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The Green Sheet Online Edition

June 09, 2008 • Issue 08:06:01

Legal ease
Shop before you sign

By Adam Atlas
Attorney at Law

Signing an ISO or merchant level salesperson (MLS) agreement should not be an impulse buy. It's one thing to buy a barbecue on impulse; it's something quite different to enter into an ISO or MLS relationship that way.

The purpose of this article is to highlight a few notes on the importance of shopping around before signing a new ISO or MLS deal.


A number of new participants in the acquiring business wind up in exclusive relationships because they simply don't know there are alternatives.

Similarly, ISOs sometimes strong-arm MLSs into renewing their agent deals on an exclusive basis, under the threat of denying residuals on their existing portfolios to MLSs who refuse to renew under the ISOs rigid terms.

Shopping around is not difficult. ISOs and processors are usually looking for new MLSs and will make an effort to convince you why their programs stand out. As far as I am concerned, exclusivity is a thing of the past in our industry.

Unless you, as ISOs and MLSs, are very experienced and know that you have a stupendous deal with a reliable processor or ISO, then exclusivity is not for you.

Business worth

Having worked with a number of ISOs and MLSs who are either renewing relationships, taking or providing financing, or selling or buying portfolios, one of the recurring questions is, How much is my business worth?

For the record, in my experience, portfolios sell for anywhere between the low 20s to the high 30s (as a multiple of monthly residual).

Where you fit on that range will depend on the usual criteria: attrition; merchant blend; concentration of merchants (for example, on a portfolio of 500 merchants, are 300 of them part of a single franchise?); volume; ticket size; and so forth.

Another important factor that will change the valuation of your portfolio is whether you are willing to sell merchant accounts for the buyer. In other words, if you sell your portfolio of 500 merchants to Acme ISO, are you willing to be an agent for Acme ISO after the sale?

That will usually add about four more multiples to the equation.

Some portfolios sell for 12 times and some sell for 50 times the monthly residual, but those are cases in which the value is less than normal or the seller has made more than the usual commitments regarding post-closing durability of the residual.

The best way to learn the worth of your business is to shop around. However, when you do so, be sure to sign a nondisclosure agreement with each entity to whom to provide information. And disclose as little information as possible.

You must not compromise the obligations of confidentiality that you have to your ISO or processor.

Your worth

When an ISO or processor has you "over a barrel" and is threatening to cut off your residuals unless you renew, perhaps with exclusivity, you must pause and think about where your strengths are as an acquiring business. Some salespeople forget that their best asset is their ability to sell - which cannot be taken away from them.

Sometimes it is better to abandon a perfectly good residual to a greedy ISO or processor in favor of starting from scratch instead of continuing to waste your talent with an ISO or processor that does not provide proper compensation.

For example, if you have a portfolio of 500 merchants, and you are able to board 50 merchants a month, but you are being asked to renew on exclusive or unfavorable terms, consider that it might be worthwhile for you to walk away from that unhealthy relationship and take your 50 new deals a month elsewhere.

Don't think all of your worth is wrapped up in your existing portfolio. A better approach is to also factor in the value of the new business you bring in and how fast your deal-flow could replenish your residual income with a more equitable ISO or processor.

To be fair, ISOs often carry the risk in the processing hierarchy, so they are naturally entitled to compensation for carrying that risk in addition to assuming the other responsibilities they shoulder as ISOs.

Be careful not to overestimate your worth; that will prevent you from getting a deal that is right for you in the long run.


Down in the trenches of the day-to-day ISO or MLS business, you will come to depend on reliable, high-quality service from the people in the organization that pays your residuals and boards your merchants. Shopping around will expose you to a variety of corporate cultures, which will enable you to find the one that is right for you.

There are many different ways to build a portfolio. You want to work with an organization that thinks the same way you do about merchant acquiring.

I do not pass judgment on the various ways of doing business, but I urge you to work with organizations that are in sync with your own values and practices.

Make no mistake, ours is a ruthlessly competitive business; it is not for the faint of heart. Still, there is room for all kinds on the merchant-account sales frontier.


Needless to say, shopping around is also about finding the right price. There is no better person than yourself to tell you the best price for your business, especially if you take time to compare and analyze the deals you are offered.

After you have shopped around for the right deal, make sure the agreement you are asked to sign is consistent with your expectations.

One or two more weeks spent looking for the right partner could save you months or years of aggravation. end of article

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 atlas@adamatlas.com or call him at 514-842-0886.

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