By Allen Kopelman
Nationwide Payment Systems Inc.
Every merchant level salesperson (MLS) needs a knowledgeable payments attorney. As you stand to make tens of thousands of dollars a month with ISOs and processors, this is money well spent.
As friendly and well-meaning as ISOs and processors are, when the person you're negotiating with is gone, you'll need more than a handshake or email to protect your residual streams. You'll need an airtight contract and professional reassurance that its terms and conditions are in your best interest.
I recently explored this topic with Adam Atlas, head attorney at Adam Atlas Attorneys at Law, and Christopher Dryden, founding and managing partner at Global Legal Law Firm.
The Green Sheet sponsored our discussion on July 17, 2024, in a special episode of my B2B Vault podcast. Here are six key takeaways from The Street Smarts Legal Panel.
Remember being told to read the fine print on contracts? Some MLSs don't even bother to read the large print on deals they sign with ISOs and processors. Atlas and Dryden urged MLSs to research companies and review contracts before signing them and leverage available resources to negotiate a fair deal. While it's possible to sign up now and renegotiate terms later, MLSs can save time and money and avoid heartache by making their best deal at the start. Dryden said, "I think at minimum, when you get a contract, you should read it, and if there's anything you don't understand, you should probably ask questions, if not to an attorney, at least to the person you're bargaining with. That would be the lowest bar I'd put out there."
Atlas agreed that MLSs should not ever rely on verbal agreements, no matter what ISOs and processors say. Some vow never to allow something to happen that would be very unpleasant for an agent or an ISO, he said. "And down the road, guess what? It happens, and these lawyers that these processors or supervisors retain stand behind what is written in the contract, not what someone who used to work there two years ago said, either in spoken word or by email."
Contracts are the law for the people who write them, Atlas added, and serve as private law between an MLS and a counterparty. Most have only a handful of clauses that need to be fixed, such as a four-deal minimum or residuals that only survive for 30 days following termination. With the help of a lawyer, it's easy for parties to come together and amend these agreements.
Considering the massive amount of consolidation in our industry today, I asked the attorneys how MLSs can future-proof their books of business. I've seen agents lose residual streams when upstream partners were sold by other firms.
They assured me that MLSs can request payment from upstream partners even after those partners are acquired.
Atlas advised agents to negotiate terms upfront and have an exit strategy. Failing to do this may result in a poorly worded contract, which could have lasting repercussions. For example, a terrible contract can lead to a terrible valuation when you go to sell your ISO business.
In addition, avoid exclusivity clauses, restrictive covenants, non-compete requirements, first right of refusal on deals, and any other shady language that could potentially undermine your sales, income streams and livelihood.
Dryden has observed that consolidation and residual income potential are attracting sophisticated people to the industry who are tying payment processing in with other items. In this climate, he said, MLSs need to be as proactive as possible when negotiating contracts by thinking not only about performance, but also about what they ultimately want at the end of a relationship.
I brought up another pet peeve: processor-agnostic point of sale systems that change their stripes down the road and are no longer agnostic. What recourse do we have, as MLSs, if a POS company is bought by an ISO and starts to go after our merchants? I recently spoke with someone who lost $80,000 per month in residual income when a POS partner was acquired by another company. Knowledgeable payments attorneys are our best allies in these situations.
Atlas pointed out another potential failure point of POS systems: weakness, mentioning the CDX outage that affected 90 percent of U.S. car dealers. He advised MLSs to ask prospective POS partners about their disaster recovery and backup plans. What is their Plan B? How will they manage a system crash? What will happen if they sell their companies?
Dryden agreed with Atlas on the need for companies to have a good migration path. They have both seen a fair share of failed integrations, from ISOs that acquired POS systems with no idea of how to integrate them, to partnering companies with very different ideas and cultures that continue to operate independently without leveraging each other's resources and technologies.
"I don't know how much [companies] think about this stuff as they're doing their acquisitions and what sort of impact it will have," Dryden said. "They just know that everything rolls downhill and they're standing at the top, so they're not worried about it."
Finally, as MLSs, we need to ensure that our residual income streams are more than just promises on paper. For Atlas, this means understanding a contract's Schedule A; for Dryden, it means fully vetting prospective partners, and for me, it means reconciling monthly residuals. "A lot of agents are being offered 50 percent, but 50 percent of what?" Atlas said. "Chris and I earn a living off of that delta."
Atlas noted that as long as MLSs have no liability and no minimums, are non-exclusive, and are not likely to suffer any harm from non-competition clauses, they have unbridled opportunities to prosper and be successful in this business.
Our discussion is available on www.youtube.com/watch?v=C23cXCgS5fU&t=19s.
Want to know more? Keep reading The Green Sheet and follow me on LinkedIn at www.linkedin.com/in/allenkopelman/, where we can share ideas and help each other. 
Allen Kopelman, a serial entrepreneur, is co-founder and CEO of Nationwide Payment Systems Inc. and host of B2B Vault: The Payment Technology podcast. Email him at allen@npsbank.com and connect on LinkedIn https://www.linkedin.com/in/allenkopelman/ and Twitter @AllenKopelman.
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