A frequent question asked of me is “As a merchant services sales rep or an ISO, should I go directly to the processor?” In this episode I’ll answer that question and help you understand some key terms in the industry. Let me give some insight into the best way to set up your merchant services business. I’ll help you land on the path to success.
Read the previous article here: http://bit.ly/2y82n9e Success is NOT Thinking Outside the Box, But Learning How to MAKE the Box.
In this industry, a “processor” can mean many different things. There are certain tasks which must be done – tech support, customer service, billing, under-writing, risk, compliance, PCI compliance, funding, and statement analysis – to name a few. There are people who sell and those who manage the sales people. Many different names have been used interchangeably for all these various people. Thus, there is plenty of confusion. The “processor” usually refers to the company which actually moves the money to and from the business owner’s bank account. So, we’re talking about First Data, Vantiv, Global, Chase Payment Tec, and several others who are depositing money into the merchant’s bank account, withdrawing the fees, sending the statements, and doing the billing. The question “should I go directly to the processor?” usually means, “Is it best to go with one of those companies or an ISO who is registered with that processor or acquirer?”
Ask yourself where you want to be in this chain? If you work for a sub, sub, sub ISO of somebody, all the ISO’s in the middle are getting a piece of the profit. Suppose you make a sale which gets $100 for the processor. Then each middle ISO get’s $5. Even if you get a 75% split, the pie is very small by the time you get some! It would be better to get 25% of the processor’s amount than 75% of the sub, sub, sub ISO. The natural viewpoint is to be as far up the chain as possible. If you call Vantiv or First Data, they will say, “Absolutely, we have a direct sales team. Sure, you can come go direct with us.” Here are two reasons why I believe to go direct with these large processors is a bad idea.
#1. They are not very good at servicing the sales organization. Their primary concern is risk, under-writing, compliance, moving money. They excel in transactional issues. But they don’t provide a great level of support or service to your sub-agents. Most of them have a relatively small direct sales team for that reason, while they have a relatively huge channel of ISO’s selling for them. They are good at servicing the large sales organization but not the individual sales rep. If you have less than a hundred deals a month, going direct to the big guys is not a good idea.
#2. Surprisingly, the financial aspect is not as good. The usual thinking would be, “If I go directly to the processor or acquirer (the company who moves the money), certainly I’m going to get a lower cost structure and higher percentage split than if I station myself a tier below.” That is actually not true in most cases.
The big guys make their money in bulk by attracting the largest ISO’s, super ISO’s, independent sales organizations with the most reps. They’re looking for organizations doing 1000, 800, or 2000 deals a month so they can write volume discounts. They may give a particular processor or ISO a $0.03 cost per transaction because of the 1000 deals a month. However, an individual rep would get $0.06 or $0.08 cent fee. Large ISO’s who are selling for Vantiv, Tesis, Chase Payment Tec, Global, or First Data are trying to keep their volume discount, so they want your deals. So, the next tier down would be more willing to pass along their $0.03 cost since they need your deals to maintain their bulk amount. Good news – they also offer better support!
In my experience, the big guys are usually not willing to pay out a big up-front bonus or provide free terminals. This presents a big problem on the capital side of business. Many of you may say, “I don’t care about that. I just want the high percentage.” I’m trying to beat into the heads of many reps and ISO’s that this mind set is stupid! I understand you don’t need the money, but that doesn’t mean not getting an up-front bonus is smart. You may prefer no money up front and 70% rather than $400 up front and 60%. Realize you are giving up $400 to get $2.75 a month. That is stupid! Don’t do that. You want to have multiple schedules. This allows you to place different size merchants with different schedule A’s. If you sell a mega-client doing $1000 a month in processing, then the extra 10% is $100. Yes, giving up $400 up front for $100 a month is more sensible. The big processors don’t’ usually have those types of programs. But the next level down usually offers financing of equipment costs and up-front bonus. If nothing else, this give you more options to negotiate.
In summary: until you get over 100 deals a month, I would advise you to station yourself a tier below the big buys to get the best service and cost structure. I’d be glad to talk to you any time if you have any feedback or questions. Email me – email@example.com. Looking forward to speaking with many of you!
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