The free market rewards hard work. But whose hard work, and who gets the reward? Sometimes merchant level salespeople (MLSs) slave 60-hour work weeks to build up portfolios only for the owners of ISOs to reap the benefits when it comes time to sell.
Rick Pylant, President and Chairman of CoCard Marketing Group LLC, learned that lesson - twice. Pylant was working as a sub-ISO for Bank Card Systems when it was sold. Then he worked in the same capacity for Card Payment Systems when it went the same route. Pylant didn't receive a penny on either sale, even though he had played a vital role in the success of both ISOs.
It turns out Pylant wasn't the only one who lost out on those sales. Malcolm Carnahan, Chief Operating Officer at CoCard, was one of the other sub-ISOs working for the two companies. "We made them rich, and we didn't get anything out of it," he said. They had had enough and were determined "to tear down that Chinese wall" erected in every ISO that separated the feet on the street from company owners. That figurative wall typically allows "all the benefits and all the entitlements to flow to one person on the backs of all the sales offices," Pylant said.
In 2000, Pylant, Carnahan and two others cofounded CoCard as a kind of cooperative, where all ISOs that operate under the CoCard brand own a portion of the overall company. Each ISO owns its own portfolio and therefore its residuals.
"If our company ever sells, each one of the sales offices, depending on the amount of revenue they're running through the company, will get that portion of the sale," Pylant said. He added that CoCard's strength in numbers concept increases the value of individual portfolios and that as CoCard grows, portfolios gain proportionally in value, which means a higher payout for ISOs if CoCard should sell its business.
Carnahan said they have come close to selling CoCard - meaning its current revenue stream - on a couple of occasions. The latest attempt in the fall of 2008 fell through because of the economic downturn. But Carnahan estimates 25 of its ISOs - some of which bring in annual residuals of $2.5 million - would have become millionaires in the process; that number represents well over a quarter of CoCard's partners.
That type of golden carrot is undoubtedly one reason why CoCard continues to steadily add new ISOs.
According to Pylant, an average of 1.5 ISOs join CoCard each month, with 84 offices currently in the fold - eight alone having jumped on board since January 2009.
Combining the portfolios from CoCard's sales partners, the company now services 34,000 merchants nationwide, with between 500 to 800 new merchants boarded monthly, Pylant said.
When ISOs sign up, CoCard asks from them a minimum of 20 deals a month. In Pylant's mind, 20 deals separate the players from the wannabes. "There are millions of people doing one to 10 that come and go in this business - here this week, gone next week," he said.
"But once you do 20 deals a month on a steady basis, you've found your niche, you've found your marketing style, you've found your relationship sources and you're hitting your stride."
Additionally, that 20 deal threshold dovetails with the freedom CoCard allows its ISOs. The company does minimal training for its new sales offices.
Beyond informing ISOs how they can "plug into" CoCard's system and what third-party vendors the company uses, ISOs are given free rein to pursue business as they see fit.
Carnahan said CoCard does not impose a sales model on its ISOs, nor does it force its ISOs to use the third-party vendors CoCard provides. Although CoCard doesn't necessarily recommend it, ISOs can contract with their own value-added service providers, and even their main processors, if they so choose, Carnahan noted.
CoCard encourages an open, enterprise-wide exchange of ideas and information. The monthly residual statements of all of its ISOs are published for all in the organization to see. If ISO A sees that ISO B is "hangin' the moon" in a particular vertical, ISO B will educate ISO A on how it has been successful.
"If you want to know how I do it, I'll tell ya," Pylant said. "I'll give you my presentation; I'll give you my agreements; I'll give you everything - which is entirely different than every other ISO out there. Every other ISO doesn't even want to know that you exist."
Pylant believes this transparency and spirit of cooperation help CoCard's ISO partners increase sales, which grows the value of CoCard and, in turn, increases the value of each ISO's portfolio.
Although CoCard does not employ a code of conduct among its ISOs, Carnahan said a positive corporate culture has evolved nonetheless. CoCard's ISOs do not see themselves in competition with each other. One CoCard ISO would not try to lure a merchant away from another CoCard ISO.
