How Dual Pricing and Surcharging Changed ISOs Forever: Payments Now Residuals Risk & Growth | PEP103

A single receipt can change how you see the payments industry. When Naveed from KV Payments notices a 4% card charge at a mechanic shop, it triggers the question every small business owner eventually asks: where is all that processing margin going, and how do you price merchant services fairly without stepping into a compliance mess?

We walk through Naveed’s unconventional path into payment processing, from relationship banking at Chase to the hard reality of building an ISO portfolio the slow way: door to door, account by account, learning interchange plus economics, and chasing the long game of residual income. Along the way, we talk candidly about what early-stage merchant services sales really feels like, why “easy money” narratives fall apart, and how persistence and clear communication win more than slick pitches.

Then we dig into surcharging and dual pricing, including the practical questions Naveed asked at the start: is it legal, what’s actually compliant, and why did Visa’s rule changes force the industry to tighten its approach? From there, the conversation opens up into how KV Payments scales by staying flexible across verticals, building referral engines, deploying POS for hospitality, exploring utilities brokerage in deregulated states, and leaning into cannabis payments where cashless ATM has played a major role.

If you care about payment processing strategy, merchant services pricing, ISO growth, and staying on the right side of card brand rules, this one is packed with hard-earned lessons. Subscribe for more conversations like this, share the episode with a payments friend, and leave a review with the biggest pricing question you want answered next.

In this episode, we sit down with Naveed Khan, founder of KV Payments, to trace a journey that mirrors the payments industry itself: accidental entry, relentless hustle, and hard-earned lessons in margins, compliance, and merchant relationships.

Hosted by Leo Arzumanyan and Jeremy Stock, this conversation goes beyond the highlight reel. Naveed walks through his early days in banking, the discovery of residual income, and the realities of building a book of business door-to-door in one of the toughest sales environments imaginable. From Chicago winters to inner-city merchant acquisition, this is the unfiltered version of how ISOs are actually built.

The episode also dives into the evolution of merchant pricing—particularly the rise of surcharging and dual pricing—and the confusion that followed. What started as a “simple” idea of passing fees to customers quickly became a compliance minefield shaped by Visa and Mastercard rules, shifting enforcement, and operational gray areas.

From there, the conversation expands into modern ISO strategy:

Building a diversified portfolio across verticals like cannabis, utilities, and hospitality
Structuring ISO relationships and brokerage-style models to capture more deal flow
Leveraging residuals, referrals, and partnerships to create long-term revenue streams
Navigating compliance shifts that can instantly impact pricing models and merchant expectations

You’ll also hear how today’s most successful operators think differently—focusing less on single deals and more on ecosystems, partnerships, and lifetime merchant value.

**Matters discussed are all opinions and do not constitute legal advice.  All events or likeness to real people and events is a coincidence.**

PEP Links:
https://www.globallegallawfirm.com/podcasts/
https://www.buzzsprout.com/2176695

A payments podcast of Global Legal Law Firm

Transcript

The Flat Tire Wake Up Call

SPEAKER_01 0:00

I remember distinctly, I was trying to figure out what to do, and I had a flat tire and I went to um a local mechanic shop inside of a gas station and uh he gave me the receipt and he had charged me and I looked at it and I'm like, whoa, that's four percent. And I knew interchange plus deals were looking at like two and a quarter, two and a half. So I'm like, there's a lot of margin, somebody's getting paid. So I reached out to my relationships, and at that time I had uh established two or three other relationships, you know, to be able to sell. And uh I asked them, is this a real thing? Is this okay? Is this legal? Is this how does this work? And they told me, and I was like, wait, so the the owner shouldn't be paying any fees. And so that same mechanic shop, he was like, Well, yeah, they're charging my customer, but they're also charging me a lot. So I thought, if you charge the customer, why should I pay? And so I'm like, oh no, don't worry, we're not gonna charge you if you're charging a customer. And I didn't even know. I just went back and looked. So I was able to get that deal and I just went full bore at this point.

SPEAKER_02 0:53

Welcome to the Payments Experts Podcast. A podcast of Global Legal Law Firm. We hope you enjoyed this episode. Welcome to the Payments Experts Podcast, a podcast of Global Legal Law Firm. We're really excited we had a remote podcast today, but joining us in studio with Leo Arsenion, who's a senior associate attorney in our transactional department, as well as joining us remotely, Naveed Collins of KV Payments. Naveed, welcome to the podcast. We're looking forward to this today. Thank you guys for having me. Appreciate it.

SPEAKER_01 1:30

Looking forward to it as well.

