The Green Sheet Online Edition

FASTTRANSACT began the "How does this work" thread on GS Online's MLS Forum with the following request: "Spoke to someone last night; they just signed up with one of those companies that say they will lower the merchant's fees and split the difference of the savings with them. Something just doesn't make sense in this model, and so if you folks would be so kind as to explain this to me. ... How can they lower the outrageous fees the merchants pay and then split the savings?"

Following are excerpts from the responses she received:

"[T]here are several of these companies out there doing this type of business. I have talked to a couple and the model is more of a consultant role.

"They will go out and obtain bids on your behalf, then share in the savings. When I questioned them as to how they determine and manage the savings, a couple of them stated that they based it upon the sales for the prior year, average things out and then bill out a monthly amount to the merchant once they change their processing. They indicated that they did not audit the future merchant statements.

"In contrast, another group wanted me to participate in an auction type of model where they would put out the merchant processing volumes, MCC, locations, etc., then present three to four bids to the merchant. In this scenario, they were asking me to pay them a fee for the merchant. They offered no guidance on how my fee related towards saving the merchant money and sharing in the savings

"In my opinion, the first model is probably more straight-up. The second is merely a referral source for new leads coming to me, but it was odd how they presented the whole thing to the merchant. It almost made me think that they were going to double dip.

"Lastly, saving money is always a relative term with mid-, non-qualified; hundreds of interchange categories; dozens of places to bury the fees.

"I would imagine that many merchants happily sign off, only to find out later that they are sharing savings and at a smaller rate." AZMIKEY30

"It's a clever way to protect margin. Say a merchant is paying $20 (just using simple numbers to illustrate the logic; stay with me here). You go in and determine that you need to go to $15 to write the deal.

"Now put on your "consultant's" hat: 'Mr. Merchant, my analysis says you are paying $20; the best price I can find for you is $15, a net monthly savings of $5 for you. I can secure the deal at $15, and you and I will split the savings. I'll bill you $2.50/mo and you are still saving $2.50/mo.'

"In the end, you make the same as if you wrote the deal at $17.50. ... Plus, the merchant is now recommending you to all his friends for the professional, knowledgeable approach you took to his business." CARDPLAYER

"The goal is to only go after very large merchants and get the pricing down to ICPT [interchange pass-through] and .05. Then bring in the bidders to sell at that price. Now what you have done is saved them a boatload of money and you get half of what you saved. Each month

"There are now smaller guys doing this and it has some merit, but the problem as I see it is that if you are dealing with small to medium merchants, you only get your money if you ACH the money each month, and we know how that goes with small guys. They fight it, they reverse it and they go out of biz. So you spend more time chasing money than making it. Brings you right back to where you started.

"Sell merchant accounts and don't be a collection agency. The big guys will not waste their time fighting you since you bring a good value." STEVE NORELL