Strategic Advisory in Payments
& Payments Technology

Buying Merchant Portfolio Residuals: Geography

Buyer question: Can you find me a merchant portfolio residual to buy in my home town/city so I can service the accounts?

Adam’s answer: In most cases, buyers seeking to acquire merchant portfolio residuals are geographically agnostic as it pertains to the location of the agent or agent office that is selling the merchant portfolio residual, and the location of the merchants themselves. Many buyers assume that once they purchase the merchant portfolio residual stream, or merchant residual stream, they are entitled to service the merchants themselves, and have the right to market and cross sell into that book of merchants their respective products and or services; common examples of this are other back office services like payroll, insurance, accounting software, etc. However, this is simply not the case.

As I have remarked before, a merchant residual transaction, where an ownership interest in the merchant agreement is NOT being conveyed to the buyer, the buyer is only entitled to receive that seller’s (usually an agent) portion of the revenue share from that merchant portfolio. The ownership interest in the merchant agreements themselves remains with the ISO for whom the seller (again, in most cases an agent) writes his or her business. Therefore, for all intents and purposes, it matters not where the agent or the merchants are located as with that type of acquisition, you wouldn’t be able to service or sell to those merchant accounts anyway.

Though there are some notable exceptions, for the most part, this general rule applies.