ISO residuals glossary: the terms on a residual report and an agent agreement

The payments industry uses a small vocabulary that is rarely written down, and half of the arguments at month-end come from two people using the same word for different things. These are the terms as they are used on residual reports and in agent agreements, with the arithmetic where a definition alone is not enough. Where a term has a full guide, it is linked.

The income

Residual

The recurring monthly income earned from a merchant's card processing, paid for as long as the merchant keeps processing. It is the processor's payment to the ISO for the merchant, and the ISO's payment to the agent, both called residuals. Distinguished from a one-time bonus or upfront payment. Everything else on this page describes how a residual is calculated or shared.

Total Profit

The profit on one merchant for one month, as reported by the processor: what the merchant paid in fees, minus the processor's direct costs for that merchant, chiefly interchange and assessments. Processors use different names for the column (GPR, Net Revenue, Residual), and it may be before or after the processor's own split with the ISO. It is the number a month-end calculation starts from. See How to calculate ISO residuals.

Interchange

The part of a merchant's card fees that goes to the bank that issued the card. Set by the card brands, not negotiable by the ISO, and passed through on the report. It is subtracted before profit.

Assessments

The part of a merchant's card fees that goes to the card brands themselves. Also passed through, also subtracted before profit.

Income type

The kind of revenue a residual line comes from: processing, equipment rental, software, app revenue share, gateway. Many offices pay agents a different percentage on each, so each line has to carry its type through the calculation. See ISO commission split structures explained.

Basis points (bps)

One hundredth of one percent. Pricing and margins in payments are quoted in basis points because the numbers are small: 20 bps is 0.20%, or $20 on $10,000 of volume. A merchant's profit is often described as the basis points the ISO earns on that merchant's volume.

The processor agreement

ISO

Independent Sales Organization. A company registered with the card brands through a processor or bank that sells and services merchant accounts and earns residuals on them. "ISO" is also used loosely for any office that has agents and a book of merchants.

Sub-ISO

An office that operates under another ISO's processor agreement rather than its own. It earns residuals through the ISO above it, on that ISO's terms, and its book is worth less to a buyer because the right to the residual runs through someone else's contract.

Schedule A

The pricing schedule attached to the agreement between a processor and an ISO. It lists the processor's cost to the ISO for each fee element, which is what the ISO's margin is measured against. When an ISO says "our Schedule A", it means its cost basis with that processor.

Buy rate

The rate at which a processor, or an ISO, sells processing to the party below it. The difference between the buy rate and what the merchant is charged is the margin. In agent agreements, a buy rate structure pays the agent everything above a fixed rate rather than a percentage of profit. It is common in the industry, and it produces very different results from a percentage split on the same merchant.

Company split, processor split

The share of Total Profit that the ISO receives under its processor agreement, when the report shows profit before the split. An 80/20 agreement means the ISO keeps 80%. Some processors report only the ISO's share, in which case the split has already been applied and the figure should be treated as 100%.

The agent agreement

Agent

The person or company that sold the merchant account and earns a residual on it. Also called a rep, sales partner or referral partner. An agent may be an employee or an independent contractor, and in many offices is paid on their own production only.

Split

The agent's share of the profit on their merchants, as a percentage. "A 50% split" means the agent receives half of the base. Which base is the most common source of dispute.

Base

The number the split applies to. It can be Total Profit before the processor's split, the ISO's share after it, or what remains after office deductions. The same 50% pays three different amounts on the three bases, so an agreement should name the base in words. The residual split calculator shows all three side by side.

Deduction

An amount taken from the profit on a merchant before the agent's split is applied, for a cost the office incurs on that merchant: gateway fees, software, a referral fee, a terminal. Whether a deduction comes before or after the split changes the agent's pay, and should be in the agreement.

Override

Income an upline earns on the production of agents below them. It is either a percentage of the agent's commission or a number of points on the same base the agent is paid on. For an agent on a 50% split, 10 points pays the upline twice as much as a 10% override on commission.

Upline and downline

The upline is the person who earns an override on an agent. The downline is the agents someone earns overrides on. A manager with three agents has three downlines; each of those agents has one upline.

Sub-agent

An agent recruited and managed by another agent, who earns an override on them. The office pays the sub-agent's split and the recruiting agent's override, usually both funded from the house share.

