One of the most confusing topics in the bankcard industry is the set
of rules that govern what name a sales agent must use to market its
good and services. Below I will discuss the nature of the problem
and some suggested solutions.
How Must You Market?
Sales agents generally have a contract with an ISO and in effect are
resellers of that ISO’s credit processing goods and services. The
ISO supplies the products and the sales agent is the engine that
markets those goods and services to the merchants. The question
becomes what name must the sales agent use when it is marketing to
the merchants?
The Visa and MasterCard association rules provide that unless a sales
agent has registered with Visa and MasterCard, the sales agent must
market in the name of the ISO with which he has contracted. For
instance, if your ISO is called “Great Card Processing” and your
company is called “MLS Processing,” then you, as a sales agent, must
market to the general public under the name Great Card Processing
exclusively, unless you register with the card associations. This
means that all your marketing materials such as mailers, websites,
business cards and fliers must all identify your company as Great
Card Processing. You are not allowed to market under any other name,
including MLS Processing, unless you register that name with Visa and
Mastercard.
This leads some sales agents who wish to market under their own name
to register with Visa and Mastercard. If a sales agent registers,
then the sales agent can market under any name it chooses (assuming
the name does not infringe on any other names). To continue our
example, if a sales agent who has a contractual relationship with our
fictional ISO, Great Card Processing, registers with Visa and
MasterCard, he can market under the name MLS Processing. He does not
have to use the name Great Card Processing in his marketing
materials, but only has to identify in his materials, the name and
location of the bank he is utilizing, to comply with the Visa and
MasterCard rules on the subject.
The Effect of the Rules
The practical application of these rules is much more complicated
than the explanation above would imply. The fact is in this day and
age almost no sales agents have exclusive relationships with a single
ISO. Instead they have multiple relationships with ISOs that allow
them to place merchants with ISOs that cater to particular market
segments. Even if a sales agent has one relationship where it places
the vast majority of its business, the sales agent almost invariably
has an alternate ISO he utilizes in order to place high-risk or
other hard-to-place merchants.
The conundrum is that if a sales agent is representing two or more
ISOs, how must he identify himself to the public? The general rule
is that the sales agent cannot use his own company name, but must use
the name of the ISO for which he is soliciting the merchant. If the
sales agent is representing multiple ISOs, he cannot know which ISO
he will be placing the merchant with, as he has to evaluate the
merchant before he can assign it to a particular ISO. If the sales
agent regularly submits applications to multiple ISOs, this makes it
effectively impossible for him to properly represent himself based
upon the rules of the card associations.
Suggested Solutions
I have seen a number of different suggestions on how to comply with
the rules but they are generally of little practical value for a
sales agent. The most common suggestion is that the sales agent have
multiple business cards and multiple sets of marketing materials in
the different names of his various ISOs. When the agent enters a
merchant’s location, he can produce the correct card based upon the
ISO that he believes he will be placing the merchant with. This is
obviously somewhat impractical and expensive for the sales agent.
What is an agent to do if he has ten or more ISO relationships, print
up ten or more different sets of marketing materials? This solution
to the problem is therefore not really practical.
There is no good answer as to what a sales agent should do when faced
with the situation of trying to market itself in compliance with the
Visa and Mastercard rules, when he has relationships with multiple
ISOs. From a practical standpoint, it is almost impossible for the
agent to comply with the card association rules unless it writes
exclusively for one ISO.
The sales agent that is not registered and utilizes multiple ISOs
finds itself in a situation where it is not trying to comply with the
rules but instead is trying to minimize its exposure to fines for
violating the Visa and Mastercard rules. The most common way that
sales agents address this problem is that they market under the name
of the ISO where they place the vast majority of their business. If
an agent is marketing in this fashion, any review of his marketing
materials will generally lead anyone who is investigating to the ISO
that the sale agent uses to place most of its merchant accounts.
Such an inquiry will generally lead to a situation where the sales
agent will be confirmed as an agent for that ISO and that will be the
end of the inquiry.
Of course, this leaves the sales agent in a situation where he is not
in compliance to some extent, if he places merchants with ISOs other
than his primary ISO. The rules as currently written, almost force
the sales agent to write for one ISO, which is unfair to the agent
who is trying to provide a good product mix to his customers. The
card associations have some options to address this problem, should
they desire to do so.
One way would be to change the rule that states that sales agents
must market in the name of an ISO. I find this rule to be
detrimental to ISOs to the extent that ISOs are often sued by
merchants because of the actions of their sales agents. The reason
that ISOs are sued is because the agent is marketing in the same name
as the ISO, and hence, the merchant identifies the ISO as the party
it believes is liable for any wrongful actions. (See “Is an ISO
Liable for the Actions of Its Independent Sales Agents?”,
Transaction World Magazine, October, 2003) ISOs could substantially
reduce their potential liability for sales agents’ actions by the
rescinding of this rule.
One objection that has been made to repealing this rule is that
having sales agents market in the name of the ISO gives the ISO an
incentive to more carefully screen its sales agents. From a global
perspective, I am of the opinion that it really does not matter
because most sales agents can find an ISO that will sign them up with
little or no background checks. Since a bad sales agent can find a
lax ISO no matter how many good ISOs are doing background checks, the
overall pool of sales agents will still contain a very small
percentage of bad agents. The way to resolve this situation would be
to have all sales agents go through a process overseen by Visa and
MasterCard that calls for a mandatory background checks including a
criminal background search, along with a credit search. This will at
least provide some measure of comfort that the sales agent is
potentially a reputable individual.
Until the card associations address this issue, there will be no easy
answer for a sales agent who wishes to place business with multiple
ISOs. All a sales agent can do is try to minimize its risk of being
fined, while knowing that it is not complying with the Visa and
Mastercard regulations as currently written.
** The information contained herein is for informational purposes
only and should not be relied upon in reaching a conclusion in a
particular area. The legal principles discussed herein were accurate
at the time this article was authored but are subject to change.
Please consult an attorney before making a decision using only the
information provided in this article.
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