GS Logo
The Green Sheet, Inc

Please Log in

A Thing

Street SmartsSM:
The agent bank relationship - Part III

By Michael Nardy

The previous two articles in this series gave an overview of agent bank relationships and discussed the underwriting and customer service aspects of agent bank programs. This final article in the series addresses residuals, data sharing and some common problems that can arise when doing business with agent banks.

Residuals: Accuracy is key

Clearly defining and agreeing to a commission or residual schedule before processing begins is very important to the success of any agent bank program. Some questions to answer upfront are, will you be able to offer the same level of compensation as the bank's previous provider, and how much reporting does the bank want or need?

Unfortunately, many banks are used to five lines of reporting, and so are many sales reps. However, the rise of interchange-based revenue sharing programs has increased the level of reporting given to ISOs and agent banks alike.

More reporting is better than less. Beginning a bank's statement with a succinct overview can be helpful if it's followed by more detailed reporting the bank can examine, if necessary. Essentially, a bank or credit union needs to trust its processing partner and needs to be confident that its partner is financially stable.

On time and accurate residuals can go a long way toward ensuring that this piece of the larger agent bank pie is handled.

An aspect of determining residual compensation is the level of risk assumed by the bank or credit union. Generally, an agent bank's compensation will be tied to the level of risk it assumes, the number of accounts you submit each month and the number of accounts currently processing in your portfolio.

Also, you can establish simple buy rates that will earn an agent bank a fixed percentage of income on its accounts, but true flexibility and partnership come through revenue-share types of programs.

Data sharing: What is and isn't protected

Up-selling and cross-selling a merchant base is a key route to success in agent bank partnerships. The ways ISOs and merchant banks can pursue this are myriad. However, data security and complying with the Payment Card Industry Data Security Standard are critically important.

Security issues are at the forefront at industry conferences and discussed at length in trade magazine articles. It goes without saying that maintaining strict data-sharing standards when dealing with banks is imperative.

Many agent bank programs involve 100% access to customers' processing information, including processing volumes, high months, average tickets, statements, paper re-orders, type of equipment and help-desk phone logs.

Discussing with your bank whether it may use this information for nonmerchant program purposes, including commercial loan, mortgage and demand deposit account (DDA) solicitations is an important step in defining a profitable agent bank relationship.

Dealing with change: Rebellion in the ranks

What happens when your company establishes a new agent bank relationship and thereby pushes out the bank's previous provider? How will the bank's staff and management handle the change? How will merchants be affected?

In one agent bank relationship, a company pushed out the previous provider and then seriously disappointed merchants with its performance and pricing.

The new provider sandbagged merchants into leasing terminals they didn't need, jacked up merchant pricing and, virtually overnight, sent out new statements reflecting unwelcome changes. It was disastrous.

But for ISOs, wholesale conversions of merchant portfolios are a strong boost to the revenue produced from any agent bank program. When it's done right, it can be positive for all concerned.

Even when a new provider does everything right, however, there may be a local branch teller or manager who has a personal relationship with the previous provider or simply doesn't like the idea of changing providers.

A person like this can do a great deal of harm by encouraging merchants to not switch providers or discouraging them from taking advantage of the benefits the new company can offer.

In working with any new bank, befriending the staff will go miles toward getting them to support your program. Contests, promotions and bonuses for the bank staff are a welcome feature of a successful agent bank program.

Such programs help make credit card processing for the bank's customers a team effort between your company and the agent bank.

Problems arise: The right to cure

Inevitably, you will have problems with merchants, their customers, bank employees or the bank itself. As noted above, these problems may be caused by a dissatisfied bank employee or by the poor performance of the processor.

But while mistakes happen, your agent bank agreement should have a right-to-cure clause, giving you a certain amount of time to remedy problems.

Also, at the start of a relationship, having 60 to 180 days to work closely with an agent bank and a handful of merchants can assist in a smooth transition. The larger the bank, the more essential this is.

Indeed, when mistakes arise, they need to be handled immediately, and the outcome should be reported by telephone to both the merchant and the bank where the merchant's DDA resides.

Also, in the event of default in an agent bank relationship, the parties involved should be given a period of time to cure the default. At the end of the day, being proactive rather than reactive is essential.

Flexibility: Bend but don't break

Be ready for change, and expect that your merchants and bank partners will want you to keep them abreast of the latest industry events, new technologies and updates in card Association rules.

Agent bank relationships are dynamic and evolving. Thus, ISOs should establish relationships that will allow for contract alterations should changes occur in the industry. When negotiating, don't give in to all of the bank's demands, but be willing to listen and react to its suggestions and requests.

As the industry evolves, so should you. Pricing should always remain flexible, as should branding options, portfolio rights, and the responsibilities of both the bank and ISO or processor.

At any time, giving your bank the ability to provide its own help desk, terminal programming, underwriting and customer service can begin to grow the bank's level of responsibility, relieving you of those duties.

Know your competition -Be better than the rest

It seems obvious, but ISOs often overlook how essential it is to know your competition in the market where you compete. Know which ISOs or processors are competing with your business and how they solicit their bank partners. Find out what they do for their customers in terms of service, reporting, residual payouts and terminal programs.

For any successful agent bank program, the most important tenet to remember and work by is, don't let any of your actions give reason for a customer to leave that bank's services.

Ultimately, it's up to you to ensure the success of your agent bank program; you are the ISO or processor. Remembering that you are serving both merchants and bank customers under these programs will help you tremendously.

Michael Nardy is Chief Executive Officer of Electronic Payments Inc. (EPI), a founding sponsor of the National Association of Payment Professionals and one of The Green Sheet magazine's Industry Leaders. EPI is one of the nation's fastest growing privately held payment processing companies offering ISO and MLS partnership programs and cutting-edge tools to help their portfolios grow. To learn more about EPI, visit or e-mail Nardy at

Article published in issue number 060701

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.
Back Next Index © 2006, The Green Sheet, Inc.