The Green Sheet Online Edition
February 25, 2013 • Issue 13:02:02
Heed merchants' red flags to strengthen your business
I confess: I like watching NASCAR. I've even gone on a NASCAR ride-along. I've always been a car guy, and watching the races is a great way to keep up with the latest developments.
My family doesn't share my passion for automobiles or NASCAR. On the track, they only see cars making four left turns; they aren't interested in discussions on rear-end differentials. The only reason they'll watch NASCAR is for the wrecks. And plenty of wrecks occur, leading to yellow flags and even the occasional red flag, which stops the race.
The red flag isn't exclusive to car racing. There is reference to its use as early as 1602, when troops raised a red flag to warn their enemy that they were preparing for battle. The first reference to a red flag being used as an alert for adverse weather conditions was in 1777, when one was raised to warn of a potential flood.
A universal warning sign
Red flags are used to alert us to hazardous conditions. They can also be used to describe someone or something that irritates us or causes us to sit up and pay closer attention.
The term "raising a red flag" is commonplace in the business community, including in the payments world. I bet most of us have said one of the following statements:
- That merchant's recent chargeback has raised a couple of red flags.
- The number of returns on that statement is a red flag.
In these cases, concerns have arisen after the merchant has been signed and could lead to trouble with the accounts involved.
Unfortunately, all too often we fail to see the red flags that come up during the sales process. Since the goal of the salesperson is to sign merchants, issues that are raised are often not seen as red flags, but instead as objections to be overcome.
However, ignoring red flags can damage both the reputations and portfolios of ISOs and merchant level salespeople (MLSs). Thus, it is prudent to recognize and address red flags before signing.
Red flags could turn out to be inconsequential, or they could be reasons to pass on signing a merchant. Two types of red flags are often heard at the time of sale: those that signify danger and those that signify time killers.
Initial danger flags
These red flags create concerns about fraud, potential or past card company violations, or an effort to deceive. Left unaddressed, they could result in cash losses. Address them immediately to avoid jeopardizing your income.
Dangers can arise throughout the sales process - even before an initial meeting with a merchant. CARDPLAYER pointed out that they can develop during the scheduling of the call. "A merchant once asked me to meet at Starbucks so we could do the paperwork there since he was still building out his storefront."
The merchant could have been telling the truth, but there may also have been no storefront at all. To address this type of comment quickly, ask for the storefront location before meeting the merchant. You can honestly say you need to drive by as part of the application process.
CARDPLAYER and other members of GS Online's MLS Forum offered a similar red flag: "Don't ship the terminal to my business because my partner will misplace it. Send it directly to my home address instead."
As with the previous instance, the concern is whether the business exists, and if it does, whether the applicant's relationship with the business is legitimate.
During the sales process, several other danger signals can arise. CARDPLAYER added several common merchant comments and questions that fit into this category:
- I don't want to fully convert until I see how your service is. Let me give you part of my business and see how you do.
- Your $25 chargeback fee is outrageous. I don't want to pay a fee every time I get a chargeback.
- How much time do I have to ship the goods after I bill the customer?
- Here's how I want the business name to appear on the customer's bill.
- I don't care what the rate is as long as your service is good.
MBRUNO also added several to the list.
- (After an MLS notices the merchant has an extra terminal) I'm going to keep the second terminal programmed with my current provider just in case something happens.
- Can we run a transaction today? I have a few pending.
- I know I said my highest sale would be $xxx, but if I need to run something much higher, is that a problem?
- Send the statements to my home address. I don't want my business partner seeing them.
- Don't call the store; always call my cell.
These have themes ranging from concerns over how they process to requests to hide some part of the processing relationship. In some cases, they seem to know a lot about chargebacks, descriptors and even certain processing regulations. Ask yourself how many of your current merchants understand these types of rules so thoroughly.
When a merchant simply asks some of these questions, you are literally put on notice. So ignoring these types of comments can result in losing more than the merchant's residuals; it can lead to reputational damage, financial loss and even fraud nightmares for you and your ISO.
Further danger flags
Red flags of danger show up after the first contact, too. BROOSTERB1 referenced a few he's heard during the application process.
- You mean I have to give you my Social Security number? Oh, I don't want to do that.
