I was recently invited to join the Transaction World team and share my insight on common topics and areas of concern in the payments industry. In my day-to day professional role with Global Payments I manage one of the largest ISO channels in the industry in cooperation with one of the largest financial institutions in the world.
This monthly column is dedicated to the COMMON GROUND issues and concerns all Acquirers, big and small, share. Every month, I will explore many of the matters that affect us globally, to hopefully help you avoid the pitfalls others in our constituency have faced in the past. Topics such as compliance, driving profitability into a portfolio, the sales vs. profit/risk dilemma, the underwriting/risk connection, outsourcing of services, agent and merchant relationship management tools, sales methodologies for portfolio growth, etc. are all of common concern. In addition, I am open to other topics that may be of interest to you so feel free to contact Transaction World with your suggestions.
One of the hottest issues in the industry today is Association Compliance, as it relates to marketing and sales. If you break the rules it can indeed be costly. The Associations (Visa and/or MasterCard) solely determine what is and is not compliant and only the member financial institutions have direct access to the rules and regulations of the Associations. Neither the registered ISOs nor the salesperson in the street has direct access. So as you look to avoid penalties and fines, it is advisable to get educated by your acquirer and stay in the black, not the grey, when it comes to compliance, as the Associations are clamping down in the wake of past problems. Many sales organizations have learned this the hard way.
Of the Associations, Visa has taken the more aggressive approach to marketing compliance and today has two Agent statuses allowing for the solicitation of merchants. The first is that of an Independent Sales Organization. An ISO is an individual or organization that is not a Member, but has a bankcard relationship with a Member. The second is that of an Independent Contractor. As the definition states, this is an individual who has a bankcard relationship with a Member. MasterCard has only one status and that is an ISO/Merchant Service Provider, which is equivalent to an ISO in the Visa world. The ISO and the IC can market under their own names, as long as they reference themselves as Agents of the Member institution that sponsored them. This is known throughout the industry and fairly clear.
What is not as clear is what the sales force of the ISO or Acquirer can or cannot do. The Rules do allow for salespeople to exist as employees of the Acquirer or ISO without direct registration as an ISO or IC. Below is the Associations' (not the IRS's) definition of an employee:
- Receive compensation for activity directly from a Member or a registered agent (earnings reported on a W2 or 1099 form) and
- Use only the Business name of the Member or registered ISO
- Clearly identify the Member on all business cards and stationary
This means that as long as a salesperson is fully representing himself as an employee of the ISO or Acquirer they need not register. However, any and all branding of unregistered organizations in any way, shape, or form is in direct violation of the Rules. Sales groups or individuals marketing transaction processing and individually branding himself or company as a check, ATM, loyalty card, or equipment sales reseller or an unregistered group are in clear violation. Whether the company's brand (name, logo, etc.) is on the web, a business card, drop mail, stationary, or any other material, it does not matter. It is in direct violation if the company doing the solicitation is not doing so solely as the registered organization. The non-compliant web site is the easiest find but other sources have created issues and together produced thousands of dollars of fines assessed to Members and passed down to ISOs and even to sales reps.
Examples of often used but non-compliant marketing techniques:
- Blue Payments Solutions an Agent for Bill's MS a Registered Agent of KK Bank
- Green's Hardware Depot Merchant Acquiring by Bill's MS a Registered Agent of KK Bank
- Red Check and ATM - Merchant Acquiring by Bill's MS a Registered Agent of KK Bank
The only compliant marketing techniques:
- Bill's MS a Registered Agent of KK Bank" and Bill's MS must be registered with the Associations
- Jim Smith (Sales Rep) working for Bill's MS a Registered Agent of KK Bank
If you are a registered Agent, it is in your best interest to help your sales force clean up its face in the market. As you know, the fines mount and the squeeze gets tighter with each violation. As an unregistered sales organization or individual, you are jeopardizing your residual stream daily if you market under your own name. In every contract I have ever seen (ISO, Agent, Referral, etc.) there is a clause that states you must abide by the Rules of the Associations. So why take the chance? What would a fine of $10,000 do to you today? Is it worth risk?