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Insights and Expertise

StreetSmarts SM

Are ISOs recruiting agents or ISVs?

By Allen Kopelman • A word of advice for ISOs: Stop recruiting MLSs
Nationwide Payment Systems Inc. who want everything for free. They will stick
around for a while but only until the next big sign-
lot of ISOs these days are trying to recruit ISVs on bonus comes along. The only ISOs that win
instead of agents. Is this practice sustainable? at this game are those with tons of cash that are
What happens when the ISV gets acquired by willing to play a long game.
A an investor or competitor and starts poaching • A word of advice for MLSs: Try on a few different
the merchant portfolios of ISOs and merchant level sales-
people (MLSs)? hats and figure out what business model is right
for you. Decide what you're going to sell, whether
it's terminals or POS or software or software as a
ISVs may claim to be processor-agnostic, but all bets are subscription service. Don't expect instant results.
off when an ISO or private equity acquires them. The first
order of business, after establishing a new business entity, Residual splits will keep going down until you
prove yourself.
is to monetize payments. This begins by instructing all the
merchants in an ISO's portfolio to sign up for processing The ISO's competitive advantage
or face harsh penalties of up to 50 basis points or $400 a
month. It's not easy to win merchants away from Toast, Square
and Stripe, because most businesses see the software
These predatory practices are nothing new and have been as more than a tool for accepting payments. They see
going on for years. Most merchants end up leaving, and it as a business management hub with built-in loyalty,
the ISOs and MLSs who worked hard to attract and retain accounting, payroll and customer analytics that gives
them don't have an extra $100,000 to challenge predators them everything they need to run a business from a single
or survive a long-term lawsuit. platform.
Changing business model

When I started in this business in 2001, the going rate for ISVs may claim to be
commissions was 50 percent. Over time, as ISOs competed
to attract new agents, commissions went up to 70, 80, 90 processor-agnostic, but all bets
percent with free terminals and sign-on bonuses. Offers are off when an ISO or private
like these are good while they last but hardly sustainable.
I've seen some ISO friends start these programs and get in equity acquires them.
debt up to their eyeballs after only a few months.

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