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Street Smarts:
Help Me, Help You!

By Ed Freedman

If you consider yourself a bankcard sales professional and a merchant account "portfolio builder," then consider this: Are you building your merchant portfolio on a solid foundation-with a stable monthly residual income stream and merchant customers that will stay loyal and process with you for a very long time?

Setting up merchants that will eventually get shut down by your ISO's risk management group or turned away by large reserve requests is not a smart plan for building a stable monthly residual income.

If you think it's a good idea to work with a company that does not assess your merchants from a risk management standpoint, then you're making a big mistake. Poor risk management, or none at all, is a hidden bomb that eventually explodes.

Companies that don't consistently and rigorously manage their portfolios and the transactions their merchants make end up losing a lot of money. These companies are forced to go out of business because they must either sell their merchant accounts to pay off losses or liquidate portfolios to cover the losses.

When that occurs, what happens to your residuals? If your ISO hasn't dedicated the proper risk management resources, then your residual commissions are at risk of diminishing or disappearing.

How does this affect your merchants? We've seen many companies that need to make up for this lost income by increasing merchant rates and fees or charging the infamous "annual fee" more than once a year. As you know, these increases and additional fees are not usually added to your commission.

Have you wondered, "Since I'm not liable for merchant losses, should I really care about getting an accurate understanding of what merchants plan to do, what their average ticket is and the range of their tickets?"

Do you think you should be concerned with the real percentage of merchants' swiped transactions? Do you wonder if these issues are just questions that get in the way of getting the application through the underwriting process? To get answers, I posted the following on The Green Sheet's MLS Forum:

"When it comes to working with your ISO/MSP partner, what is your responsibility in the process? As a 'no liability' MLS, should you even care about risk management issues, or do you leave it all up to your services provider?

"Do you prefer working with a company that closely examines each account before approval or do you prefer one that just approves all accounts and then handles whatever goes wrong later? As a hardworking MLS, what contributions do you feel you need to make to help your ISO/MSP partner manage risk and control losses?"

From the responses, it's obvious these are issues MLSs feel strongly about:

"I think that most MLSs are not in a position to share in the risk and financial loss that could be incurred on a given merchant account. I think that it is important to realize that there are really three types of loss that can take place: 1) Loss due to NSF; 2) Good merchants that fail; and 3) Fraudulent merchants. No matter what, over time every ISO is going to take a loss on an account here and there, despite all of the best 'preventive medicine.'

"Your reputation is on the line with every deal that you submit. So don't risk losing your agent status or the good will of your ISO by trying to submit a deal when something looks wrong on it. Do your due diligence, send in only deals that YOU would be comfortable underwriting and taking the risk on if YOU were the one who had your dollars on the line." -cdgcommerce

"I think in today's ISO world, in many companies, there isn't the same type of understanding and mutual respect between the corporate office and the reps in the field. Very few ISOs require any type of training, and the education process is very poor. The risk, underwriting and fraud prevention departments are looked at by many as the 'enemy' because many reps just want their deals done and don't really have an interest in the overall profitability of the ISO.

"I think that's wrong and that the agent on the street has the first responsibility in the process to ensure they are bringing the 'right' type of merchant to the ISO and making sure the site survey and application are true, fair and honest." -Too Tall

"I [have been] in the business three years, just 14 months as a MLS for an ISO, before that as an agent of an agent of an agent...I feel like if I answer the questions on the app[lication] and don't cover up anything that may be fishy, I have done what I should. If they come back with more requirements I have to get to get big deal.

"I care...but I think it is my job to bring the paper to the table and their job to flush out the bugs. I know how to do mine and they know how to do theirs, and we have a mutual respect. I do not fault them when they want more info or shut one down. I work for my customers...I answer to the ISO/MSP. Bring as many good deals as possible to the table...period. Sell, Sell, Sell!" -Bancardrep1

"As far as these quick approvals, I am hearing more about merchants being on the MATCH file after processing begins; and subsequently shut down. I know what the rules state, but these hardworking MLSs are getting a kick in the butt more often on this issue. There seems to be much more TMF than when I had my MSP. As much as it may hurt, the slower process proves a better result in most instances. As far as the no liability clause, if the MLSs do not dot their 'i's' and cross their 't's' 100% where required, that goes out the window." -Q

"After speaking with different types of ISOs, I can conclude that it is the money and the merchant count that dictate your underwriting and risk policies. The most dangerous part of the risk is when the rep signs the merchant that is good and the merchant goes out of business. We have to be careful with these types of accounts. On the other hand you have a rep that worked hard on the niche market and only submits these types of accounts. Does that mistake make the rep not trustworthy? How can you tell-where is it a mistake, and where is it the intent?

