The Green Sheet Online Edition
July 11, 2011 • Issue 11:07:01
Finding the right payment processor
Determining which payment processor to work with is one of the most important business decisions an ISO makes. "We took our processing partner decision very seriously, as our plan was to transition our company into a true 'super ISO' platform company," said Todd Linden, Executive Vice President and Chief Operating Officer of Merchants' Choice Payment Solutions, based in The Woodlands, Texas.
"That type of transition is dependent upon making the right processor choice," he added. "We rely on our processor to stay ahead of the marketplace and help keep our sales groups competitive and relevant."
Whether an ISO is looking for its first partner or reviewing opportunities after many years in business, it's critical to pick a partner that can grow and adapt with the ISO's business. This can include arrangements for who assumes the risk in the relationship, the technology options the processor provides, and training assistance and merchant customer support.
Compatible business models
When selecting a payment processing partner, it's important that the ISO be clear about its own operating model - including the ISO's capabilities and where it may need help. Critical questions to ask include:
- Do the processor's offerings fit into your business model? Are there options to adapt as your ISO and the market change?
- Who will assume the merchant underwriting risk?
- How would the processor's compensation strategy affect your business?
- Do you already have financial institution relationships, or do you need the processor to bring that relationship to the table?
- What does the relationship with the processor mean for your ISO's ability to buy and sell merchant portfolios?
Ideally, payment processing partnerships are long-term arrangements, so it's important to find a processor that suits the ISO's needs today and has options that will allow for making adjustments as the company and industry change.
For instance, an ISO in startup mode might want a payment processor to bring the financial institution to the relationship and assume the merchant underwriting risk. After a few years in the business, the ISO may want to own the bank relationship or assume the risk. Limited options may hinder future growth.
It's also essential to consider the importance of buying and selling merchant portfolios. ISOs may find that the ability to buy a portfolio from another ISO that works with the same processor makes for an easier (and less expensive) transition. Those looking to sell portfolios may find they can get a higher price when selling to ISOs who work with the same processor.
Technology and innovation
ISOs should look for processors that can offer a one-stop shop to help serve their target customers as profitably as possible. Merchants who purchase multiple products and solutions are less likely to leave when a competitor walks in the door and offers a lower price. Many ISOs also find a profitable niche in a specific industry - health care, for instance - in which they can become experts and take on a more consultative role with customers.
Processors that offer a menu of options ranging from credit and debit processing to gift card programs to remote deposit capture give ISOs the greatest amount of flexibility in determining the best approach to building value with merchant customers.
"It's important to us to have a processing partner that does it all for us," said Henry Helgeson, President of Boston-based Merchant Warehouse. "Working with a partner that offers so many types of products and solutions allows us to go after a lot of potential customers, and they know that we're going to be able to service any of their needs. It really comes down to the question, can this processor handle any type of merchant and any needs we may have?"
For example, one place where ISOs can provide value to their merchant customers is assisting with Payment Card Industry (PCI) Data Security Standard (DSS) compliance. While 66 percent of the small to midsize businesses participating in a 2010 research study by First Data and the National Retail Federation claimed awareness of the PCI DSS, only 49 percent had completed a self-assessment at the time of the survey.
Processors should provide options for merchant customers to achieve and maintain PCI DSS compliance - and perhaps even go beyond. Assisting with this can mean recommending vendors to provide questionnaires and perform scans.
It can also mean offering solutions that use technology such as encryption and tokenization to significantly reduce the scope, risk and costs associated with compliance without requiring new hardware or extensive changes to existing business processes.
Some important questions to ask include:
- How can a processor help increase the value you provide to your customers?
- Is the partner innovative? Can it help your company find new opportunities and meet changing demands?
- How is the processor getting ready for the future - are there new opportunities?
Working with a payment partner that supports a wide variety of products and services can help ISOs win new business, build value with existing customers and increase cross-selling opportunities.
Sales training and customer service
As ISOs narrow down their processing choices, it's important to remember to address two important items: sales training and merchant customer service.
Appropriate training and education can help ISOs become business consultants to their customers and ultimately foster connections that promote merchant retention. Look for a processor with an established training program to keep your sales force updated about important trends and technologies and ways to increase effectiveness.
ISOs also should consider their ability to handle customer service for their merchants and whether they will need support from the processor.
"Our customers are primarily gas stations, and many operate 24 hours a day, seven days a week," said Marwan Shihadeh, President of Miami-based Orion Merchant Solutions. "They want to know they can call someone to solve a problem no matter what time it is. If you want to be successful in this business, you need to be ready to answer those calls."
Ideally, the processor should allow the ISO to choose from a menu of service options. For instance, the ISO may want to field service calls from 7 a.m. to 7 p.m. but have its payment processing partner handle overnight service calls. If an ISO will need this type of support, it's important to discuss this with prospective processors to understand the options available.
Support for ISOs
There are many factors to consider when weighing processing relationships, but so much boils down to one question: How can this processor support your business now and over the long term?
ISOs should feel comfortable contacting their processors for assistance and education. They should seek processing partners that reward them for high achievements and can help them prepare for the future of payments. Having these pieces in place allows ISOs to focus on winning business and building value with their merchant customers, which is critical to growing their companies over the long term.
John Barrett is Senior Vice President of Independent Sales Services at First Data, where he leads sales and service for ISOs, agents, agent banks and full service processors. Reach him at email@example.com.
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