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Education

Residuals – Are you items like authorization and chargeback fees, the ISO

often builds room for profitability in this schedule,
so carefully review and negotiate these.
getting a fair shake? • Revenue split is the percentage of income you'll be

able to keep after deducting your Schedule A costs
from the total revenue billed to your merchants.
Many agents focus completely on negotiating a
higher revenue split and ignore the Schedule A,
which is a mistake. The Schedule A cost is just as
important as the revenue split.

Also, carefully review and negotiate the agreement itself.
Some ISOs require that you board a certain number
of deals each month, or maintain a billing or residual
minimum on your portfolio. When you don't meet this
threshold, your residuals will not be paid. This concept is
called vesting. It's important to understand not all ISOs do
business this way.

Residuals are paid after the ISO/agent agreement has been
signed and the merchant has been billed. That said, it's
hard to have control over what's already happened. But
here are some things you can do to have some control and
By Elaina Smith oversight over your residuals
Secure Bancard • Before agreeing to Schedule A and split, if possible,
run the numbers on an existing, similar portfolio
f you're an agent selling merchant services, you and negotiate from there. You'll be able to see
know you have a variety of ISOs to choose from. whether you can give a little on one cost to negotiate
The challenge comes in finding an ISO partner that another down—which could mean more earnings
I offers best-in-class products and services that meet for you.
your merchants' needs, provides the most competitive • Re-calculate your residuals using your Schedule A
revenue share and pricing, and shares your core values. every month. Ideally, find an automated method
to do this so you're simply refreshing each month's
Here, I'll focus on finding an ISO that offers the most data. Usually, mistakes aren't intentional, but they
competitive revenue share and pricing, so you can can happen. Most agreements contain clauses
maximize your earnings potential. allowing you to go back only for a limited time if
Terms to know the error is in your favor. It's important to stay on
top of verifying the numbers on a timely basis.
First, I'll define a few terms since some of them can be used • Before entering into a relationship with an ISO, ask
differently depending on which party in the agreement to see what type of residual detail they provide.
uses them. If they don't provide you with enough detail to
• Residuals are the amount paid to you as a commission recalculate your residuals, find a company that will.
on the merchant business that you board with the
ISO. There are essentially three components to this You have a choice when entering into an agreement with
calculation: total amount billed to the merchants an ISO. While negotiating your agreement is important,
you've boarded (revenue), Schedule A cost, and the it's also essential to find an ISO partner that meets the
revenue split. needs of your merchants. The most successful, long-
• Schedule A is the schedule of costs the ISO is charging term relationships are built on not only shared profits
you to place a merchant's processing business with but also shared values and goals. By doing groundwork
them. These costs don't necessarily equal the ISO's before entering into a new ISO relationship and setting
costs unless the ISO indicates that your cost is the up a process to regularly review your residuals, you can
pass-through cost. Costs, like interchange and ensure you are making the most of your sales efforts.
assessments, are usually just pass-through costs,
meaning they are billing you the same cost that was Elaina Smith is the CFO of Secure Bancard, a wholesale ISO based
billed to them by the card brands. However, some in Alpharetta, Ga. Most recently, she helped develop and imple-
ISOs will indicate an item is passthrough but will, in ment Pioneer by Settlement Data Systems, an SaaS solution that
fact, build in some margin for themselves, so monitor enables ISOs to run their business more efficiently. She can be reached
this until you establish trust with an ISO. On other at elaina.smith@securebancard.com.

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