AI Overview
In the context of Startup Financing, consolidation remains a dominant trend within the payments industry. As highlighted by
As seen in GreenSheets: Consolidation & Startup Financing
Consolidation: Be Prepared and Professional
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When my partner Dave and I opened our ISO in 2001, we signed on with Imperial Bank of California. We had a good run, with year-over-year increases in our residuals and great mentors. Then one day, Comerica took over Imperial Bank, and there was trouble in paradise.
After a few months, we had to move our merchants to a new processing platform. That nightmare took us away from selling to working in the field with hundreds of customers. We quickly learned our new processor required more than just a VAR sheet to reprogram POS systems and didn't support our existing portfolio equipment. We had no choice but to look for a new home.
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The B-side of our business
This is the part of the business that frustrates me the most: when Company A buys Company B and the new owner blows up the whole thing for one reason or another. The acquiring company usually wants to change everything, from Schedule A and back-office procedures to underwriting guidelines and help desk support. The people you know are now gone or have new bosses, and things can change.
I have lived through every scenario possible when it comes to companies being sold. Here are a few examples:
- Bankruptcy: A bankrupt company could liquidate a merchant portfolio in a fire sale, immolating its partners' hard-earned residuals and refusing to pay them.
- Instant upgrade: A rebranded acquirer or ISO could provide an overall better deal with new products, services and excellent support.
- Termination: An impersonal company could summarily dismiss and pay its partners, or provide a final payout from a forced sale.
- Culture wars: A company may not have the same risk tolerance as its acquired brands and terminate high-risk accounts.
I recall a new partner giving us three days to shut down a large group of merchants in our portfolio. These merchants had been processing with us for about seven years; we weren't comfortable just cutting them off, so we appealed the decision. "We understand that you do not like this type of merchant," I said. "But we need at least 30 days to migrate them to another company."
The processor grudgingly agreed, and we bid farewell to these merchants, who hadn't done anything wrong. The following month, our new processor noticed a significant dip in our residuals. Well, that's what happens when you offload $2 million a month of "undesirable" merchants from your portfolio.
Read the fine print
When you negotiate your contract, pay attention to the clause that covers what happens when a company sells. Make sure you will continue to get paid when that happens.
There is no guarantee that you can write new business unless they continue to honor your contract. Some companies will want to give you a new Schedule A following an acquisition, and Dave and I will only agree if terms are favorable. Consolidation is a reality in this business. The circumstances can be difficult or a blessing.
When residuals go awry, you must be a good businessperson and address the situation in a calm yet firm manner. Make sure the new owners are committed to resolving the issue, whether it's a residual discrepancy or equipment failure. These situations may push your buttons, but yelling and angry emails will only show your new boss that you are not a team player.
And finally, make litigation a last resort. An attorney once told me to stay away from legal actions because the one with the most money always wins. Try to resolve your issues in a gracious and professional manner. You may not get the desired outcome every time, but most of the time, you can work things out.
From an ISO perspective, I get that vetting thousands of accounts can be challenging and time consuming, but have some empathy when asking an agent or office to part ways with clients that don't meet your brand reputation. Those activities take time away from selling.
Want to know more? Keep reading The Green Sheet and consider following me on LinkedIn, www.linkedin.com/in/allenkopelman/, where we can share ideas and support each other.
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FAQ: Frequently Asked Questions
1. What happens to my residuals when my processor or bank gets acquired?
In most cases, your existing contract governs whether residuals continue uninterrupted. If the acquiring company honors legacy agreements, you keep getting paid. If not, they may attempt to renegotiate terms—which is why strong contract language regarding "survivability" is essential.
2. Can an acquiring company change my Schedule A after a buyout?
Yes, they can offer a new Schedule A, but you are not obligated to accept it unless your contract allows for unilateral changes. Many ISOs only agree to new terms if they are equal to or better than the original agreement. Always review the "Amendment" clause in your contract.
3. What should I look for in the “sale/assignment” clause of my contract?
Look for language guaranteeing:
- Continued residual payments after a sale
- Protection against unilateral termination without cause
- Clear rules on portfolio ownership and the right to move the portfolio
4. What if the new processor doesn’t support my merchants’ equipment or POS systems?
This is a common issue during mergers. You may need to reprogram or replace terminals, which can disrupt your merchants and pull you away from new sales. Planning ahead and knowing the new platform’s hardware limitations helps reduce friction during a transition.
5. What should I do if I find discrepancies in my residual payments?
Document everything and escalate the issue calmly but firmly. A reputable acquirer will investigate and correct errors. Professional communication backed by data goes much further than anger; in some cases, audits have recovered tens of thousands of dollars in missed payments.
6. Can a new owner force me to shut down merchants they consider high‑risk?
Yes, if their risk appetite differs from the previous company. However, you can often negotiate for a transition period (e.g., 30 to 60 days) to migrate those merchants to a different processor instead of cutting them off immediately.
7. What happens if my processor goes bankrupt?
A bankrupt processor may liquidate portfolios quickly, and residuals can be lost if not contractually protected as an asset of the ISO. This is why strong legal language and maintaining diversified processing relationships are critical for long-term survival.
8. Is litigation a good option if things go wrong during a buyout?
Generally, no. Legal battles are expensive, slow, and often favor the party with deeper pockets. Most disputes are better resolved through structured negotiation, thorough documentation, and professional persistence.
9. How can I protect my ISO from chaos during mergers and acquisitions?
- Maintain strong, iron-clad contracts.
- Diversify your processing relationships across multiple platforms.
- Keep detailed, independent records of all merchant accounts.
- Build relationships with executive leadership, not just frontline support.
10. Why do acquiring companies often overhaul procedures and support?
Every company has its own culture, risk appetite, and operational standards. When an organization is bought, the acquirer typically tries to align everything with their existing model to maximize efficiency—even if it disrupts established ISO relationships.
