Following is the third, and final, portion of responses we received from members of The Green Sheet Advisory Board when we asked them the following questions to elicit informed perspectives on strategizing to remain competitive in our ever-changing payments landscape:
1. What new business strategies are payment businesses employing right now? 2. How do you know when the time is right to sell (or buy) a business? 3. How do you evaluate new business models and determine when it is the right time to adopt a new model?
The first two sets of responses were published in The Green Sheet on July 23, 2012, and Aug. 13, 2012, in issues 12:07:02 and 12:08:01, respectively. Heartfelt thanks to all who shared their wisdom via these questions.
Allen P. Kopelman
Nationwide Payment Systems Inc.
1. Referrals are more important than ever. Partnering with software vendors is important as merchants are looking for all-in-one solutions to do many things: CRM solutions, POS solutions and more. We are always on the look out for products to help us make a sale or improve existing relationships. Keeping in touch with merchants and offering them additional services. This has always been a part of our business plan, and it keeps working.
2. Three things are happening with merchants:
3. Sometimes it's hit or miss, or just copying your competition. In our industry you do not want to be too far in front of things. Right now, EMV is coming - but when? Are we ready to start putting EMV-capable equipment out there? Is that equipment going to be usable when the time comes? I have asked that question of a few equipment companies, and I have not been given a good answer yet.
Elite Merchant Solutions
1. Payment companies are employing new strategies at a furious pace compared to just a few years ago. The competition is fiercer than ever, thus pushing margins lower. You have venture capital firms pumping lots of capital into our marketplace to fund companies with low-cost payment processing solutions and technologically advanced alternatives to traditional methods at the POS. Payment processing companies are scrambling to compete in the new age of payment processing. It has been many years since the differentiator between payment companies was whether to offer a free terminal or provide upfront bonuses and other "catchy" items to recruit sales reps.
The last two years, I have seen the most change in our industry in my 10 years in the payment space, and it requires vision and the ability to adjust to the times. Whether developing mobile apps to accept payments or adding value-added services such as text message marketing, the technology employed by payment processing firms is constantly evolving and exciting. Companies are developing their own POS systems/applications so they can control the entire spectrum of the payment process and reduce merchant attrition, as these systems are generally proprietary ... making it very difficult for merchants to switch providers.
2. The right time to sell or buy a business depends on many factors. One should never try to buy or sell strictly on timing. ... Fundamentals should be employed when buying or selling a business, and these include micro and macro factors along with personal goals of the buyer/seller. ... Risk plays a factor in whether a business should be sold or purchased, and that threshold of risk is key in consummating a transaction. Those willing to accept the risk involved in a transaction will be far more likely to close than those who are risk averse. A risk averse person generally will not pay market value as they will be seeking a deal far below market value so their risk is heavily mitigated. ... A successful transaction is where the buyer thinks they are getting a good deal for the business and the seller thinks they are getting a good price. Nobody knows what is going to happen in the future as the value of the business may rise and fall, but so long as the buyer and seller are happy at the date of the sale, that is what is referred to as a win-win deal. ... [O]nly buy or sell if the transaction makes sense and meets your goals, and at the end of the day, makes you happy. My assumption is there are absolutely no external pressures that are forcing a sale or purchase.
3.New business models should be evaluated constantly, as this is what separates successful businesses from the ones that fail. One can evaluate new business models by utilizing common sense and being a visionary. How many times have you said to yourself, Why didn't I think of that? Warren Buffett employed an investment style that utilized common sense: he only invested in businesses that he understood, were well managed and fundamentally sound. ... He took a lot of heat from his investors and had many critics for not making the staggering returns others were making in the dot-com era; however, he held his ground, and those same investors were thankful he didn't fall prey to the dot-com bubble, as Berkshire Hathaway remained virtually unscathed when the dust cleared.
All business owners at some time are faced with the dilemma of adopting a new business model. A new business model should be adopted when an owner realizes the model that has worked in the past is no longer viable, and the competition is edging ahead. Many companies, big and small, have seen their doors shuttered because they did not administer new models to remain competitive, and their competition did.
Charge Card Systems
As the founder of Charge Card Systems, one of my primary responsibilities is doing my best to understand the future of the payments industry, to take a realistic look at our business model and determine what is needed for our continued growth.
What brings excitement to each day is that our industry is constantly and rapidly changing. Until now, CCS has been able to capitalize on new trends and opportunities and has been able to show significant growth. To continue our growth, we identified technology to be the next frontier of our industry. In this regard, and after years of speaking with potential suitors, we recently were acquired by Financial Transaction Services. FTS is a full-service payment company handling its own risk management, credit, underwriting and is privately held and backed by FTV Capital, a leading growth equity investment firm. The partnership with FTS has provided CCS and its sales partners with the technology it had sought and technology that FTS has invested millions of dollars into developing.
As credit card processing becomes more commoditized, it's the players who control the technology and back-end that will ultimately be the winners in the industry. With powerful online portfolio management tools and a leading edge agent center, CCS can now provide its agents, ISOs and merchants with leading-edge technology and information. Without this technology, I felt that the next evolution of our growth would be hurt.
In addition, the other model that I believe is becoming more and more apparent with the small to midsize merchant is offering other bundled services to this customer base - whether its insurance, shipping, payroll, etc. Finally, an area that I believe is beneficial to merchants is "data" - offering analytics and analysis of neighboring merchants; data is king and too many merchants run their businesses by "a feeling" versus having the hard-core data to properly analyze their metric. While the industry is quite competitive, smart ISOs and agents can still offer both tangible and in-tangible services to differentiate their business.
Bank Associates Merchant Services
1. The e-commerce sector is driven almost entirely by credit card sales. The growth rate in this market is considerably larger than almost every other business type. Business owners are generally more receptive to solicitation because it is generally more difficult to uncover their contact information. Strategic partnerships will be fundamental to the ISO in order to stay afloat in our ever-increasing competitive market. Through technological integration, value-added service packaging, and cross selling partnerships, you will expose your brand to more clients and reduce attrition.
2. A business is ripe for purchase when you consider their existing models for revenue and are able to spot areas, where if properly cultivated, will bring in considerably more return for minimal effort. If you have the resources to make an existing system more efficient, more cost effective or scalable through funding, you can expect good results from your purchase.
3. New business models have to make sense logistically. If you do not understand the new model, do not implement it. If the model makes sense but you recognize threats or weaknesses, make sure you have a reinforcement plan or a back-up plan if your results do not return what you originally expect. If the model is scalable, start immediately with the least expensive participants. This feeler will be your strategic reconnaissance for issues or processes that you may not have expected. Once you have more information about the model, you can build a framework to guide the cavalry that follows your scout.
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