Growing Up And Career Drift

SPEAKER_00 1:31

Thanks for being here, Naveed. Um, how about we just get right into it? You know, I've I've done a lot of these podcasts now, and one of my favorite things to start off with is kind of get an idea of our guests and how they got into the payment space. Because one quick aside that I would like to know is, you know, I got into payments kind of just very by chance. You know, it just happened. It wasn't something I was looking for. And I've noticed that's the same story with a lot of our clients or people we speak with. It's I rarely hear like, you know, I I wanted to go into payments. I had this plan to go into payments. It's more like something along you know their career led them to that. So why don't you just start off with kind of letting us know your background, you know, your company, and how you got into this space. Sure. My name is Naveed Khan.

Discovering Residual Income In Payments

SPEAKER_01 2:10

I'm uh founder of KV Payments. Um, it's actually a pretty interesting story. I didn't, I grew up in the South in uh Kentucky. Um, so you know, you know, a child of immigrant parents um in the deep south Bible belt. It was a little uh unique experience uh to say the least. Uh I didn't quite develop the uh Southern accent, although, you know, some people say they can hear it. Um but in that time period, um, you know, I was relatively quiet as an individual, kind of shy, a little bit introverted, I would say. Um and so after high school, you know, I I kind of wanted to do law. I was considering it, um, you know, because I thought, you know, I'm quick on my feet, you know, I love debating and things like that. But when I looked at the giant books and so many things I had to memorize, it was almost like medical, and I was like, I'm not doing that. So you made a good decision. I think so. So I was like, yeah, it's just too much rote memorization and not enough action. And so I didn't realize that my skill set was kind of dealing with other people and communication and things like that. It was much later that I figured that out. But you know, I considered engineering, and then that was uh just sitting in quietly in a in a space and math and all that other stuff and physics. So it was kind of like that's not gonna work either. And so I decided on business, and um, but business is is very wide-ranging, and especially as an undergrad, it doesn't really necessarily get you far. I mean, especially a business degree. So um I kind of jumped around, went to a few different colleges, um, finalized around uh, I think it was 2000, I want to say seven or eight. And um I graduated with an undergrad, you know, in business, and then I was just kind of lost as to what do I do. And so I got with a firm that did uh database kind of I think it was almost like data entry, and I was just like, this is brutal, and I can't do this. And then um, so I got this was still in the South, correct? No, this was in Chicago, so I had a lot of exceptional family in Chicago, and so um, so I I you know I worked that job for a couple of weeks and I found a marketing uh job opening in that same company and I applied for it, and my manager was really upset and she fired me on the spot. And so from there I was just kind of like, what do I do? I wasn't a fan of banking traditionally, you know, whether it's fractional reserve or in general. I just didn't like the idea of it, but um, I couldn't find any other job. And so I walked into a bank and uh just talked to the manager directly and uh told him, hey, look, you know, I'd like to start off with you guys and see, you know, what's out there for me. And he um he was kind enough to put me in their relationship banker program back then, and this was 2009 at Chase. And so I got put in, I got lucky with the branch I was in. It's Lincolnwood, right outside of Chicago. It's one of the busiest branches they had. They were open on Sundays, so if you can imagine what that's like in a very diverse area of the city, and uh just got thrown in the fire. And um at the time, they had a lot of really interesting things that would build you commission without necessarily quote unquote harming the ultimate client. You know, I didn't like the idea of mutual funds and you know, loans come and go, but um, they had like online banking, and I was just really good at getting people set up with that. And so I became uh top producer in the city in Chase, um, like four out of the nine months that I was there in my first year. Um, this was with training, and so you know, I started to get awards and recognition, and I realized, wow, I really like talking to people. This doesn't feel like work. This is this is great. I'm I mean, sure, I'm coming to a physical location, but I'm just primarily talking to people, helping them out, and and I'm making money. This is great, and commission was good. And so at the time, obviously I'm immigrant family. I mean, some of you guys may understand, like, you know, they're really pushing education. And so I just had an undergrad. They were like, no, you got to get your master's. And I obviously I wasn't gonna do law, wasn't gonna do medical, and uh, you know, I didn't go the engineering path. So there was only one option, and that was to get an MBA. So I reached out to my superiors at Chase and I said, Hey, I want to get an MBA, and uh, would you guys cover it? And they were like, We don't need you to have an MBA. He was like, This district manager doesn't even have an undergrad, and this one is like this. They weren't fans of it, they weren't fans of the idea, and so but I needed to appease my folks, you know. My mom is a physician, my dad's an electrical engineer, both had master's degrees, so really no way out of it. So I went ahead and um applied to a bunch of schools. I got into a school out in California, which had five locations globally, um, including China and Dubai. I did make the mistake of not going to Dubai, I should have gone to Dubai, but I ended up going to San Francisco. Um, and uh it was a one-year program, MBA. I got about a 45% scholarship to go in with a grade GMAT score. And so I just went for it and uh got the degree. And after that, um, you know, I really didn't have a place to go. Now, one of the things that had happened while I was at Chase is some guy who was part of a payments company reached out. He said, Yeah, you're great at talking to people, but every time you make a sale here, you get paid once, and then that's it. And then you got to go back out and hunt again, and you gotta make another sale, and then you gotta go do it again and do it again and do it again, and eventually you'll get burnt out. You know, it's it's uh this is kind of how it happens. But I'm part of an industry that has residual income. And I said, What? I was very interested in that. Yeah.

