By Adam Atlas
Attorney at Law
Honest, well-meaning processors, please take a bow. The purpose of this article is to let readers know you exist. As legal counsel to ISOs, I spend a lot of time worrying about processors doing wrong. When conflicts arise, I often spend time making demands on processors for their wrongdoings.
For a change, I will highlight herein some of the best things I have seen processors do over the years. ISOs can look for this kind of behavior when shopping for primary business relationships. These examples can also serve as inspiration for processors to do the right thing.
Some processors really do pay lifetime residuals. Assuming the ISO has not been in material and uncured default under its ISO agreements, there are processors and super ISOs who really have paid residuals for years and years – even after the ISO has stopped referring new merchants. This is in contrast to the less generous processor or super ISO that rethinks a "lifetime" pledge when ISOs or merchant level salespeople (MLSs) stop producing the usual amount of applications they produced years before.
When an ISO owner passes away, he or she sometimes leaves behind a spouse who does not know much about the business. This is a difficult time, first of all for the widow or widower, but also for the processor because the processor has to deal with less than perfect performance by the "new management."
On a handful of occasions, I have seen processors and super ISOs engage with a grieving spouse to either buy out the inherited portfolio or lock in lifetime residuals on a split that makes sense, taking into consideration what the heir can do for the portfolio. As a side note, ISOs should have a contingency plan to implement should their principal pass away or become incapacitated for some reason.
(As a reminder to readers, our firm provides free legal advice to ISO widows or widowers navigating taking over ISO businesses.)
Sometimes ISOs get into big trouble. The causes are varied. The ISO may have been over-leveraged with creditors, could have had a serious bout of liability that it could not cover, or may have simply engaged in illegal or fraudulent activity that brought the ISO to a crashing end.
Not usually having contracts with the MLSs of an ISO, the processor can choose to cut loose the agents of the failed ISO, or it can engage with them and try to put them back where they would have been had the ISO not failed. On occasion, a processor will do the right thing when faced with a failed ISO. In other words, the processor will take the MLSs as its direct agents and continue to pay the residuals to which the agents would have been entitled had the ISO not failed.
A cynical reader would say that the processors do this simply out of self-interest. Fair enough. But healthy self-interest on both ends of a contract is often a good thing. In business, no one should rely on the charity of others. While we have seen processors do the right thing with failed ISOs, they sometimes cannot help themselves by forcing the agents to sign on to exclusive contracts or contracts with terms that are less generous than those that the failed ISO had given them.
Merchants leave ISOs all the time. Sometimes they leave because they don't like the service or pricing. Other times they leave because the ISO has solicited the merchant to leave, perhaps in violation of the merchant's non-solicitation obligations to its processor. There are severe processors out there who, when they see one merchant leaving, assume the worst (that the ISO stole the merchant in bad faith) and cut off all residuals (rightly or wrongly).
There are, however, processors who take a more mature approach and make the effort to find the truth of the matter – by discussing the issue with the ISO before sending a harsh notice of breach. There are some cases, such as system incompatibility, where despite non-solicitation provisions to the contrary, it actually makes sense for the ISO to move a merchant.
It's always disappointing to see a processor force an ISO to leave money on the table, perhaps out of spite, and not allow the ISO to help a merchant that, for one reason or another, has to leave the processor.
Yes, some processors tell their ISOs about the fees actually charged to merchants and help ISOs audit the trail of fees from merchant pricing to merchant payments, processor receipts, ISO pricing and ISO residuals. This cannot be said of all participants in the payments industry.
Honesty in reporting is a cornerstone of our industry. Whether reports are long or short, they should at least be correct. Where mistakes are made – and there are always mistakes – they should be corrected in good faith with patience and understanding from both sides. Some processors are enormous, and their computer systems were built in the 1980s; they are lucky that transactions actually make their way through. Those processors have a duty to get their reporting right. Some of them fulfill that duty some of the time.
Yes, it's 2016 and having an application programming interface (API) is literally more important than having a front door to your business. Bravo to the processors who realized that open access to data is the beginning of their catching the wave of future business, not the beginning of their unravelling.
My law firm has APIs; surely billion dollar processors can pull one or two together. The value proposition for ISOs today is access to data and delivery of data; processors must not be the bottleneck in that part of ISO value. On the contrary, processors should be leading in making data accessible first.
In future articles, I'll return to griping about misfits and miscreants, but I am glad to have had the chance to share examples of processors worthy of praise.
In publishing The Green Sheet, neither the author nor the publisher is engaged in rendering legal, accounting or other professional services. If you require legal advice or other expert assistance, seek the services of a competent professional. For further information on this article, email Adam Atlas, Attorney at Law, at firstname.lastname@example.org or call him at 514-842-0886.
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