Strategic Advisory in Payments
& Payments Technology

My ISO Just Sold My Merchant Accounts???

Here’s a real inquiry from one of our members who is a merchant level salesperson (MLS):

“I have been an agent for an ISO for about 2 years. The other day I received a note that the ISO was doing their “yearly evaluation” of which merchant accounts in their portfolio to sell and some of mine would be on that list. 1) Is that standard behavior for an ISO, and 2) what kind of multiple should I expect on my accounts? I hope you can help. Thanks.”

The first thing all agents and MLS’s should know is that although the situation above is rare, it does happen. Because of this, it’s important that a MLS know what his or her rights are, and what to expect when this situation does occur.

As I’ve said in many articles I’ve written, it’s very important to understand the relationship you have with your merchant processor (ISO) which is outlined in your agent agreement, especially as it pertains to what rights each party has. In almost all cases, the only right of ownership an MLS has is to their portion of the revenue (residual) stream. The ISO owns the right to the merchant contract as it is the ISO which is a party (signatory) to the merchant contract. Because of this, the ISO is entitled to sell the right to process for that merchant to another party without your consent. The more common scenario for this is that a third party acquires the entire merchant portfolio of an ISO or the ISO itself. The less common scenario, like the one described above, typically happens when an ISO has a pre-existing deal with a third party to “bundle” subsets of merchants in their processing portfolio and sell them at a predetermined price (multiple) and at predetermined times. This is typically done in instances where the ISO needs a constant infusion of capital to either maintain their business (if this is the case, you may want to think twice about establishing a relationship with that particular ISO) or grow their business. So, to answer our member’s first question: this scenario is not “standard”, but it does happen.

As to our member’s second question, I’ll say again, it’s very important that you understand the relationship and terms of your agent agreement. Your agent agreement should spell out for you exactly what you would be entitled to if your ISO sells your merchant accounts to a third party. In most cases, you would continue to receive the same residual stream you were getting as the third party acquirer would be subject to the same terms and conditions as your ISO. However, in some cases, the agreement will tell you that if your ISO elects to sell your merchant accounts you will be entitled to a multiple of [fill in the blank]. So for practical purposes, there should be no question as to what the multiple should be.

Should you find yourself in a situation where you have questions about the terms of your agent agreement or believe your ISO isn’t abiding by their obligations pursuant to your agent agreement, please contact me and I can refer you to an industry specific attorney to assist you.