By Dee Karawadra
Should you, as merchant level salespeople (MLSs), be paid through bonuses, straightforward revenue split or some kind of hybrid? This question is oft debated. And it's a hot topic in more ways than one: When discussed behind the scenes, it can get people red in the face.
To stir the pot a little bit, I posted the following on GS Online's MLS Forum:
"How many here believe that their ISO that is paying bonuses is giving them a true split?
"When I say 'true split' I mean split from their actual cost. Show me how many ISOs are paying huge bonuses, and I will show you where they are padding before their split."
After three hours, the post had received 154 views. A day later, the count was 954.
I am not accusing any particular ISO of padding; I am speaking in general. Padding may not be limited to bonus-paying ISOs. It could apply to other ISOs that also pad their numbers.
Padding means different things to different people. However, in this context, I am referring to the ISO practice of marking up its cost before splitting it with agents.
For example, an ISO's transaction fee cost may be $0.035. But it charges MLSs $0.08 and splits the amount over the $0.08; or the ISO pays a $1.50 statement fee, but it charges MLSs $5 for statements before splitting residuals.
When I was an agent, the most frustrating part of the whole business was that I never knew precisely how the split was determined. I was too na‹ve to think that a super ISO could have a $0.035 transaction fee. But, indeed, some do.
Padding is also common in other variations, such as BIN/risk fees. Sometimes an ISO pads a few basis points by burying them in its software programs.
Early in my career, an ISO's representative approached me, boasting about new software the company had designed with tiered payments for agents. The rep whispered that it could add undetectable basis points, too.
Needless to say, I wondered how many points the ISO would add before my split.
So, why not sign accounts for ISOs that offer bonuses, residuals and free equipment? It all sounds good -- until you start digging. Following are some thoughts MLS Forum members shared about the subject.
Forum member Rome stated, "After reviewing our recent payouts from the company we currently submit deals to ... figure it was closer to a 60/40 split rather that a true 50/50 ... We are certainly not getting the 60."
TMI Group posted, "I have been on the other side with some very large ISOs, and all I can say is Dee is correct. Most, if not all, bonus money is paid by the agent to the agent (themselves).
"At least $15 per merchant ... especially on those that do more than 100 transactions per month. Your Schedule A will prove it.
"I have never read a high-bonus Schedule A that I cannot find the hidden costs in. It's all about education."
Bob Schoenbauer (known as Coach Bob on the MLS Forum) wrote, "I think we all know the real answer. Most MLSs that I talk to [who] are getting free terminals or big bonuses seem to be aware they are not getting a true split."
But are MLSs really aware of this? When MLSs think about padding of residuals they think in terms of pennies, not dollars.
The reality is padding is usually greater than a few pennies; it can be as much as $15 per merchant account. When an MLS has a decent size portfolio this can add up to some real money.
TMI Group and other posters all said the same thing regarding education. It is important to understand the deal you have and how it is calculated. Know your Schedule A inside and out.
Michael Nardy (known as Empire on the MLS Forum) posted, "I tell all ISOs the same thing: Submit a deal and the merchant does no processing, and there are no fees billed to the merchant.
"Then your account on-file fee of $5 will cost you $2.50 per merchant. You will see a negative $2.50 to you and a negative $2.50 to EPI. It's a shared expense.
"Some companies take 100% of the negative and pass it to the ISO, even if they don't do things like take a statement fee and deduct it from profit before splitting.
"I take the good with the bad. If there is a negative, it's shared. Just like when there is a positive."
Nardy has a point. If you are told you have a true split, then the ISO should share in the loss, as well as the revenue. Having a true partner that will share in your losses and your gains is key in building your portfolio.
The only negative to this is that you would also share risk. Many industry veterans will tell you risk is not something you want to mess with.
Your ISO partner should be able to analyze your portfolio and advise you in this regard. At times, my agents lose money on certain accounts, with the prospect of gaining referrals from their merchants.
If agents knowingly price certain merchants at a level where they are losing money and have a good reason for doing so, then I will also take that loss.
It is a matter of what you are looking for. If you need cash to grow your business, programs that give upfront bonuses (but not genuine splits) may be what you need.
Alternatively, you may be looking for residual streams and building a profitable portfolio. In this case, a true split program with an ISO is likely what you need.
It would be great to find a partner that would allow you the luxury of a bonus program when needed to grow, and a straight split program when it is time to grow your portfolio.
ISOs don't have to disclose their true costs, and many can't do so because of nondisclosure agreements with their processors.
But they should not advertise or insinuate a true split if they, in fact, are offering something different.
Safari njema: Safe journey.
Dee Karawadra is the founder, Chief Executive Officer and President of Impact PaySystem, based in Memphis, Tenn. He and his team have a wealth of knowledge on the merchant services industry, with a niche in the petroleum market. Dee's experience on the street as an agent has guided him in laying a foundation for an agent program that is both straightforward and lucrative for his agents. Contact him at 877-251-0778 or email@example.com.
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