As the acquiring industry continues to rapidly reinvent itself, birthing a variety of new, technology-centric business models to better service the demands of the modern day merchant, many long time merchant level salespersons (“MLS’s”) and agents are faced with the increased pressure of having to decide how best to position their companies for a successful future. The sheer velocity of this “reinvention” of the acquiring industry has forced many agents to re-evaluate the upside of continuing their agent status versus registering directly with MasterCard and VISA and becoming an ISO. As a “successful future” for a business is oft measured by sustainability, growth, and value creation, 2017 will be a determinative year for many agents who will be forced to reconcile themselves to one or the other of these two pathways forward.

Knowing when to make the transition from agent to full-fledged ISO has always been a challenge in the merchant acquiring industry. Historically, the drivers for making the switch from agent to ISO have largely been attributable to two factors, one short term and more tactical, and the other, long term and strategic. The short term, tactical driver which has traditionally yielded immediate upside to an agent has been the larger revenue share that comes with ISO status. In the long term, and more strategic sense, the transition from agent to ISO ensures that the owner/operator will have an ownership interest in the merchant contracts themselves, thus owning an actual portfolio, not just a residual stream (which is all agents own). This necessarily will increase enterprise valuation, and pave the road for a more successful exit or financing event in the future.

However, the payments world has changed and so too has the calculi of making the agent to ISO transition. All agents need to understand and accept that today’s merchant acquiring industry has never been further removed from the payments transaction: the value proposition to today’s merchant is no longer the ability to process payments, at least not in and of itself, but rather how those payments are processed (quickly, securely, and across in-store, mobile, and web based user interfaces), and what technologies those payments are packaged up with (new schema like omni-channel and or end-to-end business management solutions) which deliver value to the merchant that far exceeds that of payment processing alone.

Assuming the preceding premises are true (the current state of the acquiring industry and the speed with which it is evolving), it follows that for many existing agents and MLSs, 2017 is going to be a year when many will have to commit to either maintaining their agent status, or pivoting to the ISO model. As such, I recommend that all agents undergo a wholesale process of self-assessment and introspection with the objective of best positioning their respective companies for a prosperous future. To assist in this undertaking, I’ve created a primer of the arguments for each.


Reasons to maintain your MLS/Agent status:

If you are new to the merchant acquiring world, you want to maintain your agent status. It’s always better to learn a new business when you have access to the resources of an experienced operator who can help guide you through the challenges of the industry, and help get you back on your feet when you make mistakes. And all agents, whether new to the industry or not, benefit from strong ISO partners who possess experienced customer service, tech support, EMV compliance expertise, sophisticated sales strategies, pricing guidance, marketing resources, and in some cases, access to growth capital. Additionally, and especially in today’s payments industry, maintaining your agent status on a non-exclusive basis, where you can have relationships with multiple ISOs, allows you to cost effectively access many different types of value added technology that would otherwise be too expensive to procure and employ yourself.


Reasons to transition to the ISO model:

Capturing a greater share of the value chain, and not giving up a substantial portion of revenue to another ISO for all of your hard work, is reason number one on this list. And of almost equal importance, and value, is the greater ownership interest in the merchant relationship which comes with being an ISO. One of the reasons this is significant is because it grants you the right to sell additional revenue producing products and services to the merchant base you’ve developed – something you’re not generally allowed to do with an agent relationship because the ISO you write for most likely enjoys that contractual right and governs what you can and cannot do with its merchants.

Being an ISO also allows you to avail yourself of higher quality channel partners because you have more revenue to share with resellers. One of the hottest trends in the payments industry over the last three years has been a surge in the number of ISOs becoming the exclusive payments providers to integrated software vendors (“ISVs”) by setting up the ISVs as agent resellers beneath them.

And if you find the previous reasons insufficiently compelling, becoming an ISO all but guarantees your company will command a greater valuation than an agent or agent office ever could. Strategic acquirers and private equity groups don’t have any interest in acquiring residual streams, which is the only asset agents have to sell – these entities’ interests lie in acquiring high growth organizations that own the end-user, or merchant relationship. From a valuation perspective, whether contemplating an exit or refinancing, being an ISO makes a huge difference. Thus, if you’re playing for the long term, the ISO route makes more sense.


What should YOU do?

Regardless of which industry you work in, you should always be mindful of creating value in, and for, your company. As such, a savvy owner/operator should always be playing for the long term. Your big exit or big growth initiative will inevitably be directly tied to the worth of your business.

As an agent heading into 2017, the stakes are high. The payments industry is rapidly changing and appears to be transitioning away from a payments only model, and towards a broad based technology model. I believe the future of merchant acquiring will have traditional acquirers transitioning into the role of professional consultants who will advise business owners on all of their operational and sales related needs, and becoming true experts in a broad swath of technology based business management solutions.

So here’s my advice to all agents for 2017: if you’re a new player in the space, remain an agent and learn the ups and downs of the payments industry with the help of a strong, experienced ISO partner. Avail yourself of multiple ISO relationships which will expose you to a myriad of new technologies that today’s merchants will expect from their payments provider. At a certain point in time, you will be comfortable with your own ability to service, sell, and advise your clients on everything from basic payment processing to new payment schemes, data security compliance, and integrated software based business management solutions. You will be able to provide your merchants with everything an ISO can.


But wait, don’t make the transition to ISO just yet. There’s one more thing…

If in conjunction with the above acquirements, you have also developed operational expertise, are generating meaningful year-over-year top line and bottom line growth, and have successfully penetrated specific verticals where your knowledge and expertise has given you a leg up on the competition, then, and only then, should you make the move.

So don’t go into 2017 without a plan. Believe me when I tell you that the most valuable properties in the payments industry are owned by operators who took the time to plot out sound strategic pathways, knew the benchmarks they needed to achieve, and pulled the trigger at the right times. If when confronted with high stakes strategic decisions you always play for the long term, you should be just fine.


Article originally published in The Greensheet on January 10th, 2017


Adam T. Hark is Co-Founder of Preston Todd Advisors. With over a decade of experience in payments, and financial technologies, Adam advises clients in M&A, growth strategy, exits, and business and portfolio valuations. Adam T. Hark can be reached at or 617-340-8779.