July 10, 2017

The Fastest Way to Grow Your ISO

As the payments industry continues to grow, building a successful independent sales organization (ISO) has become increasingly difficult and competitive. ISOs are continually in search of new ways to boost revenue, get a better return on invested capital, and enhance the value of their business.

Investing in new technologies and attempting to undercut competition for new accounts is often time consuming and costly. Expansion to new markets and service diversification require market research as well as effort and funds for implementation.

Fortunately, there are easier options for immediate revenue for ISOs. One of the fastest ways to grow, without having to do much work, is to purchase your agents residuals.

Purchasing an Agents Residuals

Its hard to find a good residual portfolio to buy, and if you do find one that you can actually agree to terms with a seller, it will require a lot of due diligence which can be expensive and time consuming. Purchasing one of your existing agents residuals is probably the easiest and best option for short-term growth. Since you already have a business relationship with your agent, finding one who needs a liquidity event can be as easy as sending out an email blast announcing your agent buy back offer. Who doesn’t have an agent who needs money for some purpose. Recently we have seen several Super ISO’s that have mailed out an actual check signed and ready to be cashed for the amount they are willing to purchase an agents portfolio. If or when the agent cashes the check, the ISO immediately owns the residual stream going forward. Depending on what time of month the offers go out, an ISO can sometimes pick up a free months residuals since most ISO’s pay one month in arrears.

Knowledge of your agent and their operations adds additional security to the transaction and provides insider information about your agents portfolio performance and willingness to sell. Due to an increased understanding of your agents’ business, overall challenges to the purchaser are usually minimal. In addition, underwriting the portfolio is much easier because you already own a portion of the residuals and have a history with the merchants. Plus, you are probably the only one who is going to offer to buy this residual stream and you will get to purchase this at a much lower multiple than if you were buying a 3rd party ISO portfolio.

If you are like most ISOs, a large portion of your agents residuals are probably less than $10,000. These are considered very small portfolios and there are only a handful of buyers who will purchase these types of portfolios. As portfolios grow in size, the mulitipes that you can receive grow larger. For example, if you can buy up your agents residuals at a 12x Monthly Revenue multiple, you might sell your much larger book several years later for 36x Monthly revenue. Not only do you receive the income over all of those months, you will make 24x the amount of the residuals on paper the moment you execute the transaction. This makes your company worth more immediately.

The secret to getting deals closed is to get them done quickly. Many agents are so eager for funding that they are more concerned with getting a transaction done fast and cash in their bank account, than the multiple being paid.

Here is another example. Your ISO has a gross monthly residual of $100,000.00 and you pay out approximately 50% of that to your agents. Lets say you decide you want to buyout up to half of each of your agents residuals. So the total you can buyback is 25% of the total portfolio or 25,000 per month of residuals. Assume you can buy those residuals from your agents at a 12x multiple. You will need $300,000 in cash to buy these back.

You now have the same gross income of $100,000 however your net income is now $75,000 per month, instead of $50,000 per month. You have increased your income by 50%. In this instance, Super G would lend you the $300,000 payable over 2 years with you paying back approximately $16,000 per month. This means that after paying your loan payment of $16,000, you will have a positive cash flow of $9,000 per month for 2 years and then you would have the full amount of what remains of the residuals in 2 years or close to 25,000 of Net Income assuming low or no attrition.

You now have done a simple financial transaction that helps your cash starved agent and you are making more money than before and you never had to acquire any more merchants than you have right now.

In addition to all the cash you will collect monthly, you also have an asset that is worth significantly more than you paid for it and you can make the spread between what you can buy your agents portfolio for and what you can sell it for later.

Obtaining Capital From Super G

ISOs can qualify with Super G Capital if they have a minimum of $10,000 in residuals per month. Getting approval for a loan is quick and easy, and it can be done in as little as five business days. Underwriting is fairly simple at Super G. Residual statements are reviewed, and as long as your accounts are fairly diversified and not too top heavy with only a few large or high-risk merchants, you can be approved and funded within a week.
Super G provides loans ranging from one to four years that are secured by an ISO’s merchant portfolio. The good thing about borrowing is you can use the cash flows from the new portfolios to cover the monthly loan payment and if the purchase is structured right, you will have added cash flow each month.
As Super G Capital has grown, it now has cheaper capital available to be more competitive on larger deals from $1 million to $10 million. Our financing is not as cheap as bank financing but can be used in addition to a bank line to help finance an acquisition when it would cost more to finance through equity.