{"id":33622,"date":"2026-06-23T06:26:31","date_gmt":"2026-06-23T11:26:31","guid":{"rendered":"https:\/\/reformingretail.com\/?p=33622"},"modified":"2026-06-23T07:54:28","modified_gmt":"2026-06-23T12:54:28","slug":"payment-agent-compensation-is-broken-this-is-where-the-market-is-taking-it","status":"publish","type":"post","link":"https:\/\/reformingretail.com\/index.php\/2026\/06\/23\/payment-agent-compensation-is-broken-this-is-where-the-market-is-taking-it\/","title":{"rendered":"Payment Agent Compensation is Broken. This Is Where The Market Is Taking It"},"content":{"rendered":"\n

Back before software ate payments (although payments is now eating software<\/a>), the payments world looked very different.<\/p>\n\n\n\n

Banks, who technically still represent merchants for acquiring, would partner with processor\/acquirers to do their bidding for them in exchange for shouldering the risk and making a small fee.<\/p>\n\n\n\n

The acquirers would then punt much of this sales work to ISOs, or independent sales offices.<\/p>\n\n\n\n

The ISOs would then wrangle tens of thousands of independent, 1099 contractors, colloquially referred to as payment agents.<\/p>\n\n\n\n

We wanted a simpler image but this is what Nano Banana gives us, so whatever:<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Our data shows that, at its peak, ISOs represented about a quarter of all US payment processing revenue, so not exactly a trivial channel.<\/p>\n\n\n\n

But the compensation model for agents was always a head scratcher to anyone coming from SaaS.<\/p>\n\n\n\n

Assuming we’re dealing with transparent players for a moment, the agent would often command 50%-80% of the residual revenues<\/a> of a merchant account in perpetuity<\/strong>.<\/p>\n\n\n\n

Many of these agents were not getting a VAR sheet, loading it in gateway, programming devices, training a merchant, or even supporting the account.<\/p>\n\n\n\n

Agents were doing even less<\/em> work as a proportion of the overall effort if a software needed to be sold: the agent was definitely not learning the features of Square, as an example, to appropriately qualify and sell the merchant.<\/p>\n\n\n\n

Expect the agent to train the merchant on Square?<\/p>\n\n\n\n

That’s a fever dream, bro.<\/p>\n\n\n\n

Turns out you need to sell software (or software integrations, which is just another kind of software) if you want to keep the payments business.<\/h4>\n\n\n\n

It’s why software companies directly partner with modern gateways like Stripe and Adyen – with relatively great developer experiences – when they think about monetizing payments. <\/p>\n\n\n\n

Software recognizes software. <\/p>\n\n\n\n

(As the software company’s understanding of payments matures, they may deviate from this path, but the aforementioned gateways definitely own the brand for software-led payments.)<\/em><\/p>\n\n\n\n

Within a decade the model of ISV-led acquiring will be nearly all acquiring volume.<\/p>\n\n\n\n

And part of us wonders how much the existing payments compensation model contributed to this dynamic.<\/p>\n\n\n\n

Let’s look at SaaS, a field that was crushing the market until this inconvenient thing called AI popped up.<\/p>\n\n\n\n

In SaaS, just as in other lines of business, there has long existed the idea of sales channels.<\/p>\n\n\n\n

A core rule of SaaS partnerships is that compensation scales directly with the amount of customer acquisition cost (CAC) the partner offsets. <\/strong><\/p>\n\n\n\n

If a partner does the heavy lifting of marketing and selling, they sensibly get a larger cut.<\/p>\n\n\n\n

Basic Introduction<\/strong>\/Referral<\/strong><\/p>\n\n\n\n

A partner passes a lead over the fence and the SaaS company’s people nurture, pitch, and close the deal.<\/p>\n\n\n\n

    \n
  • Compensation:<\/strong> Typically a 10% share of the first year’s Annual Contract Value (ACV).<\/li>\n<\/ul>\n\n\n\n

    Qualified Opportunity <\/strong><\/p>\n\n\n\n

    Partner does the preliminary work to educate the prospect and delivers a qualified lead that is practically ready to buy.<\/p>\n\n\n\n

      \n
    • Compensation:<\/strong> Typically 20% of the first year’s ACV.<\/li>\n<\/ul>\n\n\n\n

      Full Sales Cycle”On Partner’s Paper”<\/strong><\/p>\n\n\n\n

      Partner handles the entire sales motion\u2014prospecting, demoing, negotiating, and closing the customer completely on their own\u2014they are effectively replacing the SaaS company’s internal sales team. <\/p>\n\n\n\n

        \n
      • Compensation:<\/strong> Partners who close deals autonomously can capture 25%- 40%+ of the first year’s ACV. They can even migrate up the value chain by charging the end-user directly for implementation and onboarding services.<\/li>\n<\/ul>\n\n\n\n

        One note: perpetual revenue payouts are less common. We almost never see them in enterprise as the customer success team is compensated on net revenue retention and doesn’t want a partner screwing that up. We see it for smaller deals, and often it tiers down to zero after 2-3 periods, so like 10% of first year’s ACV, 5% ACV for year 2, then nada.<\/p>\n\n\n\n

        SaaS companies were grown in a very sophisticated way.<\/p>\n\n\n\n

        Raised lots of money.<\/p>\n\n\n\n

        Had intelligent business stakeholders around the table who could all do math adeptly.<\/p>\n\n\n\n

        Nobody once raised their hand in a board meeting and said, <\/p>\n\n\n\n

        \n

        Hey let’s give referral partners 50-80% of the total revenue of the deal so we can do all the ACTUAL work of implementing, training, supporting, and still run an expensive R&D operation with highly compensated technical professionals!<\/p>\n<\/blockquote>\n\n\n\n

