Many of the requests were extremely complex. Yet he had to select the option that satisfied the user group while earning an appropriate return on investment for First Data. This was in conjunction with ensuring proper implementation of industry regulations.
I admired the way Kurt was able to assuage customer egos, inspire his staff and develop coherent initiatives within First Data's prescribed budget. I continue to value his friendship and advice and hope you, too, are able to gain some insight from this interview.
Q: How did you enter the payments industry?
A: My first job out of school was as a marketing director for Omaha National Bank, reporting to the president - great, broad, general marketing exposure. Next, I went to the advertising agency of the bank, and one of our clients was Godfather's Pizza.
From that introduction, I went to work for Godfather's as Marketing Director, where I was responsible for the promotions for all the franchisees. When I started, there were 30 stores, and when I left there were over 1,000.
While at Godfather's, I was recruited by First Data Corp. I was the first non-IBM or Xerox [veteran] in management, and I was responsible for creating new products and sales strategies. My marketing background served me well in this new industry that was process-focused. I was credited for initiating statement stuffers for issuing-bank customers. I then went to the U.K. and helped First Data manage the overseas operations from 1990 to 1993. I also assisted with the Signet acquisition, which really expanded First Data into a global processor.
In 1993, FDC split issuing and acquiring, and I started up the acquiring side as a distinct business line. This was about the same time that Roger Pierce came to First Data and came up with the concept of bank alliances, which allowed banks to focus on sales and First Data to focus on back-end and back-office processing. Twelve alliances were signed.
The concept was revolutionary and has helped shape the acquiring space, and the relationship between First Data and other processors and the many midsize and smaller banks, which now have some version of the alliance concept. I left First Data in 2001, but I am extremely fond of the relationships, experiences, accomplishments and opportunities I had there.
Q: What prompted you to start your own consulting agency?
A: I wanted to leverage the people I had worked with along with the knowledge and industry perspective I had gained. Traditionally, First Data stayed away from advising clients on pricing, marketing or the scope of their enterprise. Consequently, I believed there was an opportunity to advise clients in these areas.
With the assistance of my partner, Jamie Savant, who joined in 2005, the firm has grown and evolved into The Strawhecker Group. Directionally, I started with a small group of professionals, but we lacked the breadth to address all the different disciplines we needed, such as mergers and acquisitions, risk, pricing, and product development.
Next, I brought in subject matter experts in various disciplines so that we can now provide unique and specific seasoned experts that can respond to a wide spectrum of issues. We have 20 associates and the ability to assist senior managers address issues they face every day. We are now moving beyond acquiring into issuing clients, as well as anywhere payments are going. We recently helped a Fortune 500 company enter the issuing and acquiring space. I am excited about the coming release.
Q: How did you fund your startup?
A: I bootstrapped it through my own funds. Nick Baxter at FNBO [First National Bank of Omaha] was my first client, and we have had a 10-year relationship with him. Finances were very stressful for the first year. Within the first year I knew we had something.
Q: What is your most challenging business issue?
A: The most difficult thing about my business is that although I was raised in a recurring revenue model, my business is not a recurring model. Every week, we review our opportunities and proposals to ensure we have future income. Our newest product, called Merchant Portfolio Performance Study, is a recurring revenue model service.
We have signed up 10 large acquirers and are slicing and dicing two years of confidential merchant level data and allowing them to compare their performance to nine other competitors without revealing the names of the participants. The total population is 500,000 merchants, which is 7 percent of the total U.S. market. This is a quarterly assignment and will, over time, smooth the earnings of our organization, while providing the industry with usable and interactive management information never before available.
Q: What would you do differently?
A: I would have started my business sooner. First Data was fantastic for me. It taught me this industry. It gave me a foundation to start my own business. I wish I had launched The Strawhecker Group five years sooner, however.
Q: What is the biggest regret or error of your career? What did you learn from it?
A: Through everyone's career, you have those moments of truth when you or your peers must make decisions that may be harmful to a client, your staff or your employer. What I've learned is "do the right thing" for your client. The forces working in a decision - including your staff, yourself and your company and client - are not always the same. Doing right by your client first will ensure you make the right call.
Q: Of what are you most proud over your career?
A: I take the most pride in completing a project successfully and having a happy client. Our team played a small role in many transitional changes in our industry. I'm proud that my partner, Jamie Savant, and our firm have been a part of significant changes to our industry. Having the chance to build a firm with our great team, as well as having my son Mike be a part of it, has been very rewarding.
Q: How will our industry evolve over the next five years?
A: Loyalty. One of my sons owns a restaurant, so I now understand more of the merchant point of view. I have learned so much by being a partner with him in his business. His greatest challenge is how to get more customers into his establishment. Industry players that can drive customer behavior will succeed.
Groupon is a successful business model because it drives customer behavior. The power of payments and loyalty wrapped into one is extremely powerful. LinkedIn and Facebook pull customers instead of pushing them.
Payment providers have this same opportunity. Each card transaction contains a name, a time and the purchase amount. With a little work, it can also contain the product purchased. That data can be used to mine further customers. That is the next big play. I'm starting to see it.
The sales agent that can say "I can double your customers" will win. In addition, we are seeing more vertical market focus by acquirers, as well as those with an integrated business model. Even small merchants are buying business management software. It's all how to be smarter, better, faster.
Business is about leveraging different distribution channels. The traditional agent strategy has seen its zenith. There will always be sales agents, but it is past its prime because acquirers are always seeking ways to get closer to the merchant.
Q: How will the Durbin Amendment impact our industry?
A: The best thing this industry has going for it is young adults and those in their 20s. These folks do not carry cash and use their debit card for everything. This will fuel transaction growth. Average transaction amounts will decrease because these kids buy a $3 cup of coffee with their debit card. Money habits are hard to change, but each generation will be more accustomed to electronic payments. This secular growth will be very helpful within our industry.
The Durbin Amendment will bring about short-term increases in profits. But longer term, 18 months from now, we may be talking about legislation of credit interchange. I am cautiously concerned that once government has entered this space, it is easier for them to further regulate.
Large retailers saw a weakness created by the negative perception of banks and took advantage of it. If acquirers do not give some reduction in fees to merchants, we may breed further long-term adversaries. Higher and more annual fees, too, may endanger our future business and our independence.
Q: Is there anything else you wish to share?
A: The unintended consequences of the new consumer protection agency may have a negative impact on our image. We are thought of as bankers. The Durbin Amendment passed because lobbyists' were able to go to our elected representatives and state that if this was voted down, they would be painted as protecting banks.
As a consequence, entities that distance themselves from banks will be looked upon more favorably.
Ken Musante is President of Eureka Payments LLC. Contact him by phone at 707-476-0573 or by email at email@example.com. For more information, visit www.eurekapayments.com.
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