Page 14 - GS221102

Views

A retail-wholesale ISO comparison compliance and operational infra-
structure to properly sell, service,
By Ken Musante adjudicate and monitor merchants.
Wholesale ISOs require continual
Napa Payments and Consulting technology investments for processor
integration or certifications.
here are many reasons to become a wholesale ISO, and while hav-
ing an accomplished sales team is a necessary precondition, it is, by Before allowing a single merchant to
itself, insufficient to justify the move. So, when considering a move, process, the entire solution needs to
T it's important to know the distinctions between the two business be built out, processor reserves fund-
models. ed, and the people, policies and pro-
cess to onboard, pay and offboard a
A retail ISO is to a wholesale ISO as fuel is to a jet merchant must be established.

Retail ISOs are akin to mortgage brokers. They typically manage relationships
with multiple wholesale ISOs to provision merchants to the back office that Wholesale ISOs are the jets; retail
can best serve them based on factors such as pricing, service, risk, integration ISOs are the fuel. And sometimes, re-
with the merchant's MIS and payments solution. Retail ISOs are not party tail ISOs envy wholesale ISOs.
to merchant agreements. They do not adjudicate applications or manage Price to earnings
back-office servicing. Done right, retail ISOs are sales and service machines
incrementally growing their portfolios through various marketing channels More specifically, wholesale ISOs
using direct employees and/or contractors. Retail ISOs are a lucrative, attractive have a price to earnings (PE) valu-
business line: low start-up costs, low capital investment, low risk, and recurring ation many times greater than the
and steady income. PE valuation of retail ISOs. Plainly
stated, every dollar a wholesale ISO
Why do I need a rearview mirror if I'm only going forward? makes equates to a valuation of ap-
Wholesale ISOs own the merchant risk. Start-up costs are significant. Whole- proximately 10 times that of its retail
sale ISOs must maintain PCI certification and manage the people, technology, ISO brethren. And for good reason.
Wholesale ISOs have significant ini-
tial investment before they see their
first dollar in profit.
The wholesale ISO could transport
a company to another level. It has a
BIN/ICA sponsor, process and tech-
nology that could support a much
larger base than it is serving at a
point in time. The right buyer could
harness and leverage the wholesale
ISO and compensate the buyer for the
larger multiple.

A retail ISO does not (usually) al-
low for the same sales leverage. Un-
less there is a technology solution,
scalable marketing or defendable
vertical, the retail ISO is typically a
function of the company's ownership
and executive team. The asset is the
portfolio residuals and the sales en-
gine. Both of those are less certain to
survive the transition to a new entity.
Both are less able to be leveraged and
consequently have a lower PE ratio. I
am not arguing against retail ISOs; I
fully support them.
I have had the privilege of starting
and running both a wholesale ISO
and a retail ISO. Both are dynamic;
both are great businesses. A retail
14