The Green Sheet Online Edition
March 3, 2025 • 25:03:02
Breaking the 30-day cycle: residuals reinvented
Long ago when aspiring entrepreneurs sought to deploy electronic data capture (EDC) terminals at merchant locations, they leased the devices and placed the merchant with a nearby bank. Historically, banks needed to be adjacent to their merchants, as merchants needed to bring their receipts to the bank, which would key in the transaction receipts.
EDC terminals allowed batches to be sent with the push of a button and for merchants to be geographically disconnected from their banks. This new paradigm allowed non-bank entities to participate in merchant servicing. The card networks created a new category for independent sales organizations (ISOs), which made their money by leasing terminals. This was their sole source of income.
Early innovators
Innovators like the late Charles "Chuck" Burtzloff, founder of Cardservice International, and the late Joe Kaplan saw the opportunity to grow and incentivize a sales force through residuals. Joe originally worked for CSI but left and joined Tim Lochner and started Superior Bankcard. That created competition for sales professionals. When CSI initially offered residuals, it was a flat $2 per month per account.
Other ISOs competed for sales professionals' business. Innovators like Jared Isaacman and United Bank Card (now Shift4) began giving away terminals along with full residuals, replicating the men’s razor industry where the money was made on selling blades. Competitors replicated UBC and some modified the program, so a bounty was paid for every new merchant placed – a significant deviation from the early days when sales professionals paid the ISO an application fee for submitting the merchant. Residuals, like the full moon, are paid monthly, typically, 20 days after the end of each month.
This allows for the month to close, the reports to be provided and the residual department time to prepare and reconcile the residual. Unlike the full moon, however, this cadence is arbitrary. It aligns with monthly fees and allows for clean comparisons, but ride share drivers, for example, could be paid monthly but are paid much more frequently. This same opportunity exists for sales professionals.
Daily residual calculations
It is now possible to use next-gen tech to calculate residuals daily, reducing timelines by 97 percent and allowing sales professionals to have daily visibility into settlement profitability. Future options include providing the discretion of when sales professionals wish to be paid based on their merchants' activity, and as often as each day via real time payment rails or push to card.
Such activity should assist with understanding the critical activation process as well as ensuring the merchant was properly keyed and with the expected pricing. This daily information can assist in ensuring sales representatives are properly pricing merchants and that information is accurately transferred to the processor.
Monitoring processing can also mitigate attrition and be used to understand a merchant's peak and slack days. Instead of waiting until the latter half of the next month to validate profitability, it can now be done on the first day of processing and every day thereafter.
Interchange and card network fee changes can be validated upon their implementation instead of after the month has closed, providing additional utility. While real time payout of residuals is still in the works, it's more of a financial exercise. The enhancements provide another tool to better manage cash flow and data. Doing so will help in building out sales and referral channels.
Innovation in the residuals space has long been overlooked by legacy acquirers, and modern fintech has largely avoided the residuals concept as a whole due to profitability concerns and their unique direct to merchant digital strategies. It is encouraging to see modernization finally taking place, and I am eager to see what the future holds. 
With an endless passion for engineering and entrepreneurship, Kapil Pershad has been riding the dynamic waves of financial technology and product development for over 27 years. After a successful consulting career driving technology for global payment brands, he is on an exciting journey as the co-founder & CTO of Payzli, a cutting-edge payments fintech. Here, he leads the innovation engine building payment solutions that simplify life for business owners and partners alike. Contact him by email at kapil@payzli.com; Instagram at @kapil.pershad or www.instagram.com/kapil.pershad; LinkedIn at www.linkedin.com/in/kapilpershad; or by phone a 818-269-1084.
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