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A Thing

Legal perspectives on an economic downturn

By Adam Atlas

You don't have to be a Wall Street analyst to know that the economy has ups and downs. Many industry participants agree that the past 10 years or so generally have been positive. On the whole, the number of merchants needing merchant accounts has increased, and their transaction volume generally grows over time.

These tendencies have nourished the ISO and agent business with, literally, a wealth of opportunities for sales and business growth. Most readers of The Green Sheet are entrepreneurs, and most entrepreneurs are optimistic. Sometimes they choose not to think of economic downturns, or they view slow times as a challenge.

If you are an optimist, you must read this article. (If you are a pessimist, you will love it.) Whatever your perspective, an economic slowdown is always possible, so keep the following in mind when negotiating your ISO and agent deals:


Many ISO deals, and an increasing number of agent deals, impose annual or monthly minimums for a) deal counts, b) transaction dollar volume or c) processor revenue. Those minimums may be easy to meet in a growth economy, such as today's economy, but if that growth were to decline, they would be harder to sustain.

One way to mitigate problems when minimums are hard to meet is to include in your agreement a clear mechanism to deal with your failure to meet them. Some agreements are harsh, and they allow the processor or bank to terminate the agreements for the ISO's or agent's failure to meet minimums. Others agreements are more reasonable, and they define a clear financial penalty for not meeting minimums.

Exit strategy

The best way to get into the merchant services business is to have a plan for getting out, so make sure that your ISO or agent deal includes an exit strategy.

Exits come in many forms. For example, many ISOs or agents ask for the right to have their portfolio purchased. It's hard to get a processor or bank to commit to an objective formula for this kind of buyout, so don't expect it unless you have a very strong bargaining position versus the entity paying you.


Don't put all your eggs in one basket. If you are in the merchant services business, chances are you are a good salesperson or you have good salespeople working for you. Use your team's talent to create revenue streams that draw on products other than strictly merchant services. Be careful, however, not to mix in other businesses that would run contrary to the card Associations' rules and regulations.

Financial planning

When looking at your average monthly cash flow, consider how you would cope if your monthly income were cut in half. Most entrepreneurs would never contemplate this. Any prudent business, after experiencing years of uninterrupted growth, must ask this question to avoid unwelcome surprises.

Force majeure clause

Most commercial agreements contain a force majeure clause. This clause permits its beneficiary (usually the clause is bilateral) to set aside its obligations under an agreement because of an unforeseen and unavoidable event caused by an unrelated third party or act of nature.

For example, if the electric company in your state goes on strike, and your merchant volume plummets, then if you are the beneficiary of a force majeure clause, you should not be obliged to continue maintaining the minimum volume to which you may have committed.

Attrition control

Merchants are your customers, and customers take priority. Competition in the merchant services business is fierce; if the economy were to slow down significantly, it would make today's market look like fishing in a barrel.

Whether or not your ISO or agent agreement requires it, pay close attention to your merchants' needs. Give them as many reasons as possible to stay with you. Those reasons should not be related exclusively to pricing; rather, they should also relate to other products that you offer and, most importantly, your service to those merchants.

Staying informed

Some folks in this industry are so busy selling to merchants that they don't have time to follow larger economic trends that could affect them. Take some time to read the business section of your local paper and a national paper to stay informed about trends and growth sectors.

Reading the paper will provide information that will serve you when you least expect it. You will also gain insights into what is on merchants' minds. If merchants prosper, we prosper; it's as simple as that.

I hope that all readers experience much growth from now on, at least until you are bought out.

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 or call him at 514-842-0886.

Article published in issue number 060402

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