How to Compare High-Risk ISO Buy Rates, Revenue Splits and Net Residuals

What does each quoted number actually cover?

Start by defining the terms in the proposal. A buy rate may refer to a processing markup, a transaction cost, a gateway cost or a wider bundle. A revenue split is incomplete without the definition of the revenue being shared and the deductions applied before and after the split. Ask for a worked statement using your chosen scenario.

Visa distinguishes interchange between acquiring and issuing banks from the merchant discount negotiated with a merchant's financial institution. NMI separately describes gateway fees, processing costs and partner revenue arrangements. These sources support separating the layers; they do not establish a standard ISO compensation formula. Visa: Our commitment to transparency: rates, fees and rules NMI: Payment Processing FAQ: Pricing and Fee Structure

One basis point is 0.01%. On $1,000,000 of applicable volume, one basis point is $100. Use the correct base: a rate quoted on settled purchase volume is not automatically comparable with one applied to another definition of volume. Count each charge once, and identify any pass-through item that already appears elsewhere in the offer.

Set the same assumptions for both proposals

The example below is deliberately fictional. It compares two arrangements for the same illustrative monthly cohort: 20 active merchants, $1,000,000 in settled purchase volume and 10,000 settled purchases. Average purchase value is therefore $100. The figures illustrate arithmetic only and do not imply acceptance of a high-risk portfolio.

Merchant fees collected are assumed to be $26,000: $20,000 in identical underlying interchange/network pass-through costs, plus a 50-basis-point markup ($5,000), an $0.08 purchase fee ($800) and $10 per active merchant ($200). The $6,000 remaining before partner buy costs is the same for both offers. All merchant fees are assumed collected; the example does not include taxes, refunds, losses, reserves or uncollected fees.

For this example only, both agreements define the shareable pool as that $6,000 less the listed partner buy costs. Listed partner buy costs do not include the $20,000 already deducted. Neither offer has additional minimums, tiers or unlisted charges in the base case. Real proposals must supply their actual definitions, including what happens when a minimum is not met.

Work through the residual calculation, not just the headline

Offer B has the lower volume-based buy rate and the larger percentage split, yet Offer A leaves $320 more per month after the listed costs. B's higher per-purchase and per-merchant costs reduce the pool before the split. This is why the percentage and its calculation base must be compared together.

The $200 servicing estimate is an internal ISO cost, not another partner fee. It is shown after the net residual payable so the reader can see both compensation and contribution. The comparison assumes that neither offer requires additional loss exposure or materially different duties; if that is untrue, the dollar comparison is incomplete.

Merchant pricing is identical in this example. The result demonstrates a difference in ISO economics, not merchant savings. A proposal that reduces merchant charges needs its own scenario, because that change also affects the revenue available for sharing.

Test the assumptions that could change the result

Now halve monthly purchase volume and count to $500,000 and 5,000, while keeping 20 active merchants and every other stated assumption unchanged. The same markup structure produces $3,100 before partner buy costs: $2,500 in volume markup, $400 in purchase fees and $200 in monthly fees.

The fixed costs now take a larger share of the return. In a real review, also test a smaller average ticket, more inactive or low-volume accounts, different card/customer-country mix, and any contractual minimum or tier change. Do not assume that a rate available at the present volume survives a materially smaller portfolio.

Use observed activity where available and mark assumptions explicitly. If a charge applies to all authorization attempts, using only successful purchases will understate it. If refunds generate costs without equivalent revenue, include their expected frequency and fee treatment. Show the result both with and without any temporary promotional concession.

Separate earned residuals, cash receipts and merchant settlement

A residual report, the date compensation becomes payable and the date cash arrives are different items. NMI's affiliate commission guidance, for example, ties payment to collection of applicable merchant fees. That is a program-specific illustration of why collection conditions matter, not a general payout timetable or a description of MBA terms. NMI Support: Commissions and FAQ

• Ask which month's activity a payment covers and when the calculation is finalized.
• Identify how unpaid merchant fees, credits, corrections and account closures affect compensation.
• Separate a temporary withholding from a permanent expense, and confirm release or offset conditions.
• Ask how you can reconcile the report and raise a calculation dispute.
• Confirm whether compensation continues after termination and under exactly which conditions.

Keep the merchant's funding schedule separate. Faster merchant settlement does not necessarily mean earlier ISO compensation, and a merchant reserve is not automatically an ISO cost. Identify whose funds or liability are involved before including an item in your calculation.

Read the commercial obligations alongside the fee schedule

Use the actual agreement and specialist advisers where needed. The following questions are a review framework, not a statement that any particular protection, fee or obligation exists. An economically attractive illustration should not substitute for understanding the proposed relationship.

• Scope and changes: which merchants qualify, which services are included, and who can change prices or compensation terms?
• Responsibilities: who performs onboarding, support, monitoring, dispute handling and reporting, and who bears any losses or indemnities?
• Client relationship: what do the documents say about contact rights, confidentiality, exclusivity, solicitation and ownership or transfer of relevant contractual rights?
• Exit: what termination triggers, notice periods, fees, transfer restrictions and continuing residual conditions apply?
• Transition: what implementation work, permissions, merchant decisions and parallel operating costs would a proposed move require?
• Evidence: does a sample residual statement reconcile to the offer, and which assumptions remain unconfirmed?

A simple payback calculation can screen a proposed change. Suppose the same fictional cohort currently contributes $3,000 per month, the proposed arrangement contributes $3,300, and one-time transition costs are $3,600. The incremental $300 per month would take 12 months to recover those costs, assuming stable activity and no additional costs, delays or attrition. That is arithmetic, not a forecast or a guaranteed recovery period.

If the comparison is for future business only, use the costs and revenue of that future cohort rather than treating the entire existing portfolio as movable. If contractual or technical feasibility is unresolved, keep any migration case provisional.

Ask for a proposal that answers the same set of questions

Prepare an anonymized cohort summary and ask each prospective relationship to price the same activity, explain its cost definitions and show the residual calculation. Keep exclusions and unanswered questions beside the model. A blank field should remain unknown rather than silently becoming zero.

MerchantBridge can explore whether a referred acquiring relationship may offer a useful pricing or commercial discussion for an eligible portfolio or segment. Bring your objective, broad merchant mix and approximate activity first; detailed pricing documents can follow through an agreed secure process when appropriate. Compensation and all other commercial terms remain case-specific. MerchantBridge Advisors: High-risk merchant placement for ISOs and agents: portfolio economics

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