Tuesday, April 14 2020
Being a merchant services agent is never a walk in the park. The experience certainly toughens you up, just as working in any kind of sales will. You have to be extremely persistent, flexible, and innovative. Many new merchant services agents find themselves humbled when they first enter the field and realize the true meaning of “easy money” for themselves. On top of all of the personal challenges, there is also a lot of competition in the industry, and it only increases more and more every day.
To make matters more complex, you have to constantly stay up to date on new technological advances. This can mean a lot of things, since the industry is quite wide. For example, you may have to learn about new software for the back-end that serve the merchant services agent, or about new POS equipment for your merchants. You may even have to stay on top of specific new payment technologies.
These rapid changes are actually an opportunity in disguise, however. You could say that the break-neck speed at which this technology is developing has divided the merchant service field into two camps: There are merchant services agents and ISOs who are jumping head first into emerging software, systems, and tools; and then there are companies that are dragging their feet, trying to pretend that the technology isn't there. You can probably sense who has a distinct long-term advantage here, and who might survive the rapid changes that are just on the horizon.
Back in dinosaur times—around the 1990's or so—sales agents for merchant service companies had to peddle their wares the old-fashioned way, by visiting every merchant in person, selling them the physical equipment to process transactions, and writing everything by hand. Even today, there are agents who take this inefficient approach, even though there is not much value in it now. The only thing that is really important nowadays is the ability to give your merchant a good deal that is customized to accommodate all of his needs—and the the best way to do this is to leverage the power of new technology.
At the heart of the merchant services industry, the most critical kind of technology is new payment systems. Customers demand has driven the need for a diverse array of payment options, including contactless payment. If a merchant services agent can't provide this to his merchant, then he is really selling his client short and making it difficult for the business to adapt into a long-term, future-proof plan.
The goal of a merchant services sales agent should be to find the client a user-friendly and fast POS solution that will serve him for years. No merchant wants to take time away from his business to deal with upgrades and technical problems, and no merchant services agent in his right mind wants to jeopardize his residuals by offering his merchant something that will become instantly outdated.
All of this may seem extremely obvious, but the truth is that the majority of merchant services sales agents out there aren't giving their customers future-proof solutions. They don't offer the latest payment methods, and are relying simply on what has worked in the past. This is increasingly becoming a problem because there is lots of competition from companies that are providing easier and cheaper solutions. Take for example Square, and how it has grown explosively among small business owners. This company, as well as emerging payment processing services such as those of Groupon and Amazon, offer online solutions, are extremely flexible, and are much easier to set up for merchants than traditional options.
More and more merchants are just cutting out the middle man when they choose a cloud-based POS system, such as those that are based on existing tablet hardware. This removes the need for expensive equipment and for lengthy training courses. Most of all, many of these systems offer all-in-one solutions, so that merchants can greatly simplify and integrate both their offline and online sales activities. This is great news for merchants, but it certainly makes it more difficult for sales agents to find a place in the industry.
Not only that, but these modern systems usually originate from companies that were born on the Internet, so they have a huge presence on the web, and a small-time sales agent would have an extremely hard time competing with that. Digital marketing is becoming more and more critical in this day and age.
People now use the Internet more than just about any other resource to find the information they need, and this includes when they are looking to buy a service of some kind. Merchants are no different in this regard, and one of the most efficient ways to find new businesses that need merchant services is to cast ones net on the web and capture leads through search engines, contextual ads, or social media marketing. Companies that sell POS software have grown hugely, and this is largely due to their huge presence on the Internet, which gives them a major upper hand when they are competing against traditional merchant services ISOs.
POS software companies are focused on the future and spend most of their efforts capturing leads that are already interested, which means they expend less effort finding prospects. In addition, they can offer all kinds of payment solutions for merchants. It's really no wonder that the industry is trending in this direction.
The only way for merchant services agents to respond in this brave new world is to adapt. This isn't necessarily a bad thing, either. Yes, merchant services agents will have to stay updated and will have to re-learn their industry constantly, but new advances in technology has also opened the door to a multitude of tools that can be used to make the lives of agents easier.