SPEAKER_00 7:02

Yeah, go ahead.

Surcharging And Dual Pricing Take Off

Building KV Payments Across Verticals

Industry Lessons And Closing

SPEAKER_01 7:03

So no, this was interesting because at the time I did understand you know the concept, and I'm like, that's pretty fascinating. And like, you know, no cap on like how much you can earn and things like that. So, but I couldn't really pursue it. Obviously, I'm working at Chase, conflict of interest, can't like start selling payment services to my clients at Chase. So I did sign an agreement, but I didn't really think much of it, went off to business school, finished that up, and then I'm like lost. I'm like, what do I do now? So at this point, I'm applying to jobs and everything else, but I'm like, I gotta figure out how to make money. I mean, I'm gonna have the remaining of my student loans, et cetera. So I reached out to the company, and at the time, I think um that was central payment, uh, if I'm not mistaken, originally. And this is my 2010 era. And so um I met a great guy, Paul Dobson. He's now created his own ISO and he was like sales director there. And uh, you know, they had a decent split, you know, because the first guy who had introduced me to the industry, I mean, it was almost like a pyramid scheme. Like I was not gonna make anything, especially on these small accounts that are doing like five thousand dollars a month. I mean, you know, you guys remember interchange plus on a$5,000 account. What are you making? Like eight bucks. So I just I just I went for it and I started, you know, going door to door and I started building the business. Now, at that time, there was no such thing as dual pricing. It was, you know, no POS deals worked into the equation. So um, you know, I took it was a long, hard grind. It wasn't like what I thought. I I had saw, you know, the palm trees and dollar signs, and that's not what it turned out to be. And I'm in, you know, Chicago, very brutal, cold winters, you know, almost nobody out there knocking on doors. I saw a few people who like, you know, camaraderie, like, hey, I see you out there. But anyway, we built uh I slowly started building the business. I got it to a few thousand dollars a month, and then um, you know, that wasn't enough. And so I ended up having to hold my residuals, keep them on the side, and go out and do uh work again in the in the banking industry. And so I ended up with fifth third uh briefly, then US Bank. Um, and in the same time, like in between jobs, like you know, between going from one position to another, I ended up as vice president at US Bank. Um, I was still hustling during that time, like, you know, going door to door, trying to figure out other ways, um, getting part of networking groups, et cetera. Um, but my real break, I would say, really happened in uh 2019. I was quitting my job. I was moving in with uh my then wife, and um, I was expecting to just build my business from there. And that's right around the time we're surcharging and dual pricing started to take off. And uh I remember distinctly, I was trying to figure out what to do, and I had a flat tire, and I went to um a local mechanic shop inside of a gas station, and uh he gave me the receipt and he had charged me. And I looked at it and I'm like, whoa, that's 4%. And I knew interchange plus deals were looking at like two and a quarter, two and a half. So I'm like, there's a lot of margin, somebody's getting paid. So I reached out to my relationships, and at that time I had uh established two or three other relationships, you know, to be able to sell. And uh I asked them, is this a real thing? Is this okay? Is this legal? Is this how does this work? And they told me, and I was like, wait, so the the owner shouldn't be paying any fees? And so that same mechanic shop, he was like, Well, yeah, they're charging my customer, but they're also charging me a lot. So I thought if you charge the customer, why should I pay? And so I'm like, oh no, don't worry, we we're not gonna charge you if you're charging a customer. And I didn't even know. I just went back and looked. So I was able to get that deal and I just went full bore at this point because I got married. I mean, you know, she's expecting me, she's a physician at the time, so she's expecting me to go figure it out. And so I just hustled, hustled, hustled day and night, day and night in the most craziest areas, you know, we're talking the inner city, Baltimore, um, you know, different parts of Maryland, um, very inner city primarily, because those are the people you're getting a better shot at getting the owner, having a conversation. You know, you go into a 10 location chain, you probably don't even see the owner. So I was doing the best I could. A lot of mechanic shops, a few restaurants, and uh, I started pushing um what at the time was, I guess, surcharging at 4%. And um, you know, I built the signs for them and everything. And, you know, obviously a couple years, a few years down the road, Visa came down and said you can't do that. And uh, you know, they had their reasons and I understand them now, but you know, it created a little bit of uh an issue because it's like what is compliant, what isn't, is this gonna work, etc. And so um I built a mode of about 10,000 at that point. Um, I went ahead and uh branded my own company and set up ISO arrangements