By Adam Atlas
Attorney at Law
ISOs do not often fold abruptly from one day to the next. But it happens occasionally, leaving a handful of agents in a tough spot. The most common reason an ISO halts operations is serious wrongdoing within the organization, such as fraud, which causes the sponsoring bank to cease doing business with the ISO.
Most of you, as merchant level salespeople (MLSs), do not sell directly for a large processor or bank. Instead, you sell for ISOs that are registered with a major processor and bank.
Have you considered what you would do if your ISO suddenly went under?
Here are eight tips to help you be prepared should your ISO run aground:
You may be ethical, but that doesn't mean your ISO is. When selecting an ISO, gather impressions of the company from its agents, merchants, or sponsoring processor and bank.
Choosing an ISO is the most important first step in an MLS's entry into the merchant acquiring business. The values to look for in an ISO are honesty, transparency and reasonableness.
If an ISO is harsh or inflexible at the beginning of a relationship, those traits don't usually improve at a time of crisis.
Once you have chosen your ISO, always keep tabs on how it is treating other MLSs and merchants. Determine as quickly as possible whether there is a problem with the folks who send you your revenue stream.
Don't put all your eggs in one basket. Exclusive agreements are a thing of the past. Any ISO you sign up with should be able to earn your business through ongoing pricing and service, not by tying you legally to an exclusive deal.
Assuming you have chosen an ISO that is a good fit, you are likely to place a lot of business with that ISO. Even so, have a second relationship.
On a day-to-day basis, the secondary relationship allows you to place deals that your primary ISO might not take. Also, in the unlikely scenario that your primary ISO folds, you will have a second channel in place for your deal-flow.
Picture what would happen if your backup ISO had to become primary overnight. Spend an hour or so with your secondary relationship manager to come up with a game plan for a smooth transition, should this situation occur.
Even if you are getting along very well with your primary ISO and have no intention of becoming a registered ISO, find out what your ISO had to do to become what it is today.
Specifically, study the various suppliers your ISO uses. For example, learn about the company's equipment, leasing and gateway services.
Make a flow chart that illustrates the relationships your ISO has with its partners; these connections enable you to make sales. Think about what you might do if your ISO disappeared, and you had to link up with the various suppliers yourself.
This is like window-shopping for something you can't afford. You may be a one-person operation working out of your basement. You may not know how to increase your monthly merchant-account volume or establish a direct relationship with an acquiring bank. Never mind.
Imagine yourself ahead of where you are now. Talk with people who offer direct relationships with the suppliers of all the products and services you now sell. Learn about their terms, the thresholds they demand and the people inside their organizations who negotiate new deals.
You will gain helpful information and contacts no matter what. In a disaster scenario, in which your ISO sinks, you will already know something about what it would take to step into the shoes of your defunct ISO and keep your business going.
When shopping for direct relationships, be careful not to breach the terms of your existing agent agreement. It might contain a clause preventing you from communicating with or entering into an agreement with the processor or bank that acquires for your ISO.
I don't like clauses like that, but they are out there. Be careful.
Your primary business relationships are with merchants. They are your livelihood, so get to know them and take care of them.
If you ever have to go through choppy waters, such as a migration of your ISO's platform or the demise of the ISO itself, the quality of your merchant relationships will directly affect your ability to preserve your business.
All MLSs are bound by nonsolicit clauses that prevent agents from moving merchants away from ISOs with whom they have signed agreements.
However, most MLSs have, at times, wanted to move merchant accounts away from an ISO. The primary reason being the ISO or its processor is not taking adequate care of the agent or the merchants involved.
Make no mistake — if you violate the terms of a nonsolicit clause in your agent agreement, no matter how difficult the ISO is being, you will expose yourself to the risk of loosing your entire residual stream.
Sometimes an ISO breaches its obligations to an MLS in such a manner that the agent may no longer be bound by the corresponding agreement's nonsolicitation clause. That determination can only be made on the facts and law applicable to a given case.
When an ISO folds because of fraud or some other problem, the MLSs stranded under the ISO may very well have the right to set aside obligations of nonsolicitation to salvage their portfolios.
However, do not make this decision alone. Always consult a lawyer and other industry veterans before breaching the terms of your agent agreement. Remember, a wrong decision could cost you your residuals.
There is a difference between being prudent and downright paranoid. The tips in this article are intended to help you manage your business. Don't let these tips make you overly suspicious, because distrust is a terrible thing between an ISO and an MLS.
ISOs and processors are constantly evolving. The shifting sands in our business make for opportunities and traps. Contemplate what lies ahead before taking your next step.
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, e-mail Adam Atlas, Attorney at Law, at email@example.com or call him at 514-842-0886.
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