n payments, a business name is more than a catchy phrase with a nice ring to it; phrasing it incorrectly could get you in a lot of hot water. A lot of people pay attention to how you represent your business. Everyone, from the card Associations to your acquirer, and each merchant you contact, wants to know exactly who you are.

Part of the lure of selling merchant services is the idea of working independently and the ability to determine your own success. Along with that territory, choosing a name that reflects you individually and as a business entity would seem necessary to that success.

In payments, it takes a lot more to get those residuals rolling in than simply choosing a unique name, printing business cards, designing a Web site and calling on merchants.

In fact, if you're not obviously and prominently associated with a registered member of the card Associations, you run the risk of garnering large fines for non-compliance with agent registration rules.

The name of the processor and the member bank must be prominently mentioned on all materials from Yellow Pages ads to letterhead, business cards and Web sites.

How do agents make names for themselves in this business when they can't really use their own?

A Hot Topic, to Say the Least

The fact that agents need to be registered or work for registered ISOs is not a secret, and it's certainly nothing new. The rule has existed, and the card Associations have enforced it, since the first ISO was formed.

No matter which side of the fence you're on regarding agent registration, it's definitely a topic that most people in payments feel very strongly about. Visa U.S.A. and MasterCard International, their member banks and financial institutions, and ISOs and acquirers are adamant about supporting and adhering to those requirements.

The rules say that anyone promoting themselves as a distinct business entity, offering services to merchants that include processing transactions made with Visa- and MasterCard-branded cards must register with a member of the Associations to be a recognized provider.

"If someone wants to represent themselves, to use their name to go out and market or solicit card processing services, that name must be recognized by the card Associations and be sponsored by a member bank," said Kurt Schaeffer, Vice President of Operations for Global Payments Inc., an acquirer that settles through HSBC Bank USA, National Association. "It's pretty cut and dry."

As Nancy Sobaszek, HSBC Bank's Assistant Vice President of Merchant Support succinctly put it, "You cannot solicit any merchant unless it's as a registered ISO."

Part of the dilemma, some ISOs and agents insist, is that the Associations have not made it easy for them to access the rules; the complete rules have been available to Association members only, so it hasn't been clear to anyone else exactly what the rules allow.

The issue of registration has never been debatable, though. "If an agent works for a registered ISO, that agent must use the registered ISO's name," said a Visa spokesperson. "It's the main rule that they break or are not aware of."

Gerritt Kerkstra, Senior Vice President, Acquirer Relations for MasterCard, said that MasterCard makes it a priority to work closely with its acquirers to ensure timely and accurate registration.

"Members (acquirers) must register an MSP with MasterCard before an MSP may provide services to MasterCard members, which may include merchant solicitation or customer service," he said. "ISOs must make sure they are registered with an acquirer before providing any services."

Registration fees can be prohibitive for some agents. Kerkstra said MasterCard's fee for each ISO/acquirer relationship is $5,000, with an annual renewal fee of $1,500 per relationship. Working for acquirers that have the resources to absorb the costs and risk comfortably makes sense for most agents.

Other independent agents believe compliance with registration rules, including the fees, hinders their ability to compete with larger ISOs. The rules affect their business names, market identities and business practices.

"The ISO wants to establish his name with his customers," said Greg Brown, an attorney and Vice President of Integrity Bankcard Consultants Inc. (IBC), a consulting firm for the acquiring industry.

"It becomes a matter of ownership of the merchant. Somewhere along the line the agent gets some name recognition, and he wants to go up to the next level. He wants to be able to have his identity with the merchants so he can try to take them with him," Brown said.

IBC advises agents who are considering registering on their own and helps registered ISOs to maintain compliance with updates to the rules.

The bottom line is that fines for non-compliance, leveled by the Associations on their members, which then pass them on to processors and acquirers, are considerable.

The Green Sheet addresses the registration process and related fees in the Industry FAQs section of GS Online, and has covered it in several articles. David H. Press, Principal and President of IBC and a contributing writer, detailed Visa's rules (see "Visa Agent Registration in a Nutshell," The Green Sheet, Nov. 10, 2003, issue 03:11:01).

In a recent "Street Smarts" column, Ed Freedman, Founder and President/Chief Executive Officer of merchant account acquirer Total Merchant Services (TMS), emphatically stated his position on registration (see "What's in a Name?" The Green Sheet, Feb. 28, 2005, issue 05:02:02).

At the TMS Eighth Annual Sales Meeting, held in late April 2005, Freedman reiterated the importance of playing by the rules. His point was clear: If you're in violation of Association rules, stop taking risks.

It's for Clarity's Sake

Despite the consequences, some independent agents ignore the likelihood of fines and work around the rules.This is exactly what the card Associations want to avoid.

The Visa spokesperson said agent registration has everything to do with knowing who is out there representing Visa and selling its services and products.

The goal: to protect the integrity of the Visa brand. "We're trying to make merchants aware of the difference between sanctioned, or registered, and unsanctioned, or non-registered, agents," the spokesperson said. "We want all agents to be registered."

"I think that more than anything, it's to eliminate confusion," Schaeffer said. "It needs to be clear for merchants who they're going to be calling with customer service issues or for support. It boils down to clarity. Registration can also serve as a sort of "seal of approval." Merchants should feel secure knowing exactly who is bringing these services to them, Sobaszek said, and know that these people are reputable.