across the board, and we ended up creating kind of like a brokerage where if you got a if you got a almost any type of business, we want to be able to, you know, serve you. So a lot of the things that happen in the payment industry, I've noticed, generally speaking, um, a lot of individuals who start their own ISOs, they kind of focus on a couple niches. And I just was kind of in the opposite frame of mind to say, let's try to do whatever we can for almost any deal we come across. Because I started thinking, well, you know, how can I monetize my own relationships? How do I get business owners who are already signed up with me to send me more business? And the best way to do that is potentially offer them some type of referral credit. And then why would you make that a one-time thing if you could potentially make it a lifetime thing, you know, given that there's so much margin on these deals? So I started um branching off into other things. I got into utilities. My company, you know, does utilities as well. We have different arrangements with different brokerages for utilities in the states that are deregulated. Um, there was a company called Delish, shout out to John. He um he has his own ISO out of California, but he started a company called Delish, which was a delivery service that was for delivery for uh not just restaurants, for like pet stores and flower shops and things like that. So beautiful arrangement. Um I don't know if the company still exists, but we started doing some business with him, and I just started branching off into other things. Um in 2022, I believe, uh, we got into cannabis as well. And uh at the time, you know, cashless ATM is the primary way to do cannabis at as far as I understand, even to this day. And so, and cannabis paid really well. So then, you know, we just shifted more focus, we started bringing on some agents, and uh yeah, that's kind of where we are today where you know, uh, I would say the cannabis industry is probably about, you know, specifically cashless ATM, although we do offer the other services, but we don't push them too much because you know the federal kind of hoops you got to jump through and all the other stuff. But uh about 30% of our businesses now um cannabis through cashless ATM. Um and then, you know, down the road we started setting up arrangements where we would be able to deploy POS equipment. Uh we've done a lot of deals with QIC, for example, in the hospitality industry. Um, and you know, we've we've tried to really create uh opportunities for individuals, like let's say uh individuals selling I don't know, ADT services or you know, um some other you know service that's required in small businesses. A lot of times they'll leave their business card on the door where there's a a for lease sign up. And so I've trained our folks to kind of just start reaching out to them and give them a piece of what they're making so they can get that, you know, hot, you know, and ready business where these individuals are gonna have to start off with some POS equipment. Um, I like to get the deal done. I think that's one of the kind of hallmarks of KV payments. So if you're an agent, like we're gonna do everything possible to get you the deal. Like, you know, um, whatever maneuvers we need to do, sometimes, you know, some business owners are very particular about certain things. Sometimes, you know, previously it's not so much now, but they wanted you to pay off their$295 cancellation, you know. Um, so different things can occur. And so we want to make it where everybody can get the deal in if possible. And we're still learning. Uh B2B is uh another opportunity, massive opportunity. A lot of people don't understand it. I'm friends with a guy, um uh the the founder of Pay Nation, Perrin Holtroop, and uh he has built his business almost entirely on B2B and created a lot of you know uh great software kind of bridges and things like that. Um and I love what James Shepherd is doing. Um I think that he's been a huge asset to the industry. Um and I think that a lot of people can credit him for some of the success they've had. I've had many consulting calls with him, and I just love him to pieces. I really appreciate what he's done for the industry. Um so there's there's some good people in the industry that I'm now in touch with, and uh, we're just all trying to build an amazing business. Um, I think it's a beautiful, beautiful industry. Very grateful to have found it. Again, kind of, you know, not I wasn't looking for it and they found me. And I like you said, that's actually the story for a lot of people. So hopefully I didn't go on too long about that one in particular.

SPEAKER_00 15:11

No, no, no, that was great. It's funny, you know, this is exactly what I thought you were gonna say, because it's always it's almost like everyone is the same, where it's it just finds them rather than they find the industry. And if someone, you know, tells you about an opportunity, and then next thing you know, you're owning a successful company in the space.

SPEAKER_02 15:28

Thank you for listening to this episode of the Payments Experts Podcast, a podcast of Global Legal Lum Firm. Visit us online today at Global LegalLumpher. Matters discussed are all opinions that do not constitute legal advice. All events are likeness to real people, and events is a coincidence.