Portability Rights Taking On Greater Importance
Portability rights, which entitle sales agents to take merchant accounts with them when leaving one ISO for another, are gaining greater importance in today’s still-sluggish economy.
During a down economy, ISOs tend to hire fewer employees and rely more on independent agents, who work as contractors, sometimes have portability rights. Agents who work as ISO employees, perhaps drawing a base salary plus commissions, tend not to have them.
“In this economy, with all businesses having a limited ability to raise capital, ISOs are less enthusiastic about carrying large payrolls, so I’ve been seeing a shift to independent-contractor agents,” says Stephen A. Aschettino, president and attorney at law at Aschettino Law PC, a New York-based law firm specializing in payments.
Even before the recession, however, independent agents were bringing in about 80% of new business, according to Adam Atlas, a lawyer with Adam Atlas Attorney at Law, a Montreal-based firm concentrating on payments in the United States. Larger ISOs tend to hire employees, while smaller ISOs cannot afford them, Atlas says.
Whether agents are independent or captive, ISOs address portability rights in the agreement agents sign at the beginning of the relationship, says Holli Hart Targan, president of the Washington D.C.-based Electronic Transactions Association and an attorney and partner at Jaffe Raitt Heuer & Weiss PC, a Southfield, Mich.-based business law firm where eight of a hundred or so attorneys specialize in payments.
ISOs tend to present agents with agreements that do not grant portability, says Targan. Experienced agents often ask for portability, while newer agents usually fail to request it, she says.
Either approach makes the initial agreement a key to the future. “If they’re hoping to build a career, they need a good foundation. And the foundation is this contract they are entering into,” Targan says.
“It all goes back to whatever is in the agreement,” agrees Thomas McKinley, president of Miami Lakes, Fla.-based FPS Merchant Services. “It’s up to the agent and the ISO to see what the deal is upfront.”
Like many veterans of the acquiring business, McKinley advises younger colleagues to hire a lawyer to review the agent agreement before signing. “Even if it costs a few hundred bucks,” the fee pays for itself over time, he says.
McKinley learned the importance of carefully reviewing agreements only after signing six to eight of them with little regard for fine print. Then he found himself working with a small ISO that suddenly wanted a cut in the terminal leases he was soliciting. When McKinley refused, the ISO stopped his residuals, leading to a seven-year court battle about to reach resolution.
Sometimes change brings such problems but not always. Aaron Dewar, president of Sturbridge, Mass.-based Northeast Merchant Systems, has seen two banks he was involved with exit the business. One “did everything possible” to cooperate in turning accounts over to him, and one tried to keep the accounts, Dewar says. In the latter case, Dewar needed about three months to move the 2,000 accounts he felt were his to another bank.
Such experiences illustrate the importance of agent agreements but do nothing to make the process easier. Some ISOs are willing to negotiate agreements, and others adopt a “take it or leave it” stance, says Atlas.
“Negotiations” often begin and end with the ISO setting policies and presenting them to the potential agent, says Aschettino. “They’re not going to radically change their deals from agent to agent,” he notes. “I don’t see much room for negotiation.”
Agents also may be reluctant to bring up portability rights in negotiations, hesitating to define the end of a relationship that has yet to begin, Aschettino says. In the excitement of forming a new relationship, they may fail to exercise caution, sources agree.
But Targan reminds agents that no agreement is ironclad and urges them to avoid undesirable terms. Ensuring residuals survive the termination of the contract can prove just about as important as portability rights, she notes.
“If they continue to get paid by their existing entity, then perhaps portability is not as critical,” Targan says. “They should just leave [the contracts] there and go and build a book of business with someone else.”
One independent sales agent who requested anonymity says he is receiving residuals three years after signing up his last new account for a particular ISO. Describing agents who want portability as “crybabies,” he says he has “total disdain for these guys” because residuals continue.
But that stance assumes clear-cut relationships. If an agent leaves and tries to switch the merchants to a new ISO, lawyers have to wrangle over what constitutes “solicitations” and “communications” as described in the agreement, Aschettino says. “It becomes messy and murky,” he notes. “Nobody really wins when these things happen.”