Splitting the Difference

From leasing to revenue splits, how sales agents get compensated is affected by multiple factors.

Revenue sharing for sales agents has a long history in the acquiring industry, evolving as more and more merchants installed point-of-sale terminals and recurring revenue snowballed for independent sales organizations.

Though many agents receive 90% deals now—they receive 90% of the residual from each payment transaction at merchants they’ve signed—that wasn’t always the case. In the early days, many sales agents made their money from equipment leasing. As credit and debit card acceptance proliferated among merchants, that revenue model morphed into revenue sharing, pushing residuals to the forefront of compensation.

Today, the revenue-share model continues to dominate and while the share an agent receives may be swinging in the other direction in some instances, the model is not disappearing.

“Revenue-share models are here for the long-term, but some larger companies will continue to move away from revenue-share models with other smaller/mid-sized companies doubling down on revenue share programs (like PayBright),” says Dustin Magaziner, chief executive and founder of PayBright, a Raleigh, N.C.-based independent sales organization.

As Magaziner says, this means sales agents must consider the future of the ISO he or she will work with.

“As an agent, right now, you need to take a long hard look at what the future of the ISO you work with is,” he says. “Are they continuing to double down on their agent models, or are they slowly becoming less competitive and focusing on internal sales, W2, low residual plans, acquisitions, or ISVs? Behavior is very telling.”

As a recruiter in the acquiring industry for the past 19 years, Sara Egan, director of partnerships and relationship management at CWA Merchant Services, a Syosset, N.Y.-based payments company, says the relationship between the sales agent and the ISO should not be based on a single element.

“ISOs and agents should remember that their processor is holding (usually all of) the risk and liability. They’re underwriting the accounts, taking on all of the overhead involved with monitoring and servicing the accounts. It’s a partnership, and that is why the revenue is shared,” Egan says.

“That being said, the relationship should never solely be based on the revenue share alone. What interesting products and services does the processor offer? What is the quality of their customer service? How responsive are they to you? Are low-risk approvals quick and electronic? Can they offer special perks, such as same-day funding?”

These factors have gained importance as payments commoditization sets in.

As attorney Paul Rianda, principal at the Law Offices of Paul A. Rianda, Costa, Mesa, Calif., notes in a blog post from a few years ago: “There was not much variation in the financial relationship between the ISO and a sales agent, except some less knowledgeable agents agreed to accept only 50% of the profits derived from the credit card processing attributed to merchants,” he writes.

‘Read the Agreement’

Because there was little to distinguish between different ISOs from a purely cost-basis standpoint to determine which was the best to choose as a long-term partner, stagnation set in, and more ISOs began offering additional value to sales agents, Rianda says, such as upfront bonuses, improved customer service, or even ownership stakes in the ISO.

Today, that may be changing in the other direction, at least when it comes to revenue splits. “Of late, the pendulum has swung in the opposite direction with the larger processors reducing the compensation they are willing to pay and also requiring minimums to get the best deal,” Rianda tells Digital Transactions. “The 100% deals have pretty much disappeared.”

Today, the norm is closer to an 80/20 split, Rianda says, and production volumes are more likely to be an element in agent-compensation packages.

What sales agents want in a revenue share can vary considerably, Magaziner says. “This can be all over the place,” he says. The value the ISO provides can be a key element.

“Some agents are looking for free POS programs and hands-on support, others are looking to provide all front-line support to their customers in return for higher commissions,” Magaziner says.

“It really comes down to what an agent needs. In today’s market, there are plans for nearly all agents that match their level of experience and needs,” he continues. “But as always, make sure to be working with a reputable provider and read the agreement!”

Value-added services, like surcharging and dual-pricing programs, have a role in agent-compensation models, too.

As Magaziner says, “Dual pricing specifically has made revenue shares far more profitable. We have seen, in some cases, upwards of 10X increases in profitability among agent portfolios on dual pricing vs non-dual-pricing models. Surcharging has not had nearly the same margins as many dual-pricing models, but still can be a healthy and profitable portfolio.” A J.D. Power survey in January estimated that 34% of retailers surcharge on credit card transactions.

These programs could be helpful revenue sources for agents, Magaziner suggests. “Ultimately, more and more businesses are recognizing that they can offset their payment-processing costs through differential pricing (surcharging, dual pricing, cash discounting),” he says. As this trend becomes more common, more and more merchants will adopt it.”

Egan notes that embedded payments, a high-growth sector for processors and acquirers, also can benefit sales agents.

“The biggest change has been integrating and embedding payments into software that is instrumental to the success of the merchant’s business,” Egan says. “This provides so much value that merchants are less likely to switch providers for simply ‘saving’ them some money. It is usually far more valuable to save the merchant’s time, automating manual processes and making it simple for them to receive payment in multiple ways.”

‘Two Camps’

A core element of the relationship between sales agent and ISO is that each provides value for the other, not only in generating revenue, but in fulfilling other obligations to each other.

Magaziner says sales agents should be mindful that some larger payments players have learned they can grow through acquisitions, which could effectively cut the agent out of the mix, he says, and let them retain all or nearly all of the residuals. “I don’t believe this is making the revenue-share model obsolete, but is separating companies into two different camps,” he says.

Egan also says to keep in mind that revenue shares should be based on the quality and quantity of the accounts being boarded.

“Groups or individuals with the most experience should be enjoying high revenue shares, as they don’t drain your customer-service team’s time, they don’t need hand-holding. Revenue shares in the high-risk space are understandably lower,” Egan says.

These questions are especially important as embedded payments, surcharging, cash discounting, and other new payments adaptations emerge. It’s more complicated now, Egan says.

As the payments industry evolves, there are different ways to make money from different revenue streams, she says, and how people are paid is going to change as well.