Value-added products and services – such as gift and loyalty cards, check services, and merchant cash advance programs – are important ingredients in the recipe for customer "stickiness."
But so many options are available, how will ISOs and merchant level salespeople (MLSs) know which ones – if any – are right for their clients and prospects?
We asked members of The Green Sheet Advisory Board the following questions:
Following are GS Advisory Board members' responses, in alphabetical order:
What we are really talking about here is differentiation, which I define as providing products and services that magnify the difference between the incumbents' offering and the competitors' to help reduce price competition.
No matter what services and products are used to differentiate, it always helps to couple them in such a way that a full program is being offered at some consolidated pricing scenario.
That is, tightly couple the product/service offering into the merchant's business model so they stick because you are a business partner.
[In the 1970s, U.S. car manufacturers] … learned from the Japanese that having tens of dozens of options made it difficult and confusing to buy a car.
The Japanese had a quality product and offered just a few models to choose from with the options bundled together in the appropriate model (economy, mid level, luxury and sport).
Bridging this metaphor over to merchant services, I think it is important to have a wide product line, but the ISO needs to know the merchant's business so that the value-adds are not confusing. Don't use a shotgun; use a rifle.
Offer bundles that make sense. A MO/TO merchant is not going to need the same value-adds as a fine dining restaurant.
The best way to evaluate new products and services is to understand the merchant business vertical target as well as the merchant. If you can feel their pain, you will know what they need to run their business better.
Value-added services are overrated. While it is important to offer check services, gift card programs and the like, commodity credit and debit card acceptance constitutes the vast majority of both supply and demand in our industry.
While we occasionally gain, lose and retain accounts because of value-added services, far more often we gain, lose and retain accounts based on the pricing of the commodity.
ISOs and MLSs have to be able to listen to their merchants to determine what services merchants will require from them. Not every merchant's needs will be the same. Some need numerous things while others just need to have a merchant account for that occasional sale.
We try to act as an adviser. You have to understand the merchant's business type before you can offer any value-added service.
We are very careful not to oversell to our merchants. We've all seen the merchant who … just started a business or only does a few thousand a month in sales and has check service, gift card, payroll and a 48-month lease for $69.95/month on a Tranz 330.
This merchant didn't need these extras, and the cost of them becomes unbearable. We want to be a value-added service ourselves and not do anything that is detrimental to the merchant.
There is no value-add that will maintain customer loyalty greater than [what] many ISOs/MLSs overlook, and that is quality customer service. … The more that is offered to the merchant, there is greater risk that customer service issues will come up.
If the issues are not addressed and resolved quickly, your merchants will have a bad taste in their mouths … [and will be] more open to listening to you competitors' proposals. That is the last thing you want to happen.
For some ISOs and MLSs, there is certainly the possibility of having too large a selection of products and services. It will catch up to them if they don't have the ability to support their offerings. Once this happens, their attrition levels will begin to rise.
In this industry, competition has increased drastically over the last five years. To compete, companies have to provide what their competition is providing, or risk not bringing in new business and losing merchants.
This really forces ISOs and MLSs to offer as much as they can. If they aren't careful, though, it can backfire.
The first recommendation [we would make in evaluating new products and services] would be to understand who your partners are and what they provide.
Don't just think that because they handle much of the setup and products that everything will be fine. This is where many of the customer service issues arise. Keep them in check. Your partners don't have the same passion for your customers as you do.
The second recommendation is to recruit some of your merchants to test the product or service. Get it straight from the people who will be using it. Let their feedback tell you if it is of value. To help recruit merchants, you may offer the service for free, at cost or reduce their processing charges.
[The most important value-add is having] knowledge in critical subjects such as compliance and chargebacks.
An ISO should stop adding services once the number exceeds the ISO's ability to really understand their nuances and uses. It destroys credibility to present the 'hot concept of the week.' A steady approach with a few well-selected programs can gain great respect and business over time.
The critical component is to understand the needs of your core clients and then go and source the correct product. This can be done by reading trade magazines, discussing concepts and products with peers and experts, as well as personally using the product with a very critical eye.
It's all about communication and education. First, you have to communicate with your merchants and find out exactly what their needs are.
Then you have to be knowledgeable about what products will match those needs. At Total Merchant Services, we do extensive education and training for our agents, so they can determine the best value-adds for their merchants.
You need to start with the right terminal. It must be a multi-app capable, dual-comm terminal with a high-speed modem for fast download of applications. We've selected the Hypercom Corp. T4100 terminal for our merchants.
