In 2005, Planet Payment Inc. approached Thompson Morris, an expert in sales and marketing for the payments industry, seeking guidance on how to position Planet's flagship products: dynamic currency conversion (DCC) and multicurrency conversion (MCC).
Morris saw the simple and clear value proposition of foreign currency conversion. DCC and MCC provide cardholders with the convenience and comfort of paying in their home currencies. Morris said the services not only increase consumers' buying power, but merchants offering the products also experience increased sales and decreased chargebacks.
The collaboration between Morris and Planet resulted in DCC Merchant Services USA LLC. The primary goal of the new corporation is to market and sell DCC and MCC services to U.S. businesses, along with offering domestic card processing and value-added products that make DCCMS a full-service provider.
In the beginning, Morris took to the streets of New York, on a fact-finding mission to find out where DCC fit as a value-added service for merchants. And what Morris found was merchants didn't know DCC even existed.
"No one knew that the machine was broken," Morris said. Foreign cardholders were bearing the interchange costs when they made purchases from U.S. merchants, and those same merchants were making their sales. So there existed no pressing need for DCC among merchants back in 2005.
But times have changed. If the machinery of the U.S. economy isn't technically broken, it's certainly not running on all cylinders. Recently, the strength of foreign currencies against the U.S. dollar has made DCC and MCC even more desirable, as U.S. merchants strive to accommodate and capture their share of spending from foreign cardholders.
Not surprisingly, DCC is now catching on. But it's not ideal for every merchant - another valuable insight Morris gleaned in the DCC dark ages. He entered a novelty shop back in 2005; it sold snow globes, miniature statues and T-shirts depicting tourist attractions of The Big Apple, such as the Statue of Liberty and the Empire State Building. Morris asked to see the merchant's processing statement and was surprised at what he found.
"I expected to see on their statement at least 50 percent or higher the number of foreign cards [compared to] domestic cards," Morris said. "But I found zero foreign cards. Zero."
The reason was that the merchant's average ticket was less than $25. "So we found out quickly that, for small-ticket items, foreigners use U.S. cash to pay," not bankcards, Morris said. Therefore, merchants selling mainly small-ticket items are not good candidates for DCC.
On the other hand, foreigners do use payment cards for larger purchases: "When you're going on a tour, when you're going to the museum, when you're going to the theater, when you're paying for your hotel, when you're going to a restaurant where the average ticket is maybe $25 or $30 per person," Morris said. Such businesses, therefore, could benefit from DCC.
Capitalizing on that discovery, Mary Lou Lutz, Director of Operations/Underwriting at DCCMS, researched museums and their gift shops as prime targets for DCC, since a main attraction for foreign visitors are the art galleries found all across the metropolis. Other vertical markets DCCMS targets are small hotels and hostels.
"We've done extremely well with hostels," Morris said. "Foreigners are used to going to hostels, so 90 percent of the people that stay at hostels in New York are foreigners, and they're using their credit cards there."
Another hot spot for DCC is smaller resort areas on the Eastern Seaboard, such as Kipine, Fla., which caters to foreign tourists.
Many markets for DCC are seasonal; the bulk of merchants' revenue comes during peak travel times, such as summer or the year-end holiday season. DCCMS also offers MCC for card-not-present retail environments like Web sites. Since MCC is not tied to cardholders being physically present at brick-and-mortar POSs, the service can be a money-maker 24/7 year 'round.
"In the past six months, MCC for e-commerce has blossomed tremendously because of the need to sell to more people, not just domestically but internationally, and to make their sites more user-friendly by communicating with the different customers in their own languages," Morris said.
DCCMS began as an ISO, but grew to Super ISO status. Although technically not an acquirer, DCCMS owns the contracts with its merchant clients and operates under its own bank identification number (BIN), which enables the company to process DCC and MCC transactions through Planet.
According to Morris, achieving that BIN was an arduous process, but it sets DCCMS apart from the competition. "Most ISOs don't have a BIN," he said. He feels this cements the Super ISO's status as the leader in DCC and the first company to partner with other ISOs to offer DCC and MCC as value-added services to U.S. merchants.
Morris said DCCMS has signed over 20 financial institutions and registered ISOs in the past year and a half for that purpose. Among them are Pinnacle Processing Group of Seattle and Matawan, N.J.-based International Merchant Solutions LLC.
Pinnacle services a diverse merchant portfolio - a mixture of seasonal merchants, e-commerce businesses and niche markets such as benefit auctions, said Michael Yerkovich, President of the eight-year-old ISO.
First at MasterCard Worldwide's MSP forum in January 2007, and then several months later at the Electronic Transactions Association's Annual Meeting & Expo, Morris discussed with Pinnacle the benefits of currency conversion services.
Yerkovich relayed that information to his merchant level salespeople. "Our agents were extremely interested in their offering," Yerkovich said.
Pinnacle's attraction to the service centered on the relationship DCCMS had already established with Planet for facilitating foreign currency conversion. Yerkovich recognized that DCCMS had already done all the work.
"This is a really good fit for us," Yerkovich said. "We don't have to master DCC. We don't have to invest in different relationships to make it happen. It's an off-the-shelf solution for us."
Yerkovich ranks DCC on par with gift and loyalty programs for retaining merchants. "Any time you can add a value-add like that, I mean, your retention clearly is affected," he said. "It's a great thing to have from that standpoint."
Gene Lieb, Managing Partner at IMS, is similarly enthusiastic about DCC. It's an easy service to introduce "if you make merchants aware of what it can do for them and how it can increase their sales - and it doesn't cost them anything," Lieb said.
"And, in fact, they can even get money back," he added. "We can share our profitability with the merchant and still come out making more than we make on credit card transactions. So it really has a lot of advantageous features both for the merchants and for the reps."
IMS sought out DCCMS in 2007 because, as Lieb said, "We didn't know where else to go."
Due to the close proximity between the two companies, DCCMS representatives visited IMS' office for the training session and made sure the applications and the procedures were understood by the merchant consultancy's reps, Lieb said.
For ISOs located farther away, DCCMS is equipped to conduct training sessions over the Internet.
DCCMS is now a subsidiary of TriSource Solutions LLC. In the third quarter of 2008, the Davenport, Iowa-based ISO acquired DCCMS to expand its product line to include DCC and MCC.
It appears to have been a wise investment: At a December 2008 press conference, New York Mayor Michael Bloomberg disclosed that 47 million foreigners visited the city in 2008 and spent $30 billion. Both figures represented record highs.
As awareness of the products increase and foreign cardholders continue to visit New York and other popular tourist destinations, such as Florida, California, Washington, D.C. and Colorado, interest in DCC is expected to grow.
The same can be said for MCC utilized on e-commerce sites. Morris claims merchants are clamoring for both services.
"I don't really have to go after ISOs," he said. "They're coming to us. And what's driving them is, in their portfolios, there's one or two merchants that are saying, find me a solution that does multicurrency, or find me a solution that does dynamic currency. So, they come to us, not running to us as it relates to new-found revenue - they're running to us because there is demand for the product."
For ISO partners, DCCMS offers two commission models. ISOs can receive a one-time payment for referrals, or they can become registered ISOs under DCCMS. Those who register receive ongoing revenue based on the amount of DCC and MCC transactions that take place with their merchants.
Lieb believes DCCMS is well worth considering. "I would say definitely investigate DCC and the ability to increase your residual income by taking advantage of the program they have to offer," he said.
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