For example, new software for managing portfolios can make staying organized much more simple and paperless. There are also new and better methods for bundling services available, which makes it much easier to close deals with prospects. More and more POS software with apps and upgradeable features is emerging, and offering these kinds of dynamic solutions can make a sales agent extremely attractive to merchants. It really comes down to how willing an agent is to embrace new technology as it is born.
Even better, new technology is making the application process many times more simple than it ever was. There is no longer a need to make applications by hand, and getting your merchant set up and ready to take payments from his customers can happen in the span of hours instead of days or weeks. Free apps now exist that allow sales agents to track the status of their accounts, get notifications about any issues, and stay in constant communication with their merchant services ISO. All an agent really needs to take advantage of this kind of software is a modern phone or tablet.
Part of this emerging efficiency is a reduced need for merchant services sales agents to interface with merchants in person, of course. However, this kind of interaction will never go out of style completely, and giving merchants in-person attention when they really need it will give agents a competitive edge. Embracing the tech side of things and the human side of things are not mutually exclusive options, after all. In the end, though, a sustainable long-term plan for success in the world of payment processing must include new technology, and businesses who remain inflexible will be doomed to a slow death.
Sunday, April 05 2020
With our continuously changing situation due to COVID-19, we wanted to make you aware of some things we are seeing related to fraudsters, as well as provide helpful information on government relief programs.
We encourage merchants to protect themselves from these fraudulent scams by practicing good cyber hygiene, including making sure their terminal and router/WiFi devices are up-to-date and that they are using secure and known connections. We will remain diligent in apprising you and your merchants of the latest cyber scams, while carefully monitoring your merchants’ processing activity to protect your portfolio.
Our Enterprise Risk Management team will be modifying some merchants’ setups to minimize these impacts. Changes our merchants could see may include: a reduction in the return processing window, delayed funding when a batch is a negative amount, fee billing on a daily instead of monthly frequency, standard vs. next-day funding, and reserves if ACH rejects occur.
Wednesday, April 01 2020
Due to the unprecedented environment we are now facing, the card brands have decided to delay their April pricing modifications. In an effort to minimize the burden to our merchants, we will be changing the timeframe for our own pricing changes to the dates listed below to coincide with the card brands:
We will stop any pricing change statement messages from going out that we can and will resend them when applicable. The opt out/exception list that was due 3.10.20 (when the original pricing freeze went into effect) will still be used once we are ready to introduce our pricing changes.
Wednesday, March 25 2020
Saturday, March 21 2020
With the rate at which the COVID-19 situation is changing, we wanted to provide you an important operational update, which includes our efforts to protect your income and maximize your bonus earnings.
Monday, March 09 2020
There are lots of reasons why building a merchant services business can be extremely lucrative, not the least of which is the fact that you can build a lasting asset (your residuals), which you can then sell. In fact, I spoke to someone in the industry today, and he was telling me all about his plan when he leaves the business and how he's planning to sell his residuals. What that conversation made me realize, though, is that lots of people underestimate the power of those residuals. The best thing you can do with this income is to use it as capital.
To be able to sell your business in the long-run, you need to make sure that you start the business the right way in the first place. There are some major things you're going to have to take into consideration so that your company is able to grow:
1) Own your portfolio's residuals. Maybe this seems very transparently obvious to you; after all, what's the point if you don't own your source of income? However, it's not uncommon that merchant services agents will lose their entire portfolio simply because they did not read the agreement that they made with their processor closely enough. You should always consider what might happen if you just decide to stop selling; if the answer is that you will lose your hard-earned residuals, then choose another partner.
2) Be able to sell your residuals. If you can't sell something, do you really own it, then? Sometimes processors will require you to have to consider an offer from them before selling to an outsider, and that's fine, but just make sure you are free to choose.
3) Find out if you can borrow cash against your residuals. A large merchant services ISO that isn't operating as a middle man should be able to lend you money. If they can't, this is a problem. Usually, you're going to want to exhaust several options before a buyout, and this includes borrowing.
