T he rapid speed with which the payments landscape is transforming requires ISOs and merchant level salespeople (MLSs) to be attentive and flexible so they can remain competitive. With that in mind, we asked members of The Green Sheet Advisory Board the following questions.
Following is the second portion of the responses we received. The first segment, "New times, new strategies: What are you doing?" was in The Green Sheet, July 23, 2012, issue 12:07:02. The final portion will be published in a future issue of the magazine.
Heartfelt thanks to those who took time out from their busy schedules to share their expertise and knowledge via these questions.
Joseph N. Bizzarro
PE Systems LLC
1. As an independent payments consulting and advisory, PE Systems' new strategies are focused around initiatives in assisting merchants in navigating the ever changing payments landscape.
Merchants are in a general state of confusion regarding the many new payment options, whether they be legacy payment solutions or new proprietary payment systems. One of our strategies is to bring clarity to our clients in evaluating their payment options as to the cost, the return on investment and how it may or may not increase their revenue.
Merchants, not only as a group, but as individual entities, are becoming more activist, as they see that the Durbin Amendment regulations may not have been fully vetted at the merchant level. With card brands instituting new fees, like Visa's FANF (Fixed Acquirer Network Fee), it just adds to the general nature of merchant suspicion.
Our strategy is to act as a merchant advocate, providing our expertise and guidance as to how best to approach these matters.
PE Systems works with the major acquirers, processors and ISOs every day of the week. While our strategy is focused around reducing a merchant's total cost to process transactions, we realize that we must be seen not just as a fee reduction organization, but as a firm that works side by side with the acquirer or processor in creating a better relationship for all parties.
2. Having grown up in the mergers and acquisitions world, I have found there are many factors that determine when is the best time to sell or buy a business. They include, but are not limited to, the following:
Overall, now is a great time to buy a business, as values are depressed. Looks like it will be late 2013 before valuations will increase.
3. The payments world is changing very rapidly and all of us must adjust to these changes, or our business will be impacted. However, the challenge is this: making radical changes to a business model is fraught with difficulty even in the best of economic times. In our current recessionary environment, it could lead to catastrophic business failure.
My advice is simple: change your model in a manner that does not compromise your underlying core cash flow, as new ventures will consume cash very rapidly. Unless you have capital funding to undertake a radical change to your business model, do it slowly.
1. Payment businesses have to re-evaluate where they have a proprietary advantage in their respective market. With both new companies disrupting the traditional merchant model at point-of-sale and online, as well as the awareness around pricing due to the Durbin Amendment, payment companies need to focus on what they offer that is sustainable beyond just the "technology du jour."
For some companies that means focusing on superior client service and retention, and for others it is staying one step ahead on innovation and sales focus. Selling new accounts the way many companies did just five years ago simply will not work in the years ahead.
The combination of merchant-level education on pricing, demand for social and/or mobile solutions, and the new focus on "integrated payment solutions" for specific vertical markets are the primary reasons.
2. YapStone is actively buying payment businesses right now, as we see tremendous opportunity in new vertical markets and expanding our footprint in the property management industry.
The characteristics of the companies we have bought recently (from a buyer's perspective) have been a clear path to profitability in the short-term combined with efficiencies that we can bring to bear with better execution and/or improved margins. This is when we know it is the right time to buy a business.
From a seller's perspective, if a business has plateaued in growth due to increased competition for new business, attrition of existing clients above normal levels or focusing on other new business opportunities, it is typically the right time to sell.
With the exception of a few Internet payment companies that have commanded very high valuations (from a traditional payments industry multiple perspective), it has been better to be a buyer than a seller in this current market.
3. Payment companies need to re-evaluate their business model regularly to insure that the thesis for why it remains a good business to be in is still intact. It seems obvious, but many businesses keep doing what they have always done (whether it be in servicing specific industries, geographies or even being a generalist) simply because that is what they know.
The changes we have already witnessed due to the Durbin Amendment have challenged the status quo for merchant pricing like never before.
Payment companies that have thrived off tiered pricing will be forced to adopt more competitive pricing or risk excessive attrition, as many merchants are getting competitive bids for pricing from multiple payment companies online. With so many changes in technology and pricing, adapting is vital to survival.
Impact Payments Recruiting
1. We see several payment companies investing in technology in an attempt to differentiate themselves from their competition. We also see companies adding to their product/service offerings in order to attract different merchants. We've seen some payment businesses tighten their belts on spending, while others with better cash flows have become more active in buying portfolios.
2. Our firm has been helping buyers and sellers of payment businesses connect with each other for the past two years, and we've seen many different reasons for buying and selling. For selling a business, this question is right on because it's all about timing.
Personal timing, company timing and market timing are the three biggest factors. If the owner is ready, the company has maximized its value and the market is ready to offer a good multiple for the business, then it's probably the right time.
It's a more complicated answer for buying a business. The answer to timing is a variable of cash availability for purchase, a good analysis of what the purchase of the business will mean to the bottom line of the entity buying it and the risk factors of a change of ownership for the purchased business.
That's just the beginning of knowing whether it's the right time to buy. Other factors include what the market conditions are like, an analysis of how market conditions will change and operating strategy of a merger (just to name a few).
3. Most clients that we see evaluating new business models are trying to meet a market demand in a different way that will be more efficient, make them more profit and make their business worth more.
If an in-depth analysis of the new model shows there's tremendous gain in profits, value, client loyalty, client attraction and value of the overall business, then usually they will go with the new model.
Typically payment companies try a new model when their current model is flawed, a change to a new model appears to be much more profitable or when adding a new model will increase their business when combined with their current model.
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