutting edge of payments technology to help our merchants process payments in the most efficient way possible.”
2. Understand your ‘buy rate.’
ISOs license the use of processors’ payment processing technology. And this comes at a cost to the ISO – typically in the form of a small percentage of volume, a few cents per transaction, and some monthly fees. The buy rate is negotiated between the processor and each ISO, with the largest ISOs typically getting the lowest buy rates because they have the greatest leverage. As an ISO starts boarding deals on the processor’s platform, the processors charges the ISO the negotiated buy rate, which the ISO then typically passes on to its reps, and then pays its reps a percentage split of the profit above that buy rate. But ISOs often mark up their buy rate to their sales reps, which might change a rep’s earning ability significantly. Reps who don’t understand their buy rate (or that one even exists) might be inclined to go with the highest percentage split, even if that would pay them less. By way of example, Mr. Briller offers, “We’ve heard of some crazy percentage splits – as high as 90%. But if ISOs were really giving away 90% over their buy rate, they couldn’t cover their overhead costs – or they have absolutely no back office support. More commonly, they’re padding their buy rate, so that 90% might be equivalent to 50% or 60% above a normalized buy rate.”
3. Scour agent agreements.
The largest ISOs regularly send email blasts and slick mail inserts to industry salespeople advertising huge percentage splits, upfront bonuses for submitted contracts, and lifetime residuals. “But here’s the problem: many reps think the contracts they’re signing commit the ISOs to everything their ads say,” argues Mr. O’Neil. “The upfront bonuses aren’t what they seem. The percentage splits aren’t what they seem. The ‘lifetime residuals’ last only as long as you’re submitting 3 or more deals per month. And maybe your residuals disappear if ISO owners decide to sell the portfolio. What the ISO slicks say are advertisements. And the contract you sign is the fine print. You need to read it very carefully. It’s the old adage – if it sounds too good to be true, it probably is.”
4. Inquire about support levels.
“Before you submit a single merchant contract to an ISO, ask how they will support you and handle your customers’ concerns. Find out how many employees make up the ISO’s sales and merchant support team and what their hours and specific roles are. If the back office is undermanned, then you will be spending considerable time putting out fires and resolving your own merchants’ concerns rather than spending that time doing what you’re best at – selling. Mr. Briller observes, “Doing without all the corporate comforts associated with large processors is part of the adjustment to ISO life. But you can’t succeed without basic levels of support – pricing and technology update information, for example. And your customers will leave if your back office delivers unexceptional customer experiences.”
5. Look for a true partnership.
If you’re selling for a large processor, you’re likely an employee. They offer you a base salary and benefits and commissions, and in return you’re expected to deliver what they demand of you each month - a certain number of merchant accounts, or leased terminals, signed volume, etc. If you don’t deliver, they will fire you. It’s an employer-employee relationship. And some ISOs are set up as a management vs. sales rep culture, in which each party is trying to extract as much from the other party as they can, while keeping more for themselves. Mr. O’Neil describes how MPX treats its sales rep relationships: “Wherever possible, we like to establish partnerships with our sales reps, so that whatever is good for the rep will ultimately be good for MPX. So, for example, if a rep comes to us and wants to give away free equipment to win a merchant’s business, we analyze the business opportunity together, and determine the collective upfront pain and the ultimate upside opportunity for all. When we look at deals through the same lens – through our partnership lens – we almost always agree on the outcome. Being in a partnership puts us all on equal footing and reaching hard towards common goals.”
Making the move to ISO land is certainly not for everyone. Typically, there is no guaranteed income, you don’t have the benefit of selling under a recognized brand, and you don’t get perks that tend to accompany employment in large corporations. But there is an opportunity for talented sales reps to make considerable incomes and build a portfolio in which they have ownership. If you think the transition to an ISO is for you, just make sure you do your diligence by following these tips on finding the right ISO and land at the right one for you.