        The math doesn’t math.<\/p>\n\n\n\n

        That’s because software has VERY real costs, unlike payments which have zero COGS (and if you argue interchange are COGS, you’re an imbecile).<\/p>\n\n\n\n

        Software companies trade on a multiple of revenue.<\/p>\n\n\n\n

        That multiple is directly influenced by gross margins (GM). <\/p>\n\n\n\n

        Some rules of thumb:<\/p>\n\n\n\n

          \n
        • 75% – 85%+ GM: Commands the full market multiple baseline.<\/li>\n\n\n\n
        • 60% – 70% GM:\u00a015% to 30% multiple compression.<\/li>\n\n\n\n
        • < 50% GM:\u00a0Severe multiple destruction. Trade at a 50% – 70% discount, closer to a 1.5x – 3.0x revenue, similar to IT services.<\/li>\n<\/ul>\n\n\n\n

          If a software company is giving away > 30% of its revenue to a channel while still eating all the COGS, they’ve just taken their software business from a market multiple to a services model, cutting the value of the business by 70% and earning the management termination notices for breaches of fiduciary responsibility.<\/p>\n\n\n\n

          Literally not even worth taking the sale as it is wholly destructive to the value of the company.<\/strong><\/p>\n\n\n\n

          Which gets us back to the agent model.<\/p>\n\n\n\n

          We suspect the compensation model for agents worked when the barrier to winning an account was someone with a local presence and a stronger relationship than an outsourced call center (although depending on the ACV, software companies like Toast justified putting feet on the street to build local relationships).<\/p>\n\n\n\n

          20 years ago payments were completely fungible as they existed on stand-alone terminals, or the softwares themselves allowed multiple gateways so virtually anyone could integrate if it were even required.<\/p>\n\n\n\n

          Today generating ROI matters more than ever.<\/p>\n\n\n\n

          And you’re not generating ROI by offering a commoditized payment solution: you’re needing to bundle that with software. <\/p>\n\n\n\n

          If the payment agent’s value is simply “Bob’s my cousin”, how many times will Bob choose his cousin over a solution that keeps food in his family’s mouth?<\/p>\n\n\n\n

          The payment compensation model has to be rewritten.<\/strong><\/p>\n\n\n\n

          Maybe the short answer is you can no longer be a full-time agent (although that sounds ironic since 99% of agents are the a-deal-a-year types).<\/p>\n\n\n\n

          If the upstream solutions provider has to sell software, that’s just infinitely more expensive than slamming an overpriced piece of hardware on a countertop.<\/p>\n\n\n\n

          Payment softwares like Rectangle Health have already modernized the agent model when software is involved: the agent refers the deal, Rectangle takes 50 bps. <\/p>\n\n\n\n

          Too much?<\/p>\n\n\n\n

          Rectangle is closing, installing, training, and supporting.<\/p>\n\n\n\n

          What is the agent doing beyond a referral?<\/p>\n\n\n\n

          Can the agent talk about how Rectangle works?<\/p>\n\n\n\n

          Know its features and shortcomings?<\/p>\n\n\n\n

          Understand errors?<\/p>\n\n\n\n

          Your average agent needs to get comfortable with the idea of earning 10% of ACV in year one. <\/p>\n\n\n\n

          Any income in year 2 is an absolute gift.<\/p>\n\n\n\n

          Can’t sell standalone payments anymore.<\/p>\n\n\n\n

          Along with everything else, markets change.<\/p>\n\n\n\n

          And the payments compensation model is due for an overhaul. <\/p>\n","protected":false},"excerpt":{"rendered":"

          Back before software ate payments (although payments is now eating software), the payments world looked very different. Banks, who technically still represent merchants for acquiring, would partner with processor\/acquirers to do their bidding for them in exchange for shouldering the risk and making a small fee. The acquirers would then punt much of this sales […]<\/p>\n","protected":false},"author":1,"featured_media":33623,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"image","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"jetpack_post_was_ever_published":false},"categories":[5],"tags":[],"class_list":["post-33622","post","type-post","status-publish","format-image","has-post-thumbnail","hentry","category-solutions","post_format-post-format-image"],"jetpack_publicize_connections":[],"jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p81nA2-8Ki","jetpack_featured_media_url":"https:\/\/i0.wp.com\/reformingretail.com\/wp-content\/uploads\/2026\/06\/image-2.png?fit=1024%2C559&ssl=1","_links":{"self":[{"href":"https:\/\/reformingretail.com\/index.php\/wp-json\/wp\/v2\/posts\/33622","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/reformingretail.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/reformingretail.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/reformingretail.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/reformingretail.com\/index.php\/wp-json\/wp\/v2\/comments?post=33622"}],"version-history":[{"count":12,"href":"https:\/\/reformingretail.com\/index.php\/wp-json\/wp\/v2\/posts\/33622\/revisions"}],"predecessor-version":[{"id":33710,"href":"https:\/\/reformingretail.com\/index.php\/wp-json\/wp\/v2\/posts\/33622\/revisions\/33710"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/reformingretail.com\/index.php\/wp-json\/wp\/v2\/media\/33623"}],"wp:attachment":[{"href":"https:\/\/reformingretail.com\/index.php\/wp-json\/wp\/v2\/media?parent=33622"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/reformingretail.com\/index.php\/wp-json\/wp\/v2\/categories?post=33622"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/reformingretail.com\/index.php\/wp-json\/wp\/v2\/tags?post=33622"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}