Merchant Portfolio Buyer



Residuals: What they Are and How They Are Calculated on My Merchant Portfolio

Residuals: What they Are and How They Are Calculated on My Merchant Portfolio

Residuals are the driving factor behind the Independent Sales Organization (ISO), which assists processors in dealing with millions of merchants worldwide. Despite their significance, residuals have been a bother for ISOs given the complexities of residual analyses. Calculating and paying residuals is a simple process today, thanks to the advanced technologies available to ISOs.

This article provides an overview of residuals and how they are calculated in merchant portfolios.

What Exactly are Residuals?

Residuals are a small portion of each transaction fee paid to the ISO, payment facilitators, and independent agents. When a merchant makes a sale and an electronic payment is processed, the acquirer, issuer, and payment processor are all involved in the transaction. However, in the majority of cases, an ISO or payment facilitator is also involved.

Following payment processing, the processor charges a transaction fee and distributes a portion of that fee to the ISO who signed up the merchant to use their platform. They generally give the ISO this small fee as payment and encourage the ISO to continue sending them merchants.

Even though the amount earned on each transaction is small, it adds up quickly.

How are They Calculated on My Merchant Portfolio?

Residual calculations can be difficult and time-consuming for ISO managers. Residuals are paid to ISOs monthly by each of their partners, and reports outlining every detail of every activity during the month are delivered.

The difficulty in calculating residuals is that not all partners pay at the same time, so ISO managers are left with separate reports from each of their partners and must compile them before calculating their independent agent commissions known as residual splits. Residual splits are even smaller fees earned by agents on each transaction processed by a merchant they recruit.

Fortunately, more advanced technologies can assist with residual calculations. They operate by collecting each residual report from each distinct partner and combining them in an easy-to-use reporting dashboard. The ISO manager can then proceed to generate a report that includes everything they require, saving them time. Better yet, because each agent’s splits are already entered into Customer Relationship Management (CRM) when a merchant is boarded, when residuals drop each month, the technology applies to each split and provides the amount that each agent will receive.

Tips for Handling Residuals.

To understand how to calculate your residuals accurately, you must first understand how to handle your residuals effectively.

  • Think long term

When creating a residual portfolio, think of it as creating long-term passive income. You must work with a dependable ISO to ensure that you are building a portfolio that will continue to generate income over time. Many ISOs require you to constantly bring in merchants, and if you stop, your earnings stop, which is unfair. Regardless of how large your share of the residual split is, it’s not worth it in the long run.

  • Forget about the percentage

If you don’t know how they calculate their profit, the percentage of the split is meaningless. Before you consider a processor, you should understand how they calculate residual splits. You must gain some context for the percentage they are offering; otherwise, they will be useless to you.

  • Look out for fees

Keep an eye out for the fees that the processor is proposing to charge. These fees have a greater impact on your profit than the actual residual split. You should also avoid buy-rate programs in favor of a revenue-sharing plan.

  • Cost structure

Often, the cost structure is more important than the pricing. If you want to get a large account size, you should choose a low-cost structure. Also, avoid expensive processors so that you can offer better deals to your clients. Working with multiple partners to provide your clients with options is one way to get good deals.

 Don’t get so caught up in cost structure or percentages that you forget you need merchants – lots of them – to make money from your business. So, focus on closing the sale by offering them better deals than your competitors. Your collaborating ISO or processor should be able to provide training that will guide you in the right direction.


Accurate residual calculations are critical for ISOs because they help maintain portfolio health and growth, but they can also be extremely stressful to perform manually. Fortunately, many new technologies can assist you in quickly calculating your splits. On the agent side, accurate and faster calculations mean faster payouts, while incorrect calculations may result in you losing good agents to competitors.