The Merchant Portfolio Valuation Process

July 12, 2019

Are you considering selling your merchant portfolio? If so, is this the right time to sell? Deciding whether and when to sell your merchant portfolio, also known as a credit card portfolio, is often a difficult decision. There are no set standards or procedures for merchant portfolio valuation in the credit industry. However, having an idea of what investors will view as a positive or negative factor will help you to get an idea of the fair market value of your portfolio. Study the following possible portfolio valuation methods to help in pricing your merchant portfolio or ISO. 

Reason for Selling

One question you’ll be asked by investors is why you’re selling your merchant portfolio. You will need to be honest, however, note that they might look adversely upon your selling because of financial loss or business dissolution due to partner conflicts. On the other hand, if you’re selling because you are retiring or want the funds to expand another branch of your business, this will likely be viewed as a positive.

The Management Team

Will you continue to service the merchant portfolio? This will be a question that a savvy investor is sure to ask.  If you will continue to service it, do you have a proven management team intact? If the answer is yes to both questions, your credit card portfolio will be more attractive and thus worth more because it gives potential buyers confidence that it will continue to show growth, as well as reduce attrition due to on-going servicing and relationships.

Data and Documentation

Have you kept good data? Do you have copies of contracts and solid accounting records on file? Additionally, can you produce reports that support your profit claims? Some documents that the buyer might be interested in viewing include 12-24 month worth of residual commission files, financial statements, balance sheet, and cash flow statements. 

Attrition Rate

How long has your credit card portfolio been in existence, and what is your retention rate with your merchants? That is, do you have a solid relationship and how likely are they to continue to work with your business?  Your attrition rate will carry lots of weight when it comes to determining the fair market value of your merchant portfolio.

Size and Makeup of Your Merchant Portfolio

Potential investors will look closely at the makeup of your merchant portfolio. An investor won’t simply look at how many accounts you have, but also what type of merchants are in your portfolio. Some examples; Software integration merchants have low attrition, thus higher portfolio value.  Credit card portfolio that consists mostly of retail stores as opposed to online retailers are better valued.

Consider these methodologies when trying to come up with a credit card portfolio valuation for your merchant processing or independent service organization. These five merchant portfolio valuation steps will help you to set a fair valuation to help you to get a good price for all or part of your business.

Ready to get started with CLARUS?

JOIN US