Sales agents questioning the revenue-share payouts from their ISOs often ponder the fine line between complaining and complaining too much. The question may be important, however, such as whether the ISO shares revenue when an agent helps bring merchants into compliance with the Payment Card Industry Data Security Standard.
Some agent agreements do not address compliance-program revenue sharing, says Paul Rianda, attorney at Los Angeles-based Rianda Law. In other agreements, revenue-share programs are listed, but not for merchant-compliance programs, he says.
The dilemma for agents, and for ISOs and acquirers that write the contracts, is the potential for a dispute over money to sour the relationship.
In some instances, a few agents have told Rianda the commissions on compliance programs have been at lower percentages than those they receive for other programs with the same ISOs. A similar situation developed about 10 years ago, when charging merchants annual fees surfaced, he says.
For example, an ISO may split a merchant-paid fee in half with the agent for many programs but may pay only 30% on a compliance program, asserting it could do so because the fee is not included in a contract, Rianda says.
Making An Assumption
Agents typically wonder why and what they can do about that. Unfortunately for them, the answer is not much, at least not without changing the contract or reaching an amicable conclusion.
“For the most part, smaller agents don’t have much leverage,” Rianda tells ISO&Agent, noting many agents fear questioning will get them nowhere. “It’s always a fine line between complaining and complaining too much.”
Regardless of how involved an agent is in participating in a compliance program, most will have questions about the possibility of sharing revenue, just as the agent would for similar programs offered by an ISO to merchants.
One way to alleviate some of the anxiety about misallocated revenue share is to talk about it, says Adam Atlas, an attorney at Montreal-based Adam Atlas Attorney at Law.
“These additional services, and the fees that go along with them-PCI is just one example-are very important these days” because there is always less and less profit margin on core credit and debit card transaction processing, Atlas says.
If written carefully, agent agreements could eliminate the confusion over revenue sharing, he says.
“Some agreements will say the agent is entitled to a share of all revenue earned from merchants,” Atlas says. “Other agreements will say the agent is entitled to share the revenue on the following list of products and services.”
Some agreements might allow changes to adapt to products and services launched after the contract’s inception date, while others expressly forbid that, Atlas says.
Atlas also has heard of instances in which an agent expected a share of fees paid by a merchant but never received it. “It’s a situation of there’s not enough money to make a big fight about it, but at the same time it puts into jeopardy the trusting relationship that exists between the parties,” he says.
Changing existing terms may constitute a “material change” and require a rewriting of the contract, Atlas says. Some contracts do not allow material changes, he says.
One example of a material change would involve changing a merchant’s early-termination fee from what was in the merchant agreement, Atlas says. Making such a change after the fact may not be wise, he says.
“The merchant is obliged to pay the fees set out in the agreement, but if the processor can just change the fees in a material way, then what’s the point of a merchant agreement?” Atlas says.
Many merchant agreements do not always permit parties to tack on additional fees at their whim, he says.
Similarly, an agent agreement that does not spell out how each revenue-share program should work may not automatically include programs that start after the contract has been signed, Atlas says.
“Agents should take a moment to see what is in the basket of fees they’re sharing in,” he says. “It’s either an ‘everything’ basket or a limited list. The preference is an all-in basket.”
By signing an inclusive contract, agents may not encounter the hurdle later on of adding in new programs. “It’s hard to negotiate a clause that would enable future programs and revenue sharing,” Atlas says.
Just as agents and ISOs pay careful attention to addressing merchant questions about fees outside of credit and debit-transaction processing, they should ensure they address related issues.
“ISOs are going to have to get creative about how they make money from merchants,” says Atlas. “ISOs and agents should work together, not to the exclusion of the other. This is where the gravy is for the future of our industry. The margins on the core services are becoming so narrow it’s hard to earn a living off of them.”
Revenue from compliance programs may not be much-if they are even available-to agents, but failing to address them and other revenue-sharing programs in the agent agreement could pose problems later on.
This article is excerpted from the September/October issue of ISO&Agent magazine arriving shortly.