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The Green Sheet Online Edition

September 22, 2014 • Issue 14:09:02

Agent playbook on vetting partners

Just as technology has brought us greater transparency in an increasingly connected world, access to business intelligence is now but a few clicks away. With a little due diligence, merchant level salespeople (MLSs) can tap a wealth of resources to vet potential partners and align with those that support their goals for both personal career development and merchant portfolio growth over time.

To help MLSs separate the wheat from the chaff in the field of possibilities, The Green Sheet asked several leading authorities in payments to share their opinions on what to look for in a potential partner and the red flags that may signal trouble ahead.

One point made clear is the strength of the payments industry to attract sales talent means there is a vast and varied pool of potential partnerships for ISOs and MLSs to explore. To illustrate this point, Heartland Payment Systems Inc. and payment platform provider SunGard recently tied for the No. 1 ranking on Selling Power magazine's 50 Best Companies to Sell For – 2014 list, placing ahead of Google Inc., Microsoft Corp. and Cisco Systems Inc. First Data Corp. also made the top 50.

To identify candidates for the list, Selling Power evaluated companies of all sizes and scored them based upon three areas of business performance – customer growth and retention; hiring, compensation, sales training and enablement; and company recognition and reputation – all important factors when weighing one company against another in the vetting process.

Prospecting for sales teams

Heartland Chief Sales Officer Tony Capucille offered sage advice when asked what constitutes a good partner. Heartland, which created the Merchant Bill of Rights and Sales Professional Bill of Rights, hires employees; it doesn't work with independent MLSs. However, many of the same questions apply when evaluating a potential employer as when vetting a potential partner.

"Don't just pay attention to the 'shiny objects,'" Capucille said. "If you are thinking of establishing a career with them, it's important to evaluate their culture. Do they value the sales profession? Can they point to foundational principles for treating their customers and sales force fairly?" Another good measure of a sales organization Capucille mentioned is team composition: is there a good balance between long-term associates and newcomers? "You always want to surround yourself with people who are smarter than you so you can improve and grow," Capucille noted. He added that to facilitate career advancement, the Heartland Leadership Academy online professional training program to be launched soon will offer educational content from experts across the globe.

While excessive merchant attrition is clearly a red flag, high turnover in sales does not necessarily reflect a poorly run sales organization. "The key is whether or not there is a balance between turnover and retention," Capucille said. "Think about the Navy Seals, for example. On average, only 25 percent make it through Hell Week because they don't have the mental and physical skills necessary to become part of this elite military group."

Similarly, within the first several months of a new partnership, both parties soon discover whether it's a good fit. "If you make it past the first year, and you are receiving the right amount of support, training and tools, there's a good chance you have found a place where you can succeed and grow," Capucille said.

He also believes MLSs should ask questions about the potential partner's sales strategy. "A real leader among sales organizations will have a buy-centric sales strategy that creates a consistent buyer experience through clear rules of engagement," he said.

Marc Beauchamp, who founded Performance Training Systems and serves as Senior Vice President of Product Development at Payment Processing Technologies LLC (PayProTec), offered further advice. "Not all agents or ISOs do this, but I would certainly recommend running a background check on any partners," he said, noting that the Better Business Bureau is a good place to start.

He also recommended partnering with established firms. "I would say 25,000 and up, or at least 10,000 merchants and up, that they're supporting would probably be a good threshold," he said. Another point to keep in mind is most agents switch partners due to issues concerning money, customer support or value-added products. According to Beauchamp, the question then becomes whether the potential company is a good fit for the types of merchants the MLS typically signs and plans to board in the future. Think long term investment, he advised.

Beauchamp cautioned against signing contracts that require certain sales quotas. "I want to make sure I have a fair contract," he said. "Make sure that if you do have a sales quota, it's something you can meet." To help MLSs evaluate potential partners, Beauchamp published a top 10 list of what ISOs should provide to agents. It includes details in each category listed and is highlighted in the sidebar to this article.

Payments attorney Adam Atlas agreed that sales quotas can be problematic, especially when dealing with a value-added reseller (VAR) or emerging technology partner. If during negotiations an MLS should hear something like, "We'll work with you, but you have to sell 50 of our units a month or else you have to pay us," be careful because it might not be that easy to fulfill, he noted.

Another caveat with this type of partner is exclusivity. "It's sort of like the flavor of last month," Atlas said. "Who knows whether these things are going to be cornerstones of commerce going forward or just a fad?" Because technology-centric companies tend to be less versed in sales, the ISO community represents the gateway to success. With this type of partnership, the contract should stipulate the VAR cannot directly compete for merchants the MLS boards on their platform, Atlas added.

Recruiting entire companies

Another strategy for vetting partners is to treat the potential partner as a recruiter would. Impact Payments Recruiting, which is the arm of Impact Recruiting Group that specializes in matching payment talent with payment companies, is uniquely positioned in the partner vetting process.

"We've got a double-edged sale whenever we make a match," said J.T. Driscoll, President of Impact. "We really are experts at choosing partners." According to Driscoll, the company must first convince an organization that Impact is the right recruiting source before it can select a suitable candidate for the position and then put the two of them together.