- Just say we sell smoking accessories ... and T-shirts.
- Can I use my girlfriend's name as the owner?
- My terminal is broken, and I really need this account today.
- Oh, don't worry about POS systems. We really want to use a terminal.
- My statements are in my office at home. Can I get them to you later?
- Well, everybody else uses my P.O. Box number. Why can't you?
Several of these remarks could be harmless. However, they could also lead to harmful situations. Never assume all is well when questions like these arise. Ask the merchant to clarify the question. You can even ask the merchant why he or she is asking.
Remember, anything that seems out of the ordinary or abnormal should be addressed immediately. You are ultimately responsible for the application. Don't allow yourself to fall victim to fraud, no matter how small the concern may seem initially.
Time-killer red flags
We have all had instances where, in hindsight, we found that a merchant's demanding nature and need for support far outweighed the revenue we earned. When this happens, we have to decide if it's even worth keeping the merchant.
A mentor of mine called this the "what price pain equation," meaning, how much must you make for a merchant to be worth the pain he or she inflicts? In most cases, what you are making is never enough.
Red flags that come up during the sales process can help identify these potential time killers and help you calculate whether the merchant's business is worth pursuing.
MBRUNO told a story of one such time-killer situation. He said, "I had a merchant where not only was I helping them with a tech issue they couldn't fix, but I proposed saving them some money too (I believe about 5 percent). I wasn't even pitching savings as the reason to go with me; it was just an added benefit.
"As we were signing the application, the merchant brought up the 'I got a better quote' line and, like a fool, I matched the rate, citing my rate-match guarantee prior to the merchant signing the application.
"Sure enough, a few months later I received another request to match a lower rate. I put the brakes on after the second one and had the merchant agree to stop asking for at least a year, but the damage was done. I went from looking at about $100 a month to $40 a month.
"In hindsight, I let the merchant take control of the sale and turn it back around on me. I should not have provided any savings and just pushed on the technical issues they had as the sale point, but the minute I brought savings into the picture, it made the merchant think about saving money more than fixing the issue."
MBRUNO identified key time-killer red flags as:
- (Before signing) I just got a lower quote from XYZ. Can you match it?
- I shouldn't have to buy a terminal.
- If I don't use the service one month, I don't want to pay any fees.
The common component on all time-killer red flags is loss of control. In effect, the merchant is taking control of the sales process. This is the most common reason these time killers end up in your portfolio.
The solution to addressing these concerns begins before you even visit a merchant. It begins with your attitude toward a successful sales call.
Reasons to say no
We all want to sign every call, and most of us understand that merchants will also say no for various reasons. Some of those reasons are out of your control, like incompatible equipment or the merchant needs something that you can't provide. However, the most successful salesperson is the one who is willing to say no as well.
Before you even visit a merchant, you must accept that there are three possible outcomes from your sales call: a yes from the merchant, a no from the merchant or a no from you. Most time-killer merchants are signed because the MLS sees the last result as unacceptable.
A sales call sets the initial boundaries. Potential high-demand merchants will attempt to dictate those boundaries, and unless you stand your ground, they will keep expanding them.
This has happened to everyone. You introduce yourself to a merchant. All you say is your name, and before you can say anything else the merchant asks, "What's your best rate?" How you respond defines how you set boundaries.
There is only one wrong answer to the question above: telling the merchant your best rate. If you do that, expect that nothing else you say or provide will matter. It will be all about the price. (My favorite answer to that question is, "I don't know. In fact, I'm not even sure we should do business together.")
Time killers won't damage your reputation, but they will have a serious impact on your income. They'll steal your time away from signing other merchants, and they'll drive you down the road to zero with their constant price demands.
Remember the "what price pain equation." If a signed merchant doesn't meet that price requirement, ask the merchant to go elsewhere.
Don't find yourself asking, "What happened?!?" after the fact. Address these red flags when they are raised, and you will find you have a healthier portfolio and more time to spend building it.
Jeff Fortney is Vice President, ISO Channel Management with Clearent LLC. He has more than 17 years' experience in the payments industry. Contact him at email@example.com or 972-618-7340. To learn about how Clearent can help you grow faster and go further, visit www.clearent.com.
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