The Green Sheet Online Edition
May 11, 2009 • Issue 09:05:01
The ISO challenge: Selling prepaid
At the inaugural Prepaid Day held during the Electronic Transactions Association's 2009 Annual Meeting & Expo, executives from Now Prepay, the prepaid card division of Vendtek Systems Inc., highlighted the company's struggle to engage ISOs in selling prepaid card solutions to their merchants. "It has been a challenge from day one to marry a prepaid company with an ISO," said Joslin Sansom, Manager of ISO Accounts for the U.S. Division of Now Prepay. "It's been difficult. ... The programs have not been all they could be, and there are good reasons for that."
Prepaid needs nurturing
According to Sansom, the biggest reason for limited success is lack of training. "You've got bankcard guys selling bankcard," she said. "You've got prepaid guys that like to sell prepaid. They're all calling on the same stores. They're all talking to the same store managers. ... What's the problem? Why can't you get somebody in there selling both? The problem is training."
When choosing prepaid card vendors, ISOs should pick partners dedicated to ongoing training of ISOs - from management down to the feet on the street, Sansom advised.
"You need to make sure that you've got somebody that's a champion internally for prepaid and that they are absolutely involved in the prepaid program," she said. "Kicking off the program, are [partners] attending your yearly or your annual meetings?" Sansom said. How actively are they involved, and "how are they committing to the success of that program?" she added. Sansom pegged other characteristics of prepaid vendors that are necessary to successful product implementations at the merchant level. Partners must:
- Understand the complexities of multi-application environments - "There's so many different challenges in just rolling out an application at a terminal, and the last thing you want to do is have that bankcard piece go down because something blows out on a terminal," Sansom said.
- Build solutions that align with ISOs' infrastructures - "Is your prepaid provider somebody willing to make those changes, or are they trying to fit you into their little box?" she said. "That's very critical."
- Continue to expand prepaid offerings - "Are they looking in the market?" she said. "Are they always going after new segments, new products? Do they have a product manager?"
- Provide retail level support - If merchants call an ISO's help desk and get inadequate customer service, merchants are going to get frustrated. "You need to have a subject matter expert providing that support down to the merchant level," she said.
Prepaid programs can be complicated to implement, but Grace Caputo, Director, Business Development at Now Prepay, stressed the benefits of selling prepaid for ISOs. Using merchants from one of its ISO partners for analysis, Now Prepay abstracted what a typical merchant selling prepaid products looks like. That merchant sells on average $245 in prepaid cards a week. The average revenue per transaction at that merchant varies according to what type of card is sold. For example, the average long distance phone card sale is $6.11. On the other hand, the average gift card sale is $43.55.
Sale amounts rise when customers purchase reloadable debit cards, according to Now Prepay. The initial purchase of a reloadable debit card averages $94.23. The average amount reloaded on the card is $130.77. Blending the various prepaid categories together, Now Prepay calculates the retailer's margin at 9.53 percent and the ISO's return at 2.03 percent. Although the "lion's share of the money actually goes down to the retailers," ISOs can still make substantial profits, Caputo said.
Now Prepay calculates that with 100 merchant accounts and a monthly retail prepaid spend of $98,000, an ISO can expect to make $1,984.50 per month on commission.
With 1,000 accounts and a monthly retail spend of $980,000, that commission jumps to $19,845.00. And with 10,000 accounts at $9,800,000 in retail spend, an ISO's monthly commission skyrockets to $198,450.00.
The bottom line
According to Sansom, ISOs are ideally suited to take advantage of prepaid card programs. "You're already in the stores," she said. "You already have the relationship with the merchant. You've already got a good relationship going with distribution. ... They [merchants] like you. They rely on you. And pretty soon you have evolved a full program for them."
Sansom emphasized how the dynamic of the ISO-merchant relationship changes when prepaid programs are implemented. "It's going to be a lot harder for them to leave," she said. "Your attrition rate is going to be drastically reduced. They're going to look at you not just as the rep to try and sell bankcards, but you're helping them make money; they're bringing in new products to sell." If ISOs partner with the right prepaid vendors and programs are implemented correctly, "there's definitely an opportunity to make a lot of money here," Caputo said.
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