CLEVELAND — Every product has a "sell by" date, and so should every independent sales organization.

That creed should always be in the back of the minds of those operating an ISO and doing well in the payments ecosystem, or especially those just starting out in the industry to understand where the big payback comes from, said Mark Dunn, president of Field Guide Enterprise, an ISO and payments industry consulting firm.

With the eventuality of selling an ISO or merging it with another company driving most business decisions, attention to detail in every facet of building the ISO becomes critical, Dunn said July 27 at the annual Midwest Acquirers Association conference.

"Operating an ISO is not about the money or monthly residuals, it is about maximizing the value of the ISO," Dunn said. "In looking at many balance sheets for ISOs, the list of assets is really small because of the process of distribution, which is really what the ISO does."

It is best for ISOs to concentrate on growth and cash flow, he added. "Someone who is fairly new to owning or operating an ISO may not understand that there are two paydays. The monthly residual check is payday number one, but payday number two is the bigger check you get when you sell or exit the business."

Any ISO not operating with the thought of "when do we hop off this merry-go-round and take our second payday" is making a mistake, Dunn said. "It's of equal value to plan for the exit as it is to build your ISO sales as you move forward."

ISOs have been undergoing many changes, right along with the rest of the payments industry, finding themselves in a more competitive arena with products and services. It is becoming increasingly common for processors or networks to open their platforms, enabling developers to create apps and services that eventually become part of an ISO or reseller menu for merchant clients.

In that regard, ISOs should focus on money, or pricing, last and put the choice of a processor to work with as a top priority, Dunn said.

"Get this part of the process right," Dunn added. A third-party processor is the ISO's most important partner, providing the products, services and pricing, in addition to sending the ISO a check every month, Dunn said.

"Don't just jump at the pricing, thinking about how much money you will make," Dunn said. "You need to look through an agreement very carefully because every processor is different in what they bring to the table."

It is also important to learn up front what types of risks the processor is willing to take, Dunn said. "You may have some accounts you are sending in that they won't take, or maybe would take it, but just pay 50% residuals."

Re-negotiations should take place every 12 to 18 months, regardless of the contract length or terms, Dunn said.  

In building an ISO, the owner needs to build its team and tie it together through objectives, goals and standards. That team would include coaches, trainers, investors and those who would serve as a "sounding board." It is also critical to have an industry attorney and a strong accountant, Dunn said.

Reporting and compliance is an area that can "stop your ISO cold" if these methods are not in place in case an audit occurs, Dunn added. Investors and potential buyers both need information about compliance and the dates certain requirements were met.

An entire sub-industry of the ISO market exists in the form of companies that buy ISO portfolios, or the entire operation, including all of the licensing, rights, sales force and distribution channels, Dunn said.

The same advice can apply to long-time ISOs in that some are looking to leave the industry because technology and compliance challenges have overcome their current business models. It leaves the door open for young entrepreneurs or tech-savvy operators to step in.

Those operators may be eyeing a business with a smaller portfolio, looking to "revamp the engine behind it, set it on a new path and take off from there," Dunn said.

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry