The Credit Card Portfolio Valuation Process: What You Need to Know

April 02, 2021

Whether you are thinking about selling your credit card portfolio or just want to get an idea of its value, there are a few factors that can add or take away from its worth. Many of these factors are directly related to risk and portfolio management. To make an honest assessment of your own credit card portfolio, you’ll need to see things through the lens of a potential buyer. When you do this, you’ll be able to set a realistic financial goal and will be better prepared for negotiations.

What is the Level of Risk?
Buying any asset comes with some level of risk. After all, no investment is a sure thing. However, the savvy business person will look before they leap. With credit card portfolios, potential buyers will strongly look at your attrition rates and the book’s industry types. Additionally, a potential buyer will want to know details on downstream sales agents (W2 and 1099), referral partners, software integration partners and contracts, etc. that may be involved in the purchase and/or ongoing servicing.

What is the Potential for Future Earnings?
Income from processing fees can generate a substantial residual income. When considering the potential for future earnings, a prospective buyer will look at the diversity of your portfolio. For example, the percentage of retail vs restaurant vs card not present vs internet merchants. They will dig deeper and analyze detail within those types, at specific SIC/MCC business types and vertical markets. Buyers like to have limit risk levels, so diverse and/or vertical market oriented portfolios pay higher at time of acquisition. Having these marketing plans already in place can make your portfolio more attractive.

How Loyal are Your Customers?
Loyalty is very important in the credit card portfolio acquisition business. Potential buyers will place a higher dollar value on your residual asset if there are multiple variables, loyalties. Not just a simple merchant account. Rather, a percentage of the portfolio that may have merchant accounts and also an integrated software or point of sale, a connection with a contracted association, and/or vertical market expertise. Having contracts with your referral relationships will provide a positive benefit to valuation multiples. Contracts with several years remaining and non-solicit terminology creates confidence to a buyer , what multiple, and dollar amounts they are willing to invest.

To get started with the valuation process, you will need to provide 12-24 months of unedited residual reports, copies of your ISO and/or agent agreement(s), and any contracts you may have with downstream and referral relationships. More financial documentation may be requested as analysis progresses.

If considering selling your portfolio, let Clarus help you. Our team can provide you with expert advice on the valuation process and overall credit card portfolio management.

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