So let's assume you have all of these issues squared away and are the proud owner of a growing portfolio of accounts. Now you can start to use that asset to raise some capital!
Before you do anything else, though, take a look at these general guidelines that will help you get a better picture of what is going on when the selling occurs:
Do you qualify? Don't bother trying to pump any cash from your portfolio before you have at least two dozen accounts or so. Make sure that your accounts are making at least $1000 every month as well. You will be hard pressed to find anyone who would want to buy residuals less than this.
Performing a buyout: When you perform an 100% upfront buyout, you'll get about 12 to 20 times the monthly worth of the accounts that you're selling. This is a rough estimate, but adjust your expectations accordingly.
Performing an earn-out: Basically, this is the same as a buyout, except you get less upfront. Some of the money is upfront, and the rest is sent to you in increments with the stipulation that your accounts don't get canceled and that they continue brining in a certain amount of money. This will yield you more than a buyout in the long run—about 20 to 24 times your monthly income.
Performing a secure buyout: Let's say you have a significantly-sized portfolio and you only want to sell some of your residuals. You can sell some of those accounts, and then use your others as collateral essentially to guarantee against any cancellations. This means less risk for the processor, so they are usually willing to pay more.
Getting a loan: Maybe you just need to borrow some liquid cash and use your residuals as a guarantee. Most ISOs can do this for you. Usually, you can borrow anywhere from a few months to up to a year's worth of residuals. The terms will vary depending on your partner company. Since of course your merchant services ISO will be interested in minimizing risk, just show that you are using the funds to grow, and you'll have a better chance at getting the deal you want. Your ISO will also usually offer better terms than outside lenders.
Did this article help you learn more about how to turn your portfolio into a machine that pumps out capital? Do you have a portfolio that you're looking to use right now for these sorts of purposes? Contact us and we'll show you the way.
Article by Shaw Merchant Group
Thursday, March 05 2020
Tuesday, February 25 2020
In this industry, you will often hear the words “merchant services agents,” “Member Service Providers,” and “Independent Sales Organizations” used in a similar context, as if all three of these things are the same. The truth is that these terms actually refer to distinct roles in the credit card processing business. If this seems confusing to you, don't worry; all of these terms will be explained in this article, as well as their relationships to the credit card associations. We will also go over how you might go about becoming a merchant services ISO or an MSP.
After we've sorted all of that out, we'll go over what the advantages and disadvantages are of working in the industry as each of these roles. Getting an idea ahead of time of what each of these entails will hopefully save you from making a lot of mistakes early on in your business ventures.
What Every Term Means - First of all, let's get everything perfectly clear by defining the terms that we've mentioned so far:
ISO (Independent Sales Organization) – This is basically the credit card processor, the company that serves as the middle man between the credit card companies and the merchant. It will often provide terminals to the merchants, as well as tech support, training, and customer service. Another common term for this is “merchant service company.”
MSP (Member Service Provider) – ISO is a term often used by Visa, and so MSP is basically MasterCard's version of this. They both mean roughly the same thing. However, to make things a little more obscure, MasterCard also uses the term ISO, but it means something different. Basically, in their case, an ISO offers services that are not processing and transaction services, like customer service and lead generation. For our purposes, though, don't worry too much about these subtle distinctions. They are basically the same thing. For the sake of simplicity, let's just assume that we're including MSPs when we use the term “ISO” from now on.
Sales Agent – This role is completely different from the above mentioned roles. A merchant services agent is a third party that sells the services of merchant services ISOs and MSPs. Since merchant services companies often like to concentrate on processing credit cards and offering POS solutions, they will contract sales agents to find merchants to work with. A sales agent doesn't have to pay the high association fees like an merchant services ISO does, but he can't do business in his own name and have a merchant services ISO program with an ISO or MSP company.
What is the Relationship Between an ISO / MSP / Sales Agent and the Processing Banks? - You probably realize that merchant services ISOs are not banks, and that these organizations need banks to ultimately perform the transactions. Every merchant services ISO will need a sponsoring bank, one who is a member of Visa and MasterCard's respective associations. In practice, these banks will usually not take on small merchant service companies, and actually most merchant services ISOs use larger ISOs as intermediaries between them and the banks.