Peter Scharnell, Vice President of Marketing for acquirer Electronic Exchange Systems (EXS), said a few situations have resulted in stepped-up efforts to identify non-compliant agents, exorbitant fines and fees, and the complicated process for registration.

One reason behind those efforts is to control the number and quality of registered agents. While registration buys agents the ability to brand themselves, Visa and MasterCard know it's not something to undertake lightly.

"They know what it entails," Scharnell said. "They know you've got to be ready."

Certainly not all non-compliant agents are unscrupulous, but Scharnell said there are "rogue agents" who misrepresent the industry and even commit illegal acts, including non-disclosure in merchant agreements, charging uncontrolled processing fees and taking unauthorized access to merchant accounts.

However, "The big reason and maybe the real reason behind [agent compliance] is the threat of government regulation," Scharnell said. The card Associations have been mentioned in the news frequently because of fraud and other issues.

He believes this is what is forcing them to take corrective measures. "Visa and MasterCard are sending out a hard message to the industry, and then telling the government that they can regulate their own industry."

Paying Up

The fines for non-compliance can be sizeable, and they increase with subsequent infractions; Schaeffer said they can reach the six-figure range.Adam Atlas, an attorney specializing in bankcard law, wrote about one of his clients in a recent "Legal Ease" column (see "Get It in Writing," The Green Sheet, April 25, 2005, issue 05:04:02).

Atlas' client is an agent for an ISO who has sub-agents working for him; one of the sub-agents was out of compliance with Visa's rule on use of business names, and the agent received a $50,000 fine.

"We've heard reports of people who didn't answer the phone correctly, who got fined over $50,000," Scharnell said. "That's why we're working diligently for compliance. We've also received reports that the next fine for an unregistered ISO and agent could be as high as $250,000.

"And somebody's got to pay it, whether it's the ISO or the acquirer they're writing business through," he said.

Of course, no one wants to pay fines of that magnitude, and when fines are issued, the finger pointing begins.

The Associations assess the fines on their members; determining ultimate responsibility then depends on how the member banks set up the contracts with their registered acquirers."The fines are leveled by the Associations to the members," Sobaszek said. "What the members choose to do with the fines is up to them and depends on contractual issues with the processors; this is outside the Associations' areas."

"After the associations pass on any fines to a member, it is purely based on relationships and contracts with the merchants, vendors, VARs or ISOs. It's all downstream and well after the fact," Schaeffer said.

Is It Fair?

In his private practice, Atlas represents and advises ISOs/MLSs on such issues as contracts and compliance. He thinks there are a few good reasons for the agent registration requirements, such as disclosure obligations to merchants.

However, Atlas said the punitive approach the Assoc-iations and their members take in dealing with non-compliant parties is not fair.

"In my view, the real problem associated with rules concerning the use of the name of the bank is the procedures by which these rules are now enforced," he said.

"In my experience, there is no noticeable procedural justice in the enforcement of these rules.

"Violations are investigated, ruled upon and adjudicated without the involvement of the party responsible. ... There is a marked absence of justice in the system.

"By no means do I advocate unscrupulous activity on the part of agents or ISOs; however, in trying to curtail unscrupulous activity, the current harsh system of administration of the rules leads to numerous examples, among my clients, of unfair termination of residuals," Atlas said.

He said he has offered to assist the card Associations in reviewing and rewriting the rules, but has, as yet, received no response.

Playing By the Rules

The Visa spokesperson said the registration process is very straightforward, but that underwriting and risk processes require a thorough review of submitted documents including financial records and statements.

The due diligence is up to the member banks, which approve or deny registration applications and pass them on to Visa for the final say.

While the rules are confidential to members only, Visa does make available agent registration guides, which provide basic summaries of Visa's Operating Rules. "The banks have these, and as far as I know, they make them available to ISOs and agents," Visa's spokesperson said.

With concerns over various aspects of compliance becoming more real all the time, MasterCard moved in a slightly different direction when it decided to make its rules available directly to what it calls Member Services Providers, or MSPs; under MasterCard rules, this includes ISOs. The company announced on June 2, 2005 that it has published its rules so that MSPs will have far more information than the abridged version they previously received from their sponsoring acquirers.

As part of its "customer-centric vision," MasterCard said MSPs, as well as other interested parties, including merchants, can download MasterCard's "Member Service Provider Rules Manual" free of charge at http://mastercardmerchant.com/docs/msp_entire.pdf .

"Providing a better understanding of MasterCard rules and procedures benefits everyone," Kerkstra said.

Visa, which has increased its registration compliance staff, and its member banks, including HSBC and its registered processors, use some of the same methods to find agents misrepresenting themselves.

According to Sobaszek, though, "To be honest, it's very difficult for us to go out and find these people who sell with whatever business card they have for the day unless we get a complaint," she said.

With a sales force comprised of both in-house and independent offices and agents, Scharnell said dealing with agent compliance has had an impact on EXS, adding to the workload and expenditures. The company recently hired a senior-level compliance and risk manager dedicated to contacting all of its ISOs and agents on these issues.

"We're letting them know what's going on and telling them what they need to do to be in compliance," he said. EXS provides all of its reps with business cards, Web site templates and education.

Scharnell said it's worth the effort. "It's an expense that we have to incur, but in the end, we make sure that everybody is representing themselves correctly," he said. "After our ISOs and agents understand that it's real, they appreciate what we're doing."