When banks and payment card processors decide to buy or sell portfolios of merchant agreements or enter into agreements with independent sales organizations or other sales agents (all referred to herein as “ISOs”) to process payment card transactions for merchants, a question commonly arises as to which party “owns” or will “own” the merchant relationship. For purposes of this ownership question, “merchant relationship” generally refers to the asset-like components of such relationship, such as the merchant agreements and the processing-related fees attributable to the merchants’ card sales. Determining ownership is important for several reasons which will be discussed below, but primarily to establish which party has or will have the right to sell or transfer such assets to another party.

Unfortunately, there are no rules-based industry definitions or express guidelines to help those who are charged with determining merchant relationship ownership. The notion of “ownership” of the relationship also is complicated by the fact that multiple relationships may be involved. From a bank’s perspective, it may think of itself as the owner of all relationships with a merchant that happens to do business with the bank, for instance, because it is a depositor or borrower. A processor or ISO, however, may think of itself as the owner of the relationship, at least as far as payment card processing is concerned, because it performs the bulk of the sales and customer relationship management functions related to a particular merchant.

While card association rules (e.g., Visa and MasterCard) provide a few rules about the content and treatment of merchant agreements and on the apportionment of liability in the merchant relationship, which can be factored in the overall analysis of merchant ownership as discussed below, they are silent as to who ultimately owns the merchant relationship. For instance, card association rules generally provide, at least for bank card networks, that the acquirer member of the association or network must be a party to the merchant agreement, must consent to the assignment of a merchant agreement to another member and retains ultimate liability for certain merchant credit and fraud losses that are allocated to the acquiring bank under the rules, even if the bank is indemnified for these by a third-party processor or ISO.