A merchant services ISO program can also have several sponsor banks. Though this can be extra costly, it also gives merchant services ISOs the advantage of being able to take on different kinds of merchants. For example, some banks might be averse to what they see as “high-risk” businesses, while others are not (though these usually charge higher fees).
By the way, these sponsoring banks don't really need merchant services ISOs at the end of the day. They could cut out the middle men and sell directly to merchants if they wished, but most of these companies prefer to focus their energies on processing transactions and don't want to bother with customer service and other issues.
If you're curious about what acquiring bank a given ISO uses, simply check out their website. They are actually required to make this information public, and it will usually be apparent in the footer of the page.
Now, how about sales agents? Well, agents are indeed registered with the credit card associations, but of course it is much less complex and expensive than it is for ISOs. Sales agents are basically contractors and the ISOs that they work with usually take care of the heavy lifting when it comes to paperwork.
How Do ISOs Go About Registering With Visa and MasterCard? - If you're an ISO, you'll have to swim through a rough sea of bureaucracy before your business can start processing credit cards. First, you need to find a bank that is a member of the credit card associations—usually both, but sometimes one—and you need to show the bank that you know what you're doing.
The banks will have to put you through a vetting process before the Associations are comfortable taking you on. You will usually have to submit all kinds of information on your business, and what type of business you are running, whether it is a “high risk” business, and what sort of services you provide to customers can all be a factor.
Usually, the bank and credit card companies will want to see:
After all of that is squared, you'd be required to pay $5,000 for each of the credit card associations. This is a yearly fee, by the way, and your application gets reevaluated every year as well. By contrast, an agent pays a bit of pocket change—maybe $50 once a year—to stay in business.
Should You Be an ISO or a Sales Agent? Which is Better? - Now, you might be curious about what path to take when it comes to your merchant services business. Should you become a merchant services ISO, or take the safer and cheaper route and become a merchant services agent? Really, it comes down to your revenue. Do you have the sufficient merchant volume to be able to afford all of the crazy fees that ISOs have to pay? Then maybe it would be worth the trouble for you. If not, you should probably stick to the path of a sales agent, at least until you have more capital.
Becoming an ISO might seem really expensive and complicated to you right now, so you might be wondering why you would even want to become one. Well, basically you have the potential to make way more money. As a merchant services ISO, you are working directly with the processing banks (or at least with a larger ISO that is working with the banks), so you get a very low price in terms of transaction costs because there are less middle men between you and the bank. Your profit margins are higher than that of a merchant services sales agent. Merchant services sales agents get less of a share and they also have higher fees to deal with. It's like the difference between wholesale and retail, to give a somewhat awkward analogy.
However, not everything is rainbows and sunshine when it comes to being a merchant services ISO. There is a lot of responsibility and a lot of bank fees to dodge, things that sales agents don't really worry about. For example, you would need to watch out for so-called minimum processing fees. Basically, these are fees that the bank will charge you if you don't make a certain amount of transaction fees. Even worse, some banks will increase these fees year after year, and you will lose your residuals if you can't keep up. In fact, you might even have to pay a penalty out of your own pocket!
In order to avoid these minimum fees, you need to have a substantial portfolio of merchants. The minimum threshold that you are required to meet may be thousands of dollars, and since you're making pennies per transaction, you're going to need a huge volume of transactions. This is why it's not very wise to become an ISO if you have no experience in the business and no clients yet. It is just too risky.
As mentioned, the bank can also decide to increase the minimum every year, so that you're constantly trying to catch-up. This can be bad news for you because you can lose everything that you worked for. It's hard to escape having minimum fees of some kind, but steer clear from the kind of agreement that increases it every year if you can.
There are also some companies that will require you to sign up a certain minimum amount of new merchants per month, or you could lose all of your residuals. Don't sign up for such a deal, either, or you could see all of your income disappear quickly through no real fault of your own.
