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The 10 worst decisions ever made by ISOs

By Adam Atlas

Many problems land on my desk because someone made a poor decision. Sadly, one bad decision can break a business. To help you avoid repeating other people's mistakes in your business, here are the top 10 worst decisions ISOs and merchant level salespeople (MLSs) have ever made.

10. Having the wrong expectations

Some people earn substantial sums in the merchant acquiring business. Some earn very little. In building your business, make sure to set your expectations at a level appropriate to your circumstances and goals.

9. Taking liability without means

If you take liability in your business, please consider what that means: You could come to the office one day and be expected to write a check for $300,000 to an acquiring bank due to excessive chargebacks, fines or losses.

Taking liability could mean being liable for even greater amounts. Larger ISOs that have their own underwriting departments and the financial means to absorb heavy losses are best suited for liability. If you are a one-person show just starting out in this business, do not take any liability.

8. Deceiving banks

In the high-risk segment of merchant acquiring, one of the classic maneuvers is to re-sign a high-risk merchant on the MATCH list (a database used by acquiring banks to identify merchants who have been terminated) by using a company that is not on the MATCH list to process the high-risk merchant's transactions.

The legality of that maneuver is grey, at best. Regardless of its legality, however, you never want to be branded as an agent who is in the business of deceiving banks just to sign another merchant.

With high-volume and high-risk merchants, the reward for a little dishonesty can seem too great to resist. I recommend against any kind of deception of acquiring banks. Remember, at the end of the day, acquiring banks pay our salaries. Don't bite the hand that feeds you.

7. Using the wrong name

This is one of the classic errors in our business. When you are not a registered ISO, you are obliged by card Association rules to use the name of the ISO for which you are selling. If you have any doubt about how to exactly identify yourself, ask the entity you are representing, and get the answer in writing.

When you are an agent selling for more than one processor, identifying yourself can become a complicated process. Have frequent and thorough discussions and correspondence with your processors to make sure you are using the right identification. Getting it wrong could cost you your business.

6. Lying to merchants

Most people in the acquiring business have a hard time, at first, understanding how the industry works. Merchants are even less informed about merchant acquiring than new agents, and they are easily misled. Do not build your business by deceiving merchants. In the long run, that kind of deception will catch up with you and jeopardize your livelihood.

5. Forging merchant signatures

Agents are usually ambitious. Unfortunately, their ambition sometimes exceeds their scruples, and they forge merchant signatures. Some of these forgeries occur with intent to deceive and cheat in order to increase merchant count. However, some occur when agents genuinely believe they are doing a service to merchants, even though the merchants do not know they are being bound to new merchant agreements.

Regardless of how good your reason may be, never, ever forge any signature on any document.

Apart from the obvious loss of your residuals and reputation in the industry, you run the risk of criminal prosecution for fraud. Having a criminal record for fraud could put a quick end to your career in the merchant acquiring business.

Perhaps this is just my optimism speaking, but I find that honesty is rewarded, while dishonesty usually meets the end it deserves.

4. Stealing merchant lists

I once asked how a particular ISO kept signing such a high number of merchants every month. The answer was that its new agents would simply re-sign their previous employers' merchants. Apart from the obvious moral issues, be aware that this tactic could expose you and your new processor or ISO to liability for misappropriation of confidential merchant lists.

Most agent agreements or employment agreements in this business make merchant lists confidential company information that cannot be shared with any third party, let alone a competitor. As such, using a merchant list from an old employer could place you in violation of your old employment agreement.

In addition to the moral and legal risks, agents also risk ruining their reputations by wrongfully using merchant lists. You do not want to be known as a thief in the small merchant acquiring community.

3. Violating nonsolicit clauses

Very few people will tell you they have willingly violated a nonsolicit clause to which they are a party. As you can imagine, in my position, I sometimes meet people who have done this. If you are a party to an agreement that prohibits your moving merchants away from the bank where you have placed them, then conform to that requirement.

Sometimes it seems wrong that the bank with which you have placed a merchant is paying you only a fraction of what another bank might pay for the same merchant. Despite unfair circumstances, however, do not breach the terms of an agreement to which you are bound.

Occasionally, a processor decides to stop paying an ISO or MLS for no obvious reason. When that happens, the ISO or MLS has to think hard and honestly about whether the processor's action was justified. There is often an element of liability on both sides. Be very careful not to make a bad situation worse by moving merchants when you do not have the right to do so.

2. Working without a signed contract

A considerable number of ISOs and MLSs go through the trouble of negotiating an agreement without ever getting a copy of the agreement signed by the processor or bank involved. Make sure this does not happen to you.

1. Working without a written contract

Surprisingly, a lot of ISOs and MLSs are working right now without written agreements. Some of them are being paid significant residuals with not even a scrap of writing to protect their income.

Selling merchant services without a written agreement is against the card Association rules and could get agents as well as processors in trouble with their sponsoring banks. More importantly, if a payor of residuals decides to stop paying one day for no good reason, the absence of a written agreement will make it almost impossible to turn the residuals back on.

In addition, a written contract helps to set out the expectations of each of the parties on important subjects such as termination rights, amount of residuals, liability and portability.

You can avoid making most of the poor decisions described in this article by being honest and organized, and by using common sense. The headiness of the merchant acquiring business sometimes challenges our resolve to keep those goals in mind. But in my experience, it's worth continuing to work toward them.

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 060602

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