The Green Sheet Online Edition
July 23, 2012 • Issue 12:07:02
New times, new strategies: What are you doing?
The rapid speed with which the payments landscape is transforming requires ISOs and merchant level salespeople (MLSs) to be nimble so they can remain competitive. With that in mind, we asked members of The Green Sheet Advisory Board the following questions.
- What new business strategies are payment businesses employing right now?
- How do you know when the time is right to sell (or buy) a business?
- How do you evaluate new business models and determine when is the right time to adopt a new model?
Following is a portion of the responses we received. Additional answers will be published in future issues of The Green Sheet. Many thanks to those who took the time to share their knowledge via these questions.
AmeriMerchant - CanaFunding
Payment businesses are targeting small merchants in the following ways:
- Emphasizing in-store incentives via gift cards and loyalty cards that emphasize geography. For example setting up a program with the local municipality where a rewards card would work in a local town.
- Emphasizing a shop local campaign. This has also been done by American Express on a much larger scale by their Small Business Saturday campaign (http://smallbusinesssaturday.com).
- Providing rebates and cash incentives if you switch your payment processor.
- Offering merchant advances for merchants who have cash flow issues.
- Providing discounted or free point of service equipment.
1. I believe the payment business is shifting from being a "financial service" to a technology business, the old way of selling on rate, reviewing and analyzing statements, etc. is getting harder and harder to be successful at; today merchants are looking for integrated solutions where payments are part of a total business system, specifically POS systems for retail and restaurant merchants.
The stand-alone credit card terminal is going the way of the fax machine: everyone has one, but nobody uses it anymore, as whoever controls the POS system today, in many cases, controls the payments. So we have embarked on marketing cloud-based POS systems that integrate our payments with complete software and hardware solutions that control retail and restaurant merchants' operating costs, and improve customer service and accountability. It is a longer sales cycle and more involved, but the rewards are higher volume merchants with less attrition and upfront income to our sales partners on POS system sales, replacing lost revenue from the decline in terminal sales and leases.
I believe the paradigm shift from stand-alone terminals to integrated systems has been in place now for the last few years and the new "agent bank" is now software developers and POS resellers, as many ISOs are marketing exclusively through these channels for payment processing. ISOs like ourselves who primarily use the traditional MLS and ISO/agent channel need to focus our sales partners into selling the total solution, including POS systems, to compete against VARS, POS resellers, etc. eroding our merchant base.
2. I believe today offers exceptional opportunities for progressive ISOs to grow their business by not only acquiring smaller ISOs and sales offices but also evaluating technology companies that complement payment processing to offer a "total solution" to gain market share. Many ISOs are in the POS business today, either reselling other people's product or selling their own solution, and acquisition opportunities today in this industry include purchasing other sales organizations so that you can leverage their technology infrastructure, existing customer base and products to grow your merchant portfolio. In my opinion there is no concrete answer to this question, other than to be open to evaluating other opportunities to grow your merchant portfolio with complementary products, with the focus always being on growing your merchant base and increasing processing volume.
3. I believe we always need to be open to change, especially in this industry with integrated systems, mobile payments and new players entering the marketplace including Square, Google Wallet, PayPal, etc. The new technology has put new players into the payments business, and if we ignore them now, they could be eroding our merchant base a few years from now.
I believe no one can be all things to all people; however, we need to focus on growing and keeping our merchant base, and if we need to enter a new business to protect our current business, then we have to make that move. We need to make sure this is a product or business venture that is sustainable for years, not just a few accounts; we need to make sure our staff can be trained to operate this new model or technology and we can market and, most importantly, support it - if the answer is yes to the following questions:
- Is this new model going to allow us to reduce attrition in our portfolio while growing our portfolio into new markets, either vertically or geographically?
- Can my sales staff be trained in this new model or product line quickly and efficiently?
- Can my support staff handle this new business model or product line without increasing overhead significantly?
- Can we consistently sell and support this new product routinely on a monthly basis?
If the answers to the above are all yes, then we can move forward with expanding our product line, or tweaking our business model to grow our core business: payment processing.
1. The time to sell a business is:
a. When it is no longer fun, and the leader has lost the vision along with the drive
b. Well before the top of the bell curve in the life cycle of every business
c. If the deal is too sweet to pass up
d. When the owner is out of balance with family, personally as well as spiritually
e. When the current business is standing in the way of a new, more exciting, more profitable undertaking
2. The time to buy a business is unique for each buyer and business situation. (If the person reading this does not know when to buy a business, then he or she should not be in business, period.)
Buying a business is:
a. Leveraging strengths
b. Back-filling weaknesses
c. Acquiring technology, customers and/or geographic presence
d. Where the sum of the whole is greater than the sum of the parts
e. Buying offers the better ROI option
f. The right opportunity presents itself
g. The current business has reached a plateau or is at the top of the business life cycle bell curve
3. Having successfully completed four reinventions of the company, what caused me to adopt new models were:
a. Sustained plateau in revenue
b. Major shift in the economy causing an almost stagnation by customers and potential customers
c. Evolution of the industry, such as the shift from manual to electronic processing, and now the shift to mobile payments and inexpensive yet robust POS systems
d. When I finally saw the opportunity that had been there for over thee years with existing customers saying, "I want" and "I need"
e. When capital-intensive infrastructure such as people, places and things are underutilized, leveraging that infrastructure - for example, we initiated a local answering service because we could not keep our night support staff busy, and already we had an underutilized enterprise-level telephone system and support software
f. When you can repurpose what you already have
Signature Card Services
1. I prefer to stay away from generalizing since each business is unique and adapts differently to changes in the payments marketplace. As for Signature Card Services, we frequently evaluate what worked for us in the past and what did not. We let go of strategies that were not successful, and we try to enhance the ones that worked.
For instance, we had to eliminate the upfront compensation when everybody around was offering it. It was a risky move but it allowed us to offer higher residual splits and lower cost. As a result, we were able to attract serious agents who are interested in growing and maturing their portfolio with us. That allowed us to focus on involved players who were looking for not only quantitative expansion, but also for quality growth, that is, evolving their operations into an ISO-level firm. We foster these ambitions and have all the necessary mechanisms to support them.
Additionally, investing into emerging payment technologies outside of merchant services works well for us. We believe that it's important to fearlessly embrace innovation even if at first it presents a threat to your model.
2. When you buy low and you sell high.
3. Agents should be able to rely on their ISOs as a resource for providing informational support and tools in evaluating their business models. At Signature we offer cutting-edge business intelligence to analyze effectiveness and profitability of these models.
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