What We Have Learned - What's the best way to get started, then? Well, like anything else, that really depends on you and where you are with your business. If you're starting from square one, it's advisable to avoid the risks of becoming an ISO, and to simply stick to being a sales agent until you have decent enough income. There's something to be said about gaining experience and learning the business as well. No matter what you do, make sure to read every single contract before you sign anything so that you can avoid being taken for a ride. Don't jump into anything until you are ready. If you're not confident enough to negotiate with sponsor banks, then don't become an ISO just yet and spend some time as a sales agent building up your portfolio. Take things slow and you will avoid costly mistakes.
Monday, January 27 2020
Do you know if you really own your credit card processing residuals? The best way to find out is to ask your credit card processor if they want to buy you out—that is, purchase some of your future income steams. If you need fast cash, this is a great way to go. Let's look at some of the details:
For example, what if you closed twenty deals in October, and each of those yielded $50 in profit. If you have a 50% split, then your residuals would be $25 for each account per month. This makes for about $500 dollars a month total in residuals, which is $6,000 dollars per year. Not bad, right? Especially considering that your portfolio will only increase from there.
Just like any other asset, you can sell your merchant portfolio, though. If you need cash upfront, you can sell the right to this long-term passive income to your processor. How much would they pay? Well, typically, they will pay the same as about 15 months of your residuals, which in this case is $7,500. And then they would pay you another $4,500 throughout the year ($500 x 9), depending on the retention of your accounts. That's a pretty handsome amount for closing just 20 accounts.
There are some rules to consider when you're doing a buyout, though, so let's take a look at some individual guidelines:
1.) First, the residuals need to be from a merchant account that has been activated for awhile—at least a month, but more often around three months. Why? Consider this: your processor will decide what to pay you based on the average income generated over the past three months. You don't want one or two of those months to be a 0.
2.) Selling your residuals shouldn't affect your upfront payment for closing the deal.
3.) You're more likely to get that second payment if less accounts cancel, so sometimes it's better to sell more accounts to your processor to increase your chances. Another thing you can do is to get a buyout that is 100% upfront, though usually this isn't as lucrative in the long run.
Do you feel like you're a bit more familiar with buyouts now? The above guidelines are good things to keep in mind, but how do you know when a buyout would be helpful?
1.) To break your fall when you're first getting started. Running a business can be a difficult challenge and sometimes this requires putting money upfront. It might be fine to work off savings and initial capital for a few months, but eventually you're going to have to start earning income from your business to be able to avoid running out of money. If expansion is happening slower that you thought and you need some money to put into savings or to invest in your business when you're brand new to the industry, a buyout may just help you find the liquid cash that you need without having to go into debt.
2) When you need stability. You might be tempted to go with a buyout as a way to pay for the cost of growing—for example, getting a fancy advertising campaign going, or moving to a bigger office—but don't do it. Selling your residuals is not a long-term strategy, so it should not be used to meet long-term goals like growth. You may have more money upfront, but it will obviously lower the amount of your monthly residuals. It is not worth it; the point of this business it to build your monthly income over time. Only perform a buyout when you really need liquid cash upfront to put out a fire and return your business to the status quo—not to add more complexities and growth.
When shouldn't you sell your merchant residuals? Well, there are a few situations where it's not recommended:
Article Posted By: Shaw Merchant Group
Wednesday, January 01 2020
If I had to make a rough estimate, it seems to me that about 90% of credit card processing sales agents aren't actually very familiar with their residual splits and how they work. This isn't a great position to be in and you don't want to be in the dark, so take a look at these tips to get a good grasp on the subject:
1) First of all, do you actually own your residuals for the life of you account? If not, then years of work on your part could just disappear literally overnight. You could have been working tirelessly to build up a huge merchant services portfolio, but it would all be down the toilet simply because you stopped selling for awhile. Many merchant services ISOs have these stipulations, where you're required to bring in new accounts every certain amount of time, or your residuals are lost. Does that sound fair to you?
