By Jon Perry and Vanessa Lang
Business is a fickle mistress, demanding yet giving, filled with passion yet not always compassionate. In reading posts on GS Online's MLS Forum, one has to wonder why we continue to hold our industry above all others. We seem to believe our industry professionals are not subject to the human foibles seen elsewhere. Why?
No matter what the industry, be it banking, manufacturing, housing or merchant services, one common denominator is the human factor.
As mentioned in previous articles, both of us have worked at companies where the chief executive officer was indicted. These CEOs are serving long prison sentences. In the past months, we have seen banks, mortgage companies and other businesses collapse.
Whether it was misfortune, bad decisions, greed or any multitude of reasons, many companies have failed.
In the nearly five years we have been in the merchant services industry, we have had one of our acquiring banks taken over by the Federal Deposit Insurance Corp. and another go through restructuring. Stuff happens.
The key for all of us is to remain diversified. Think about it. Prior to the recent spate of bank failures, the maximum FDIC insurance was $100,000 per account. If you had $500,000 in one bank, you would only be guaranteed one-fifth of your holdings if the bank failed.
Most investors would have had five banks holding $100,000 to cover their losses. Yet we, as independent contractors or smaller ISOs, seem to put all of our eggs in one basket. We have this unwavering belief that it won't happen to us.
In a forum post, rbelcher shares a story about submitting deals to a smaller ISO that processes through a larger ISO. The smaller ISO violates its contract with the larger ISO. The larger ISO cuts off the residuals to the smaller ISO. Rbelcher is stuck in the middle and is told there is no money to pay employees because the larger ISO won't pay the smaller ISO.
Whether the smaller ISO is legally required to pay or not is not the issue, nor is whether the courts and attorneys are to blame. The root issue is that the smaller ISO feels deceived and financially distressed because of what happened. The ISO feels wronged, both financially and emotionally.
Let's digress to a couple who earns enough to purchase a $100,000 house but bought a $300,000 home instead. They bought the home because they thought they would make more household income over time and that the house would appreciate in value. Then the real estate market tanked.
Their house was worth less; the economy failed; they lost their jobs. They were left holding a mortgage for an overpriced house with no income to pay for it.
Sure, that couple can blame the mortgage companies for giving them the loan to begin with. They can scream at the CEOs who made bad or ill-informed decisions. But who among us says, I am responsible?
We see this every day in every vertical. We forget that each time we point a finger at someone, there are four fingers pointing back at us.
Walter Anderson, a Mississippi artist, book illustrator and author, said, "We're never so vulnerable than when we trust someone - but paradoxically, if we cannot trust, neither can we find love or joy." Anderson also said, "Our lives improve only when we take chances and the first and most difficult risk we can take is to be honest with ourselves."
Ah yes, be honest with ourselves. Can we look in the mirror and say we are without fault? What else could we have done? What due diligence could we have performed to have prevented the outcome? In another MLS Forum post, edp wrote, "We are seeing more 'locked' terminals on merchant conversions!"
Companies that provided free terminals are now locking their terminals. Yep, and so do we. It is our bottom line that takes a hit every time we give away a free terminal. To have a merchant take this free terminal and reprogram it for a competitor is a slap in the face.
We take an extra step in having the merchant sign a separate document that states, if they do that, they can keep the terminal, but they allow us to debit their checking account for a hefty "ownership" fee.
When we start out as small independent merchant level salespeople (MLSs) or ISOs, we may not have the cash flow to provide free terminals. Perhaps we use leasing to increase our cash flow. If we are smart and reinvest our money back into our business, we are able to provide free terminals.
We know the value of either selling or leasing the terminal versus giving one away for free. We guard the free terminal from intruders and place penalties on clients who reprogram them for competitors.
Is that wrong? You decide. The point is unless laws are being violated, there are no rules in business.
Some on the forum feel tactics like locking terminals put them in an unfair advantage. Let's get real. We are in business to make money. When a vendor, which includes a Super ISO, approaches us with an opportunity and it deserves a look, we first engage an industry attorney. There aren't a ton of them, but there are some very good ones, such as Adam Atlas.