Second, you need to offer actual services and products that can be easily added to the terminal – either right away or down the road. Our favorite services right now include:
As for products, here's what we recommend:
I don't think any sales professional can have too large a selection of products and services. The more options you can offer, the more deals you can close. That's why we offer a full suite of value-adds for all types of merchants so our agents can maximize sales and increase their revenue.
Just as important is the retention factor. The more value-adds you provide your merchants, the less likely they are to switch to another provider. The relationship with their acquirer is critical.
We have tried marketing payroll services, gift cards and loans with only limited success. Certain specific segments, such as restaurants, are interested in these products, but generally, less is more.
We have offered check guarantee and a free 15-page Web site to new merchants and have had a lot of penetration with these products. Other than those two, however, my best advice is to stick with selling Visa/MasterCard. The rest is usually a distraction.
There is no question that value-added services are an essential part of the present-day payment processing industry. Each ISO/processor/bank is constantly looking for ways to differentiate themselves in the market.
Selling merchant accounts has gone well beyond simple statement reviews and subsequently lowering mechants' rates.
The reality is there is not much room to lower merchants' rates anymore. The qualified rates are being marketed to new merchants at or below interchange on a nationwide basis. The most profitability seen on an average merchant account is typically in the form of downgraded transactions and recurring fees.
This makes value-added services a natural fit for our industry in two forms: 1) the added revenue generated by offering third-party products and services; and 2) the sticky factor created by bundling multiple products and services with payment processing.
It is hard to determine what the best value-added product is for a given ISO or MLS to sell. So many options are available on the market.
I believe the product best suited for the average retail/restaurant is gift and loyalty cards. The cost for these cards has come down considerably, they create revenue opportunity for the merchant, and the sticky value that comes with gift cards is priceless.
Several recent trends show the merchant cash advance program as a rapidly growing value-added service for merchants.
While there are a few concerns with cash advance products, specifically with association compliance and other liabilities that could conflict with our core competency, there is certainly no denying the industry-wide embracement of the product.
It serves a legitimate purpose for many merchants and provides lucrative bonuses for the ISOs and MLSs who are marketing it.
The various forms of check services offered in our industry all have tremendous value – from check guarantee and conversion to the latest forms of remote capture and back office conversion.
For convenience stores, bars and night clubs, there are ATM solutions that generate revenue for the merchant and residual revenue for the ISO/MLS.
For easy reference during the sales process, it's probably best to identify with a sales matrix that will correctly pair value-added products and services with merchant specific category codes. This will help avoid confusion and overselling of value-added products and services to merchants who may not need them.
We have to remember that we are in this business first for credit card processing services. The residual revenue is our best form of equity in this industry. We want to use value-added products and services to help sell to and retain merchants – not put them out of business.
The point being, there are many value-added products that have natural synergies with our industry's core payment processing services. It's just a question of pairing the various products and services with the right merchants.
An overload of services – such as check services, gift cards, prepaid cards in conjunction with a terminal lease and a merchant account – could probably cause more financial harm to a start-up business than delivering the value these products are designed to create.
Fact-finding and listening to your merchants will give good clues to the best services that will provide efficiencies to their businesses. Don't just ask how they handle credit card payments; ask how they handle all their customers' payments.
Get a sense for how much of their business is cash or check. Do they receive payments by mail? Use this knowledge to prepare the best solution, and pull from your 'menu' to solve their needs.
Every business owner needs to be constantly looking at ways to save time and money for their business. And value-adds such as check guarantee and conversion and back-office conversion can save them time by eliminating trips to the bank, reducing paperwork and improving collection efforts.
In some cases, a large selection of products and services may lead to a little bit of knowledge about a lot of things and not provide the full understanding of how these products work, what is needed to integrate them with the merchant's other programs, etc.
However, successful ISOs and MLSs understand that doing a little upfront research and being fully trained on their offerings will benefit their own business, as well as that of their merchants. … They will be able to offer their merchants the best solution for their unique needs.
With the large amount of offerings available to our industry, it's important for ISOs and MLSs to look for companies that offer similar business philosophies to their own. By this I mean sharing the same ideas as to how account setup is performed, flexibility with pricing, availability of customer service and tech support.
Don't just look for what seems like the best bonus or residual. If the provider isn't able to treat your merchants with the same professionalism that you do, they aren't a good match for you.
In addition, make sure they are willing to provide training to your reps either in person or by phone. Then, when working with a new provider, be sure to get immediate feedback from merchants on how satisfied they are with the service, and pass that information on.
We thank the GS Advisory Board members who responded to our questions. Look for more of their responses in Part II of this article in an upcoming issue. Our latest GSQ explores in-depth the topic of selling value-added solutions. Read "Value-added products and services: It's all in the presentation" (June 2007, Vol. 10, No. 2).
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