Page 46 - GS170101
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Education
ISO versus MLS status in Thus, it follows that for many MLSs, 2017 is going to be
a year to commit to either maintaining their agent status
2017: The stakes are high or pivoting to the ISO model. I recommend that all MLSs
undergo a process of self-assessment and introspection
By Adam T. Hark with the objective of best positioning their respective
Preston Todd Advisors companies for a prosperous future. To assist in this, I've
created a primer of the arguments for each.
A s the acquiring industry continues to reinvent
itself, birthing a variety of new, technology- Reasons to maintain your MLS status
centric business models to better serve the
demands of today's merchants, many long- If you are new to merchant acquiring, maintain your agent
time merchant level salespeople (MLSs) face increased status. It's always better to learn a new business when you
pressure to decide how best to position their companies have access to the resources of an experienced operator
for future success. The velocity of the acquiring indus- who can guide you through the challenges of the industry
try's reinvention has forced many agents to re-evaluate and help get you back on your feet when you make
whether to continue as agents or register directly with mistakes.
Mastercard and Visa as ISOs.
And all MLSs, new and experienced, benefit from strong
As the potential for a business is oft measured by ISO partners who possess experienced customer service,
sustainability, growth and value creation, 2017 will be a tech support, EMV (Europay, Mastercard and Visa)
determinative year for many MLSs who will be forced compliance expertise, sophisticated sales strategies,
to reconcile themselves to one of these two pathways pricing guidance, marketing resources, and in some cases,
forward. access to growth capital.
Short- and long-term strategies Additionally, maintaining your agent status on a
nonexclusive basis, where you can have relationships
Knowing when to make the transition from agent to full- with multiple ISOs, allows you to cost-effectively access
fledged ISO has always been a challenge in the payments many types of value-added technology that would be too
industry. Historically, the drivers for switching from MLS expensive to procure and employ yourself.
to ISO status have largely been attributable to two factors,
one short term and more tactical, and the other, long term Reasons to transition to the ISO model
and strategic.
Capturing a greater share of the value chain, and thereby
The short-term, tactical driver, which has traditionally not giving up a substantial portion of revenue to another
yielded an immediate upside to an agent has been the ISO for all of your hard work, is reason number one to
larger revenue share that comes with ISO status. In the transition to ISO status. Of almost equal importance, and
long term, and more strategic sense, the transition from value, is the greater ownership interest in the merchant
MLS to ISO ensures that the owner/operator will have an relationship that comes with being an ISO.
ownership interest in the merchant contracts themselves,
thus owning an actual portfolio, not just a residual stream One reason this is significant is that it grants you the right
(which is all agents own). This will increase enterprise to sell additional revenue-producing products and services
valuation and pave the road for a more successful exit or to your merchant base – something you're not generally
financing event in the future. allowed to do as an MLS because the ISO you write for
most likely enjoys that contractual right and governs what
However, the calculi of making the agent to ISO transition you can and cannot do with its merchants.
have changed. All MLSs need to understand that today's
merchant acquiring industry has never been further Being an ISO also allows you to avail yourself of higher
removed from the payment transaction: the value quality channel partners because you have more revenue
proposition to today's merchant is no longer the ability to to share with resellers. One of the hottest trends in the
process payments, at least not in and of itself, but rather payments industry over the last three years has been ISOs
how those payments are processed (quickly, securely, and becoming the exclusive payment providers to integrated
across in-store, mobile, and web based user interfaces), software vendors (ISVs) by setting up the ISVs as agent
and what technologies those payments are packaged resellers beneath them.
with (new schema like omnichannel and end-to-end
business management solutions) which deliver value to If you find the previous reasons insufficiently compelling,
the merchant that far exceeds that of payment processing becoming an ISO all but guarantees your company will
alone. command a greater valuation than an MLS or agent office
ever could. Strategic acquirers and private equity groups
aren't interested in acquiring residual streams, which is
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