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Forming a Relationship 'Contract'
By Jared Isaacman

Avid followers of The Green Sheet's online MLS Forum no doubt read multiple postings about the ongoing horror stories of residuals being terminated and the deceptive practices of MSPs, processors and even banks. Although this does happen - and if you read through the postings enough you would think it is standard practice - the reality is that there are two sides to every story.

The agents' perspective is that they just got burned on their hard-earned residual income; MSPs/processors/ banks see a contract that was broken and believe ongoing residuals have satisfied the breach. It all comes down to the integrity of the relationship and the two signatures on a contract.

Most contracts, in general terms, result from two parties sitting down at a table and reaching a "meeting of the minds," with lawyers negotiating mutually agreeable wording. But that is rarely how contracts in the bankcard industry get worked out and executed.

Typically, the MSP, processor or bank already has a standard drafted "agreement." The new agent or Merchant Level Salesperson gets sold on the concept or benefits of the program and to get in action must sign this standard agreement. Is it likely that this standard agreement is equally balanced with mutual protection for both parties? No, it's not likely, but why?

The reason most ISO agreements are not balanced is because the formula of how typical contract language is agreed upon never takes place. Instead, here's the typical scenario:

An ISO/MLS finds an advertisement in The Green Sheet and calls about the program. If the agent likes what he or she hears, a package with a contract arrives in the mail. Rarely are commitments required. Without a history, commitment or any real protection, the MSP, processor or bank is forced to balance the standard contract language in its own favor.

This could be for its own protection against a fraudulent ISO/agent, non-performance, etc. Or it could be used for less than ethical purposes - to be released from any obligation to pay residuals.

So does this mean all hope is lost for a fair, reasonable and balanced contract between MSPs, processors and banks and their ISOs/agents? No. The typical arrangement for agreeing on contract language still can be achieved, and the standard agreement can be balanced and provide mutual protection.

If you are looking to negotiate the contract wording beyond what a simple addendum could provide, it is a good idea to bring something to the table. I imagine any MSP, processor or bank hungry for your business would be happy to negotiate a contract if you are prepared to make commitments.

This doesn't always have to be big-application counts, but volume, transactions, business types, etc. Get creative, look for the "hot button" and push it.

If you are bringing something to the table and you have a receptive party, there is no reason you can't negotiate a mutually balanced and customized contract. Or if you are not prepared to make commitments, there still is a selection of good MSPs, processors and banks that have reasonable and balanced contracts.

What to Look for in a Standard ISO/Agent Agreement

Question: Are there any minimums, vesting points or production requirements in this contract?

Answer: This is important to look for because if you sign and fail to meet your obligations you have potentially opened the door for failure to perform under the term of the contract, leading to another horror story.

Q: If my contract does have these minimums, vesting points or production requirements, is this a bad thing?

A: No, this might not necessarily be a bad thing. Typically, as with most things, the more you commit, the better the rewards or pricing might be. The question you need to ask yourself: Are the contract requirements reasonable in light of the program you are receiving, or are they unreasonable with possible negative future ramifications?

Q: Does the term of the contract matter? Is a three-year contract better than a one-year because I will get paid longer?

A: Typically, the term of the contract has very little to do with your ongoing residual compensation. Most of the rights for "vested" and ongoing residuals are listed under "Post-termination" rights - meaning that regardless of how long the contract is, your residuals are secured even after the contract terminates.

However, the term of the contract is important because you are bounded by the obligations and responsibilities of that contract during the designated term.

Q: What about exclusivity? Should that be in my contract?

A: This is a decision that the ISO or MLS needs to make. If it were my advice, I would say not to enter into an exclusive contract without doing your homework on the other party and testing the waters.

If you sign prematurely and it turns out you are not happy in the relationship, signing with another company would put you in violation of your exclusive contract and could lead to the termination of your residuals.

Q: Does that mean exclusive contracts are always a bad thing?

A: Certainly not. Like the question about "commitments" above, the more of a commitment you make, the greater the reward. This could mean that guaranteeing all of your business is going to one MSP, processor or bank could have monetary rewards as far as residuals and other compensation is concerned.

Again, entering into this type of agreement without having an established comfort factor could work out quite poorly if both parties don't live up to each other's expectations.

Q: What is a "cure period," and should I have this in my contract?

A: With the exception of fraud and a willful or gross breach of contract, you should always have the protection of a cure period. What this guarantees you is that your MSP, processor or bank cannot arbitrarily terminate your contract or residual stream without making you aware of their reason and giving you at least 30 days to correct the problem.

This concept is called a cure period. You never want to give the other party an arbitrary, single-sided power to terminate the contract and your residuals without showing cause and giving you the opportunity to correct/cure the problem.

There are certainly a thousand more questions about contract negotiations, interpretations and strategies, most of which should be answered by an experienced lawyer. The above areas should be used for reference when reviewing your current or next contract.

If you have already entered into a contract that you believe is unbalanced, once you have a history in your business relationship you probably have the ability to negotiate a more favorable and balanced agreement or addendum.

If this is your first time or you are about to enter in a contract, you probably should take note of a few of the more important variables above and see if they are included in what you are about to sign.

Entering into a relationship with a company because of its assumed integrity, reputation or sales presentation has a big value, but things can change and having a reassuring and balanced contract will help you sleep better at night.

With more educated ISOs and Merchant Level Salespersons, I am confident the horror stories of lost residuals will be pushed aside with tales of success.

Jared Isaacman is Director of Operations for United Bank Card, Inc. He may be reached directly at or 908-638-5326, ext. 120.

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