He said the company is upfront about what it expects from a potential organization and the Impact team monitors progress. "We're watching for behavior," Driscoll said. "Are they responding quickly? Are they recruiting the candidates selling them the job?" MLSs should also be clear about what their expectations are and likewise understand what the potential partner expects from them in terms of timelines, deliverables, signatures, sales or revenue requirements, he added.

Driscoll noted that because the industry is so well networked, a little extra due diligence can make all the difference when vetting a potential partner. Unfortunately, not everyone uses the tools available to them through social and other networks. He suggested vetting potential partner organizations by interviewing MLSs both presently and previously affiliated with them.

He also advised testing the waters gradually during the initial phase of any new partnership. "Every situation is going to be different, but there is always a way to test a relationship before you jump right in without really knowing how deep the deep end of the pool is," he said. "You can move part of your portfolio over or just put some of your new MIDs on with the processor." He added it's also important to have a contractual way out if the relationship isn't working.

Future-proofing self protections

The experts interviewed agreed that when vetting potential partners from a legal and ethical perspective, MLSs should look closely at how the candidates treat their merchants. Find out whether they are honest and fair or whether they misrepresent themselves because, at a certain point, anyone involved could inadvertently become complicit in any wrongdoing. It is also important to ascertain whether a prospective partner is heavily entrenched in merchant categories that have fallen under federal scrutiny in recent months.

The federally initiated Operation Choke Point, which has been criticized for issuing subpoenas to payment processors and banks associated with businesses accused of fraudulent activity, offers a vivid example of implied complicity in practice. "These are targets that are identifiable and accessible for enforcement," said payments attorney Anthony Ogden. "And the objection is, 'Hey, you're making us police the industry, and that's not our job.' But be that as it may, the enforcement intensifies."

Ogden emphasized that reputational due diligence has never been more critical to the vetting process than it is today. MLSs can request from potential payment partners a set of sample merchants, including sample reporting and sample residual statements, which will offer a glimpse into what may be in store once they sign. In most – but not all – cases, the more detailed the information, the more honest the operation.

One fundamental aspect of any partnership is the contract. That is where a payments attorney can be an invaluable ally. "I think more agents now are doing what I would recommend, which is having a lawyer who is familiar with the industry look at agreements before they sign on," said payments attorney Michael Brewer. "It's a worthwhile investment, given the amount of money that is at issue."

Brewer advised taking a long-term view to fully comprehend what happens upon termination of the agreement with regard to post-termination residuals, assigning residual streams, etc. "They may have a first right of refusal for the ISO, which is fine," he said. "However, in the event the ISO doesn't exercise that, typically the agent has the capacity to transfer those residuals if they want to negotiate some type of lump sum buyout with respect to a prospective buyer."

Whether the company owns the accounts or whether the MLS has some ownership right of refusal or compensation mechanism, if any or all accounts are sold through a portfolio sale or acquisition, the manner in which such ownership rights and compensation are addressed within the agreement is relevant. Ogden said it is important to understand, for example, the method for calculating the value of those accounts, what type of offer the MLS can expect to receive in exchange for relinquishing whatever rights he or she has to those accounts, and whether the transition will happen over time.

Limitation-of-damage clauses can restrict the amount of damages an MLS recoups regardless of type of breach by an ISO. And such clauses are enforceable. Brewer cited a case in which a lawyer representing a client in another state sued for nonpayment of residuals. "He thought if there was a breach and he didn't get paid his residuals that he would have a remedy that would make him whole, when in fact he only got about 10 percent of what he was owed because of his limitation of damage clause," Brewer noted.

Another contractual red flag concerns when no right of cure is permitted for any kind of breach that occurs – in other words, no opportunity to fix the problem. "We understand that some breaches by agents should not entitle the agent to an opportunity of notice and cure," Atlas said. "On the other hand, if you read a contract and every single breach is a sudden death event, that is not a good sign."

Equally troubling are contracts in which allocation of liability between a potential ISO or VAR and an MLS lacks clarity or equity. "It's better to know who is going to be on the hot seat with regard to potential issues," Ogden said. "They run the gamut from exceptions-type losses and chargebacks to lack of compliance with laws, regulations and trade practice rules with the card associations."

Nonsolicitation clauses are another major stumbling block for MLSs who may not realize such a clause typically means they cannot solicit merchants previously referred to a partner after they sever that partner relationship. "Not understanding what's in their agreement, they'll end up soliciting existing merchants, and I generally represent a fair number of ISOs where I'll send a cease-and-desist order," Brewer said, noting that for the most part, agents should assume those merchants are off limits.

Generally speaking, most terms contained in payment agreements are uniformly applied, but variances in state laws may also apply, so a lawyer reviewing the contract would need to understand or research what those differences are. "Virtually every agreement I see now has a jurisdiction of venue clause," Brewer said. Foreseeably, what could result is an MLS in one state contracted with a partner in another state could be forced to hire a lawyer for court proceedings in the partner's state, which is likely to be cost prohibitive.

Perhaps the most telling information may come when asking a potential partner about his or her company's strategic vision regarding the dynamic changes occurring in the industry. Not everyone will offer suitable answers, but anyone willing to adjust business models to embrace the future is at least on the right track. end of article

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