Making enough money to enjoy a comfortable life without an office job is the dream for many Americans. Even more sought after is the ability to achieve that with a passive income.
Getting to the point where the dollars keep rolling in, however, requires some effort. And to make those paychecks more than merely supplemental, you need to choose the right gig.
One great option is to become a credit card processing agent.
Businesses of all shapes and sizes need dependable payment processing to keep their doors open. If you are the one to facilitate such services as a member of our merchant reseller program, you’ll be rewarded (potentially for the rest of your life). Sound intriguing? Read on for key definitions and tips that will aid you on your path to becoming a credit card processing agent, so you can start building up that passive income and living the dream.
Table of Contents
Important Definitions (ISOs, PSPs, & More)
The world of payment processing may seem a bit complicated to the layman. This is partially due to a swath of complex terms and acronyms used to categorize various merchant service organizations, people, and processes.
We’re here to clarify some of the more important terminology, with a list of useful definitions in alphabetical order.
Agent / Partner / Reseller
An agent (also referred to as a merchant services partner or reseller) is someone working for an ISO in an official capacity. They help make connections with business owners, and create lasting relationships with companies by operating as their primary contact for all things payment processing-related.
Agents make money through connecting business owners to the payment processing solutions offered by their sponsoring ISO.
Assessments are an additional cost added to a merchant’s effective processing rate. The assessment cost is determined by the type of transactions being processed (card present, card-not-present, ecommerce, etc.), the merchant’s industry, processing volume, and a variety of other factors. Assessments are non-negotiable.
An assessment usually costs .10% to .14% the price of a transaction (on the higher range of that for credit cards), so they are fairly minimal. For instance, a $10 dollar purchase would cost only 1 to 1.4 pennies in assessment fees.
Card Present, Card-not-Present Transactions
Swiping a customer’s physical card is a “card present” transaction. This is considered a safer form of processing (from the bank’s perspective) than a “card-not-present” transaction, which is either an online payment or one processed over the phone.
Understandably, “card present” transactions have lower rates and fees than their “not present” counterparts because they are less likely to be fraudulent.
Credit Card Associations
Visa and Mastercard are the two main ones, although Discover and American Express can also be included. The associations determine interchange and assessment rates, and have partnered with major banks from all over the world to get credit cards in the hands of customers (Wells Fargo, Bank of America, etc.).
Effective Processing Rate
This is the total sum a merchant pays for credit card processing. It is the combination of interchange (card associations), assessments (card associations), and interchange plus (ISOs / payment processors) added together.
“Interchange” is the base cost that credit card associations charge for the use of their services. The easiest way to think about it is that it’s a “wholesale” cost applied to every credit card transaction made today.
Note: Interchange is different for Visa, MasterCard, American Express, and Discover.
“Interchange plus” is a popular pricing model used by ISOs, where the “interchange” is the cost of whichever credit card network is being tapped for a customer transaction (Visa / Mastercard generally), and the “plus” is an additional fee (or markup) on top of that – hence, the “plus”.
It is typically the most competitive and transparent pricing model for a merchant looking to process cards. If an ISO allows you (an agent) to offer this, you’ll be able to generate more profit per client. Motile provides this option and more for its merchant service partners – feel free to get in touch with us if you’d like to learn more.
ISO (Independent Sales Organization)
ISOs operate as sales representatives of member banks. Sometimes in the form of a team or company, other times operated by an individual.
An ISO is not working directly under Visa or MasterCard, but connected with a bank that is. The relationship between an ISO and their sponsoring bank allows the ISO to:
- Sign up new customers
- Sell point of sale systems to a variety of industries
- Employ customer service solutions for businesses
- Handle much of the paperwork behind a payment processing contract
The “plus” of interchange plus. Markups are how third parties (payment processors, ISOs, MSPs, and PSPs) make money processing credit cards.
Member banks are banks that have connections to credit card association members. They promote the use of association credit cards, and work together with ISOs and agents to get people qualified and spending money via credit. Two examples of member banks are Wells Fargo and Bank of America.
Merchant Service Aggregator (or “Payment Aggregator”)
Some well-known examples of merchant aggregators are companies like PayPal, Square and Stripe (note: these particular companies are also classified as PSPs).
Aggregators take on low-volume merchants of all types, which usually entails individuals or small businesses. An important thing to note though, is that they generally steer clear of high risk, harder to manage industries because their banks don’t want to take on the risk.
They are also known for their (deceptively attractive) flat rates.
There are both pros and cons associated with using a payment aggregator for a business. Some of the benefits include:
- Quickly getting processing to begin taking customer payments
- Being able to accept multiple currencies
- Receiving built-in security measures to safeguard the flow of cash
However it’s important to note that,
- Merchants with higher volumes can’t use aggregator services, making them unscalable
- Flat rates are generally more expensive than interchange plus rates for merchants (something to keep in mind as you proffer interchange plus to people in need of cheaper processing)
- Even though they accept most qualified merchants immediately, aggregators will close down accounts they find to be “high risk” down the road – making them a dangerous option for entrepreneurs in certain industries
MSP (Merchant Service Provider)
Merchant Service Providers (MSPs) are connected directly to the credit card associations, and as a result have access to base interchange rates – making them incredibly competitive when searching for customers (note: some ISOs also have this direct connection).
To become an MSP, you must pay a substantial fee ($5,000 per year to Visa and an additional $5,000 annually to MasterCard) to simply maintain this privileged status. Unless you’re really ready to hit the ground running, it’s in your financial interest to avoid these expenses and first give being an agent a shot.