"I believe the answer is simple. We all know the hit will happen and if you are able to afford to lose like big boys such as Chase and First Data then it should be a judgment call on the rep's part and the responsibility of being a full service processor. Otherwise retail has always been a much safer play. I also believe that this applies to the daily risk management as well." -nvs98

"I'll tell you what I already do for you, Ed: Four to eight app[lication]s a month never make it to you because I know they are fraudulent. I get gut feelings on some. I've asked [my assistant] to withdraw apps in the past because I suspected fraud after I submitted them. I take it personally when I let a bad one through. I don't want any risk on the apps I submit. That's why I pay that reserve to you, that you require to cover the risk." -Tazman

As a merchant account portfolio builder, I want you to understand why you should care about risk management issues. I want you to see how helping your ISO partners get the right information upfront helps them make good decisions from the beginning-and even more importantly-helps them service and support your merchants into the future.

If you're counting on your ISO partner to provide you with the best merchant account program and to continue to pay you aggressive amounts of upfront and residual income, then you need to "help me, help you" by being a front line of defense for your ISO partner. In return, you will achieve your goal of building a stable, reliable merchant portfolio that will stay with you for a very long time.

I recommend that you discuss risk management issues (in a positive manner) whenever you are selling to merchants. They will see you as a professional sales consultant and a valued business partner, and this will differentiate you from a hack salesperson trying to rush an equipment sale or one who might disappear after the lease gets confirmed.

To help MLSs at Total Merchant Services achieve this goal, we provide color brochures in our merchant welcome kit that include risk management tips for retailers and MO/TO merchants. The information shows them what to do when dealing with suspicious customers, what to do when the card won't swipe properly, how to visually check credit card and receipt data and how to watch for skimming activity.

Every hardworking MLS should also know certain facts about fraud. There are two types-credit losses and fraud losses. Credit losses can occur :

  • when companies go out of business
  • when companies do not ship products for weeks (resulting in chargebacks on those transactions that cannot be collected from the merchants)
  • when merchant account acquirers are not able to collect their merchant account month-end fees
Following is an example of loss due to fraud: when a legitimate storefront agrees to process "skimmed" credit cards to earn some extra money illegitimately. Criminals make new credit cards with skimmed account numbers, and then start swiping the fake cards through a terminal they just had set up for their new "pet store." A new merchant processes the cards, gets the money and then the chargebacks start coming in 30-90 days later.

In situations like this, the merchant account acquirers will be out money if they cannot obtain properly signed receipts (which is not going to happen when you setup a fraudulent merchant). These merchants are not in business to process credit cards for a legitimate operation. They are simply set up to steal money from the system-which really means stealing money from merchant account acquirers (i.e. your business partners).

Honest professionals strive to effectively manage merchant credit losses. That's happening today and will continue to happen in the years to come, but your ISO partner needs your help-during the application processing stage and when dealing with any merchant who has risk management issues.

Keep in mind the motto from the movie "Jerry Maguire," when Tom Cruise's character emphatically screams at his client, "Help me, help you!" and be an outstanding MLS by helping your ISO partner help you.

My next column will focus on business philosophies, strategies and tactics that translate into financial success. We'll explore how MLSs run their professional and personal lives and how that correlates with success (or failure). Watch for my post on The Green Sheet's MLS Forum.

As always, I'd love to hear from you. Please send feedback on this topic (and any others) to

"It is one of the most beautiful compensations of life, that no man can sincerely try to help another without helping himself."

-Ralph Waldo Emerson

See you next time where the rubber meets the road.

Ed Freedman is founder and President/CEO of Total Merchant Services, one of the fastest-growing credit card merchant account acquirers in the nation. Ed is the driving force behind all business development activity as well as the execution of Total Merchant Services' marketing plan, including recruiting and training independent sales offices and establishing strategic alliance partnerships with leading vendors, so that Total Merchant Services can provide its customers with the highest quality and most reliable services available.

To learn more about Total Merchant Services, visit the website at To learn more about partnering with Total Merchant Services, visit or contact Ed directly at

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