So get your agreements reviewed. What if a smaller ISO defaults with a larger ISO? What is your recourse? What is your exit strategy?
We have an exit strategy. We don't see ourselves doing merchant services 20 years from now. We will either sell our portfolio, merge with another company or be acquired. We have a plan and a number.
When bad things happen to us, we must ask ourselves, what could I have done to prevent this? If we don't, then we fall back on something Albert Einstein said, "Insanity is doing the same thing over and over again and expecting different results."
Whether it is the smaller ISO in contract with the larger ISO that takes advantage of the independent contractor, or the company that provides a free terminal and locks it, we wonder when we start out in this industry, how do we play with the big dogs?
We'll answer that question with something Antares said on the forum, "Like it or not, we all sell on price." We believe that if you have no differentiators, then, yes, all you have to compete on is price. If you are competing on price alone, you lose.
The big dogs are looking at the margin. If they add one extra customer, what does that customer cost them on the margin? For big dogs, the marginal cost is very small. For independent contractors, that cost may be much higher. In a Super ISO environment with a call center and a massive sales support team, to add a customer at interchange plus zero basis points may seem nonsensical.
However, when this Super ISO negotiates with back-end processors, it leverages its total processing volume and number of transactions to get lower pricing. If that Super ISO does 1 billion transactions per year and this volume allows it to save one-quarter of one penny per transaction, you are now talking real money.
For most of us, we start out small but think big. People buy clothes from Wal-Mart Inc. and Nordstrom Inc. However, people who buy clothes at Wal-Mart are not going to buy clothes at Nordstrom, and vice versa.
Your goal is to determine your market segmentation. What is the profile of your ideal customer? Are your target customers looking for price, for impeccable service, or something in between? Are they processing with terminals, POS systems or using mobile devices? Are they mostly retail, service or Internet companies? Can you narrow down a vertical like dry cleaners, veterinarians or grocers in which you excel?
There are 10,000 things small businesses have to concern themselves with every day to grow and expand. We can guarantee you that merchant services is not in their top 10 priorities. If you can make merchant services transparent, to where you are there for your customers when they need you, you will outrun the big dogs.
Big dogs are horrible at leveraging customer service. They pay their first-level MLSs at, or just above, minimum wage. MLSs interact first with customers. Logic would have ISOs selecting competent, well compensated people to field calls from customers. But here they skimp. This is your opportunity to shine.
When you can make merchant services transparent and when a customer can call you and say, here's my problem, call me when you have resolution, you have differentiated yourself. Act with a sense of urgency. Speak with a positive, can-do attitude. Leverage your relationships to ask for referrals. You can make great money, serve your community and feel good about yourself and your business.
Customers expect that you are going to get better over time. So reinvest your money. Get legal counsel, a better Web site, better marketing materials.
We've seen the big dogs, and we'll meet and match them - anywhere, anytime. We are grateful to be in an industry that loves the entrepreneurial spirit and creative thinking. We can't think of anything that we would rather be doing.
As Sal, a military retiree from the Navy who entered corporate life and was a great mentor of ours, said: "Trust not, lest ye be screwed." Sal was saying something similar to what Ronald Reagan said about trusting the former Soviet Union, "Doveryai, no proveryai," which means, "Trust, but verify."
At the end of the day, we recognize the only person each of us can congratulate or be angry with is ourselves. Make yourself unique; take responsibility.
Jon Perry and Vanessa Lang are the owners of 888QuikRate.com, an ISO based in Ft. Worth, Texas, that was named Small Business of the Year by the local newspaper, The Star Telegram. For more information, tweet them at http://twitter.com/dfwcard, comment on their blog at http://merchantservices.cc or visit their profile at http://linkedin.com/in/jonperry or http://linkedin.com/in/vanessalang. Alternatively, you can contact Jon and Vanessa by phone at 817-857-3557 or by e-mail at email@example.com or firstname.lastname@example.org.
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