Merchant processing residuals are how ISOs make money in the payment processing sector. These residuals are a small percentage of the overall fees charged to merchants for the service. Each merchant agrees on the fees they will pay and within those is the leftover or “residual” funds for the business that helped set up their account.
Residual payments are made from a hosting bank to the ISO who helped a merchant through the onboarding process. These payments are delivered in set time spans that the bank decides upon. These can range from monthly to quarterly.
It’s important to keep in mind that residual payments are a byproduct of your merchant’s processing volume. A sudden increase, or change in processing from a merchant will result in a very different payout. Many ISOs monitor their residuals very closely to make sure any changes to merchant processing volume can be addressed.
During the holidays or other peak times of year you may reach merchant account thresholds. In that case, you should be sure to monitor those merchants who historically need increases or are in an industry that is likely to thrive seasonally.
Increasing merchant account volume is easy and simply requires reaching out to the boarding bank and making a request. They’ll likely ask for new statements and review the most recent processing volume of the merchant. THis will paint a clear picture on the amount the need for their increase.
Higher residuals depend on two major factors, the fees charged to a merchant, and the split you have with the bank you board them with. As an agent, you want to do what’s best for your merchant and provide them with lower fees. This also helps get more merchants processing so you can expand your business. The downside to this is you may receive lower overall profits, but there’s an upside when it comes to working with a bank – you can negotiate your splits.
Asking for higher splits seems like a normal way to make more money, but when it comes to negotiating, be sure you’re equipped with some leverage. Banks are often risk averse and want to see a long history with diverse merchants and a lot of processing volume. Moreover, if you can move existing merchants over to them, they will offer big bonuses for your business.
With extremely competitive rates in the payment processing field and a low cost of entry, there is a leveling of fees when it comes to the baseline cost of a merchant account. Aggregate providers offer a baseline when it comes to standard accounts usually around 3% and $0.30 per transaction. However, high risk merchant accounts require a premium because there are fewer banks that will accept the risks that go along with boarding them.
The best way to track merchant activity and manage residuals is through your payment gateway. This will show the sales volume of all of your merchants, and you will be able to see top performers you can help improve or follow up on businesses that may need assistance.