"If you walk into a merchant and they're already with CoCard, you leave it there," Carnahan said. "We don't steal accounts from one another."
While many sales organizations are administratively top-heavy, CoCard keeps management to a minimum. It has all of five people working out of its Nashville headquarters.
Pylant is based in Charleston, S.C., and Elizabeth Carter, CoCard's Chief Financial Officer and Carnahan's daughter, works from Salt Lake City. The company's managers use the Internet and teleconferencing to stay in communication with one another and the company's sales partners.
The company's networked nature minimizes overhead costs. But it also means CoCard outsources payment card processing and customer service - functions that would increase operating costs.
"Our processors do the underwriting; they do the customer service - basically all the heavy lifting that goes on in merchant processing," Pylant said. That leaves CoCard to do what it does best: sell. "We're a pure sales engine," he said.
CoCard works with multiple third-party vendors, such as National Processing Co. and First Data Corp. for processing, Valutec Card Solutions for gift card programs, Crosscheck Inc. for check processing and AdvanceMe Inc. for cash advance services.
And the company contracts with multiple vendors for the same services as a way to keep prices down.
"Historically in our business it's always been - OK, if you want the really good prices, you have to give me an exclusive deal," Pylant said.
"We say no way. You want the business. You need to make it where we want to do business with you, not that we have to do business with you. So you need to be as competitive as the guy that's bidding against you."
When CoCard contracts out for services, it acts as the parent company on behalf of its ISOs. Pylant is the lead negotiator and is able to deal with vendors from a position of strength based on the "sheer scale" of business that CoCard brings in, he said. It doesn't hurt that the company processes through mega-acquirers like NPC and First Data, Carnahan added.
The prices for services CoCard locks in with its vendors are the same prices available to its ISOs, with no mark up. That transparency engenders a "high level of confidence and trust in the way we do business," Carnahan said.
This approach has proven successful. It is why Pylant believes CoCard provides the industry's best buy rates for its ISOs. By keeping pricing down, ISO margins go up. The proof is in what Pylant calls the "cha-ching" factor.
ISOs new to CoCard typically start out hesitant about the company and its philosophy. But that changes after they receive their first monthly residual statement.
"All of a sudden they lay that account that they put down with us beside an account that they put down with their old processor, and that's when the cha-ching comes in," Pylant said.
"They're like, holy mackerel! And then the floodgates open and they point their whole company in our direction, and away we go."
CoCard's ISOs - which specialize in such vertical markets as utilities, petroleum, convenience stores and banks - generate business mainly through referrals, according to Pylant. Referrals have been the lifeline for CoCard, especially given the troublesome state of the economy.
It gets most referrals from banks, accounting firms and industry associations - "places where people in times of need would go for advice," Pylant said.
Indeed, Pylant claims its referral sources are helping CoCard gain business while most ISOs are losing merchants. With over 80 sales offices, word of mouth also brings new customers CoCard's way.
Pylant has found that the recession has spurred people who have lost their jobs to start their own businesses and avoid being vulnerable when it comes to employment.
"So we're seeing just about as many new [merchants] coming in the door from that vantage point as we do losing them on the other side," Pylant said. "Then we get the uplift from the referral sources where the accountants and the bankers are helping out their customers and sending them our way."
If any other proof is necessary to persuade skeptics of CoCard's success and growing influence in the industry, a 2008 Strawhecker Group report might seal the deal.
In analyzing over 40 emerging ISOs, CoCard ranked at the top as being the fastest growing and having the largest portfolio, greatest transaction count and highest dollar volume.
Given CoCard's increasing prominence in the industry, Carnahan expects CoCard will be sold one day. But a sale would be contingent on the buyer working with CoCard's existing sales offices.
So CoCard wouldn't end. In fact, it would only be the beginning. In two years' time, CoCard would simply "build up another big portfolio and sell it to the same buyer," he said.
Since most of CoCard's ISOs and MLSs are not ready for retirement, Carnahan reasons that they wouldn't necessarily quit after the first sale. "They've got a winning formula," he said. "Why quit?"
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