Shared merchant

A merchant whose residual is paid to more than one agent, for instance a referral partner and the closing rep. The shares should add up to 100% of the agent side, and the statement should mark the merchant as shared so that neither agent expects the whole amount.

Tier

A split that changes with volume or with the size of the agent's book: 40% up to a threshold and 50% above it, for example. Tiers create a jump at the threshold, and an agreement should say whether the higher rate applies to everything or only to the amount above the line.

Clawback

The recovery of money already paid, usually because a merchant closed early, a bonus was paid on an account that did not activate, or an error was found after payment. Best handled as a dated, explained adjustment on a later statement rather than a change to a past one.

True-up

A correction that brings what was paid into line with what should have been paid, after the fact. Same rule as a clawback: dated, explained, on a later month.

The month

Period

One processing month, as the processor reports it. Residuals for a month are typically paid the following month, so the period on a file and the month you are closing are not always the same calendar month.

Merchant ID (MID)

The processor's identifier for a merchant account. Each processor issues its own, and a merchant that moved processors has two. Merchants are matched to agents on merchant ID, never on name.

Statement

The document an agent receives for a period, listing every merchant they are paid on, what it produced, what they earned, adjustments, and the total. See Agent commission transparency for what belongs on it.

Lock and publish

Closing a period so its numbers cannot change, and releasing the statements to agents. A published month should never change silently; later corrections appear as corrections. See Lock and publish.

House

What the office keeps: Total Profit after the processor's split, deductions, agent splits and overrides. Also called the ISO's net or the company share. It can go negative on a merchant when the agent is paid on a larger base than the office received.

The book

Portfolio, book

All the merchants an ISO or agent earns residuals on, taken together. The book is what a buyer values and what attrition erodes.

Attrition

The share of the book lost over a period to merchants that closed or moved, usually stated as a percentage of monthly residual per year. It is the first thing a buyer looks at and the main driver of a book's value. Measured in residual dollars, not merchant count, because losing one large merchant matters more than ten small ones. See Merchant attrition warning signs.

Concentration

How much of the residual comes from a few merchants, or a few agents. A book where ten merchants produce a third of the profit carries the risk of losing one of them; a book where three agents produce half carries the risk of one of them leaving. See Merchant portfolio concentration.

Active production

Whether the book is still boarding new merchants. A book that is growing is worth more to a buyer than one of the same size that has stopped, because the new accounts offset attrition.

Multiple

The number a buyer multiplies monthly residual by to price a book. Quoted as "36x" for thirty-six times the net monthly residual. Multiples move with attrition, processor relationship and market conditions. See the merchant portfolio valuation calculator.

Buyout

The sale of a residual stream, or the right to it, for a lump sum. An ISO may buy out an agent's residuals when the agent leaves, and a portfolio buyer may buy out an ISO's book. Priced as a multiple of monthly residual.

Vesting

Terms under which an agent's right to their residuals becomes permanent, or survives their departure. Some agreements pay residuals only while the agent is active; others vest after a period or a production threshold. Worth reading before an agent leaves rather than after.

Frequently asked questions

What does residual mean in merchant services? The recurring monthly income earned from a merchant's card processing, paid by the processor to the ISO and by the ISO to the agent for as long as the merchant keeps processing.

What is Schedule A in payments? The pricing schedule in the agreement between a processor and an ISO, listing the processor's cost to the ISO for each fee element. The ISO's margin on a merchant is measured against it.

What is the difference between a split and an override? A split is an agent's share of the profit on their own merchants. An override is what an upline earns on the production of agents below them, either as a percentage of the agent's commission or as points on the same base.

What is a buy rate? The rate at which processing is sold to the party below, so that the margin is the difference between the buy rate and the merchant's price. In an agent agreement, a buy rate structure pays the agent everything above a fixed rate instead of a percentage of profit.

What is attrition in a merchant portfolio? The share of the book lost over a period to merchants that closed or left, stated as a percentage of monthly residual per year. It is the main driver of what a portfolio is worth.

Where do these terms show up in SplitRun? SplitRun uses the same words: data sources carry the company split, agreements carry splits, bases, overrides and deductions with effective dates, periods are locked and published, and the dashboard reports attrition and concentration on the book. The key concepts article maps each term to the screen it appears on.