The Green Sheet Online Edition
November 12, 2007 • Issue 07:11:01
Surge with emerging markets
We hear about emerging markets all the time in the acquiring business, but do we know what that means? I would define an emerging market as one in which there is no or very little credit card acceptance as a form of payment. For example, if you went into a Subway restaurant 10 years ago, a credit card would not have been a payment option. Quick service restaurants (QSRs) only accepted cash, and for good reason.
The cost of interchange was high, and it didn't make sense for QSRs to accept them. Visa Inc. and MasterCard Worldwide saw a huge opportunity to convert cash transactions into credit card transactions, so they introduced special pricing for the QSR industry.
Acquirers also saw an enormous opportunity to transform a portion of cash sales into credit card transactions. At the time, the QSR sphere was referred to as emerging. Now it has been penetrated and no longer is considered an emerging market.
What's hot now?
Today we can say the same thing about utility companies, cable service providers and governmental agencies. Historically, these types of entities did not offer credit cards as a payment option. The infrastructure was not there. Now they can use the Internet and voice automation programs for credit card acceptance.
Penetration of card payments into governmental sectors remains low, which gives you, as ISOs and merchant level salespeople, huge opportunities. Potential target markets include cable companies, insurance firms, utility providers, telecommunications companies, courts (fine collection and bail bonds, for example), tax collection and other governmental agencies, and schools.
According to Visa, use of payment cards for bill payment has increased 300% over the past two years. Consumers have found that electronic payments are convenient, partly due to the ease of recurring billing, which is attractive to merchants and cardholders alike.
Recurring billing allows merchants to program dates to charge card payments in advance. This is ideal for merchants who have recurring membership fees, for example. With this billing method, consumers can use credit or debit cards to automatically cover many types of regularly scheduled payments (automobile, insurance and so forth) if the payment is the same amount each month.
This provides many benefits to merchants. Recurring billing:
- Ensures on-time receipt of payment
- Enables faster posting than check payments received in the mail, making funds available sooner
- Offers flexibility, giving customers more options for how and when they pay their bills
- Lowers billing and collection expenses (personnel)
- Lowers check-handling costs
- Minimizes chargebacks when it comes to insurance, cable, utility and tax bills
- Attracts new customers
- Offers existing customers more buying power
- Contributes to customer stickiness: Cardholders whose bills are paid automatically are likely to continue to stick with the arrangement
- Results in fewer customer service calls per customer, since service disruption is less likely when bills are paid automatically
Voice automation is another great way for consumers to pay bills. And this option helps merchants offer ease of payment to those who do not have Internet access or the ability to make payments in person.
Merchants can save money if they currently only offer alternative payment options through customer service representatives. Voice automation can deliver significant savings by lowering per-transaction processing costs. Also, calls are diverted from a customer service center, operator hold time is reduced, and representatives are available to respond to inquiries that require more individualized attention.
Offering customers a diverse choice of payment options is essential in today's fast-paced environment.
Convenience, yes _ surcharge, no
When discussing emerging markets, the surcharge question always comes up. Merchants in developing markets generally want to charge cardholders a fee for using their credit cards for payments. It is an attempt to recover some of the processing charges they incur.
Visa and MasterCard prohibit merchants from charging a surcharge to cardholders who use their credit cards. However, the card Associations do make a distinction between a surcharge and a convenience fee.
Here are some things to keep in mind about surcharging:
- Surcharging is prohibited.
- Cash discounts may be offered, provided the offer is clearly disclosed to customers.
- The cash discount price must be presented as a discount from the standard price charged for all other forms of payment.
Here are some things to keep in mind about convenience fees. They:
- Are permitted only in connection with non-face-to-face transactions
- Cannot be applied to recurring bills
- Differ by card Association (fixed or flat rate versus a percentage _ Visa does not allow for a percentage; MasterCard does)
- Must be applied to all means of payments
- Must be clearly disclosed
- Cannot be advertised by merchant as an offset to the cost
- May be charged only by merchants who actually provide goods or services to cardholders
Emerging markets require a little legwork. I have an agent who convinced a local city to start accepting credit card payments for taxes and fines. The city signed on but wanted to have an online tax payment service and a kiosk. We found a kiosk partner, who was willing to do the necessary development to help us in the project. Our new partner is also willing to do the online development.
I've said it before, and I'm saying it again: To survive in this market with free equipment and such, one has to find a niche. Emerging markets can be such a niche.
Safari Njema. Safe journey.
Dee Karawadra is the founder, Chief Executive Officer and President of Impact PaySystem, based in Memphis, Tenn. He and his team have a wealth of knowledge on the merchant services industry, with a niche in the petroleum market. Dee's experience on the street as an agent has guided him in laying a foundation for an agent program that is both straightforward and lucrative for his agents. Contact him at 877-251-0778 or email@example.com.
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