PSP (Payment Service Provider)
PSPs are companies that specialize in online processing, making them vitally important to the world of 21st-century ecommerce. They normally operate as an SaaS (software as a service), and provide customers (which includes small businesses and individuals trying to sell anything online) payment gateways to facilitate card-not-present transactions.
PSPs have a master account with an acquiring bank, and then are able to onboard businesses as “sub-merchants” under the umbrella of their account. Such a strategy allows PSPs to quickly begin processing for their customers.
PSPs thus take on the risk of these businesses – so it’s no surprise then that they provide risk management, reporting, and more for anyone using their service. It’s in every PSPs’ best interest to ensure each company or person they take on succeeds.
While PSPs offer a simple solution for many people out there looking for processing, they lack the freedom a merchant service provider can offer (which includes scalability, negotiable rates, and other benefits). However, both hold an important role in today’s processing world.
Also known as “bundled” or “bucket” pricing, tiered pricing is an alternative to interchange plus. ISOs and agents use this particular payment scheme to make money off their clients based on the “tier” of each customer transaction. The primary three tiers (or six in some cases) are:
Roughly, a payment that’s deemed “qualified” is one that is less risky and a lower cost for a processor. So for example, a “qualified” payment might be a “card present” transaction by a customer using a debit card, whereas a “non-qualified” purchase could be one handled online (CNP) using a rewards credit card.
The biggest problem with tiered pricing is that it lacks the transparency of interchange plus. Merchants don’t know which rate category their customer transactions are being swept into, and processors don’t need to disclose this information either – whereas interchange plus is all laid out on the merchant’s processing statement.
How to Become A (Successful) Merchant Account Reseller
If you’re interested in becoming part of a merchant account reseller program, getting started isn’t the hard part. The main thing that can be tricky is succeeding to the point that you have a nice stream of recurring, residual income.
To become a credit card processing agent, there are two things you need to do:
- Sign an agent agreement
- Provide a voided check for the account you wish to receive payment
Once you’ve agreed to the terms set forth by the ISO, it’s time to get to work. Here are six important tips to consider if you’d like to make this gig a lasting one:
Tip #1: Know the Insides and Out of Processing (and what you offer)
This is where understanding those previously-outlined definitions comes in. If you don’t know what you’re talking about, even your closest friends will be reluctant to sign up for a merchant account through you. Having knowledge about the pros and cons of ACH compared to credit card processing, for instance, will help you speak with authority when pitching your services.
More importantly, you should know the difference between the rates you offer in contrast to those of your competitors (Square and PayPal are great ones to pick on since everyone knows them). People want to know why you’re worth their time, and saving them money every day going forward by switching to your processing solution is a compelling point to make.
Tip #2: Dive into Your Network
You have loose (or better) connections with these people, so they’re already more likely to trust you. Plus, since you know you’re actually providing a service that holds value and can save them money, it will be an easier sell than if you were pushing something self-serving like a social marketing product.
Tip #3: Understand that Each Sale Must be Nurtured
Making a sale is a great feeling, but don’t fall into complacency. The businesses who are onboard deserve just as much attention as potential clients do. Treat each account with respect, so that those businesses will continue to work with you into the future. Accumulating happy clients is how you build upon your own monthly income, after all.
Tip #4: Set up Your Own Referral Program
It’s not illegal for friends and family to point potential clients your way. Getting other people to help you pull in more business is a savvy strategy, especially if you’re trying to expedite the process.
Outline a referral payment model, and make sure everyone knows that they can make money by connecting you to business owners. But also be sure that you stipulate what they can and cannot do by having them sign an independent contractor agreement. Which brings us to another important piece of advice:
Tip #5: Adhere to the Terms of Your Contract
It’s crucial you follow the terms of your own contract, because these terms help keep you legally compliant and allow ISOs to offer reseller programs in the first place. In order to keep things mutually beneficial for you as well as the individual/group sponsoring you, it’s in your best interest to not break contractual stipulations.
Tip #6: Work on a Blog
There are numerous reasons so many members of the merchant services industry have websites, but the biggest one is to generate leads. And if your website starts to generate enough traffic, you won’t even need to hustle for customers anymore because they’ll be coming to you on their own.
Creating a simple WordPress website and putting up blog content relevant to merchant services and payment processing is a good start. Doing so accomplishes two main things:
- It builds your authority in the industry
- It helps you rank for keywords that business owners are typing into Google, so they’ll start landing on your website (and hopefully reaching out to you)
If leveraged correctly, a website is a hugely beneficial investment that will allow you to establish yourself as a dependable merchant account reseller for years to come.
Keeping Things Legal
As a credit card processing agent, if you follow the terms laid out in your contract and run an honest, transparent business, you’ll be in good shape. But if you cook the books or break your agent agreement, you could definitely encounter problems.
Specifically, the Federal Deposit Insurance Corporation (an agency run by the U.S. government) is paying attention to such behavior – monitoring both resellers and third-party providers to ensure they don’t hurt the finances of member banks by taking on unnecessary risk or doing anything that could be deemed deliberately deceitful.
Plus, the FTC is on the lookout for scammy payment processors as well. Fraud is a serious crime and completely destroys the reputation of an ISO, agent, or really anyone involved in the world of credit card processing. When you sign someone up, they are putting their livelihood in your hands – it’s important to remember that.
It’s actually much less complicated to become a credit card processing agent than it is to start your own business, yet you still get to enjoy many of the perks that come with being your own boss. If you’re ready to find out how you can be a successful merchant services reseller, why not reach out to us now?