So many agents fall for this racket. Don't do this, no matter how much bigger your part of the split will be. Over the long-term, it's just not worth it. You're trying to build long-term passive income here, not turn your work in sales into an ordinary job—that's a waste of a great opportunity. Make sure you ask about this before you choose a merchant services ISO program. Tell them to give you an exact play-by-play of what will happen if you decide to leave the business. If the answer is “You will lose your residuals,” then walk away. Also, if you can't sell your residuals, then reconsider as well, since this is an indication that you don't really own them.
2) Forget about the percentage of your split. This doesn't really mean anything. To illustrate this better, let's say you're playing monopoly and your friend wants one of your properties. He offers you 30% of his net worth for it. However, another player butts in and raises the stakes. He tells you that he'll give you 50% of his net worth. Finally, a third player screams over your other two arguing friends and declares that he'll give you 10% of all of his cash if you will sell him the property. How do you decide which deal to take?
Well, obviously, you don't have enough information to make a good decision, do you? Before you know which deal is the best, you need to know the net worth of each of the players! After all, if Player 1 and Player 2 only have 100 monopoly dollars to give you, then you know that what they're offering is a raw deal if Player 3's net worth is 5000 dollars. Even with only 10% of that, it's far more than what the other two players were offering.
The same goes with credit card processors. Ignore their bragging about how they will give you 70% or 80% or whatever inflated number. It doesn't actually mean anything unless you know how they calculate the profit in the first place. Always get some context for these numbers, or else they are just going to be completely useless to you.
3) Always keep an eye on costs and the fees that the processor is going to charge you, as this will have much more influence on your profit than the actual split. You can find out what these fees are by looking at the Schedule A that your credit card processing ISO program will provide for you. You will also need to ask yourself a few things when considering cost. For example, do they add basis points before they calculate the profit? What are they going to charge you for the transaction fee?
Some processors give you a true interchange pass through, while others will mark up the fees a few basis points above interchange before they start to calculate the profit. With the former kind of processor, things are a bit more obvious. For example, if your transaction fees are $0.03 and you in turn set up your merchant's transaction fee as $0.09, the profit per transaction is $0.06. If you had a 50/50 split, then you would get half of that in the end. It's a case of simple arithmetic. However, if you're having to deal with a huge mark up of dozens of basis points first, a lot of that profit is lost, and even if you had a 90% split, it wouldn't be worth it.
By the way, stay away from “buy rate” programs, as they don't offer you good deals. If you have any doubts about this, then be sure to get into contact with me and I will tell you all about it. You might be tempted to go with one of these programs, but I assure you that after I break it down for you, you will change your mind. Always go with a revenue sharing plan, as it's much more lucrative in the long run, especially if you choose the best merchant services ISO program to work with. I've even heard of processors trying to set up these kinds of deals with merchant services ISOs themselves, which is very silly in my view. You're trying to run a business here and build your empire, so don't settle for a buy rate.
4) The pricing is not as important as the cost structure when you want to get accounts of a significant size. Aim for a low cost structure for your clients. If your processor is charging more per transaction than $0.04, then you probably won't be able to pass on a reasonable deal to your merchants, so think twice about going with a processor that is this pricey, even if you're making 80% of the split. Make sure to have more than one partner so that you have access to the lowest rates and the best deals, and this way you can give your merchants a variety of options. This is especially true for your larger merchants.
5) Finally, keep in mind that you shouldn't get too caught up in either the cost structure or how much of a percentage of the residuals that you get. Ultimately, making the sales is what will determine your success in the long run. You need merchants to make money, and you need to close a lot of deals. Any credit card processing ISO program or merchant services ISO program that you're partnering with should know this and help you get the kind of training that will lead you down the right path. If you can't even close deals, then there's no point in worrying about your compensation—you won't be getting it anyway! Whether you make 50% or 90% of $0, it is still $0, and that's certainly not a handsome residual to be getting every month. So choose your associates wisely, as they can help you to succeed—or drag you down.
We're happy to help you on your endeavor, so we offer all kinds of resources, from informative material, to help with your marketing, to training. If you're curious or have any questions about how to move forward in this career, then don't hesitate to send us an email.
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