New payment solutions, high-profile data breaches and unprecedented government oversight have increased public awareness of our industry. These factors, along with stepped up competition and margin compression, have caused numerous payment professionals to seek solutions that help them serve in a broader capacity as trusted consultants rather than primarily as providers of payment processing.
Given these changing conditions, we asked members of The Green Sheet Advisory Board, "What do you see as the latest, greatest innovation in payments that can take your business to the next level, and how do you plan to implement it?" The first two sets of responses were published in The Green Sheet on March 14 and 28, 2016, in issues 16:03:01 and 16:03:02, respectively. This is the final group of replies. We appreciate the busy executives who took time to address this question.
From my perspective, the role of ISO/agent and MLS in the merchant service space has changed dramatically in my 15 plus years in the business. The industry has become extremely competitive and margins on processing portfolios have shrunk to almost nothing. Additional sales opportunities such as leasing terminals/software have also dried up due to the decrease in costs of merchant equipment.
Yes, with the increase in mobile there are other options and products to sell, but I feel the biggest area for ISOs and agents to gain success and replace lost income is by offering alternative lending/working capital. First off, ISOs and agents can sell this high commission product back to their existing merchant base. This will help to decrease merchant attrition tremendously while providing another opportunity to interact with your merchants to potentially get referrals and just build the overall relationship with them.
Second, offering these products to current referral partners (banks, POS dealers, etc.) is a great way to reenergize that relationship. Third, these products can also help with acquiring brand new merchants. In today's environment, you may have to tell a "new story" to prospects other than, "I can lower your rates" to get merchants interested. If you talk about working capital on the initial call with the prospect, the dynamic of the talk track will change, and the merchant will be much more receptive.
But most importantly, the alternative lending/working capital products come with very strong upfront and ongoing commissions. Many of the merchants who take these products renew again and again, creating a very strong, monthly residual stream for ISOs and agents. Similar to the merchant service space in general.
Through options like mobile and EMV, merchants are beginning to learn that it isn't enough to merely adapt to changing types; it's better to be prepared for forthcoming innovations and massive shifts than simply reacting.
That's why future-proofing has become so important, but that's often been difficult. Previously, point of sale technology was cumbersome and finicky. As a result, businesses would often upgrade only when it was absolutely necessary. Instead of changing for every new payment type and having to incorporate additional hardware, merchants would often wait until their current systems were on their last legs.
Fortunately, payments technology has evolved away from being tied exclusively to hardware. The prime example of the movement is both payments-as-a-service and future-proofing, two complementary elements. With payments-as-a-service, merchants don't have to worry about payment types and form factors changing. Uncoupling the solution from hardware means that businesses will be ready for whatever the future may bring because updates can be enabled remotely.
The best way businesses can approach these changing conditions is by reducing the complexity around payments and through data analytics and reporting. Through leveraging big data and analytics, merchants will be able to run their businesses more efficiently.
Payment companies, in turn, will be able to move beyond solely providing payment transactions. Additionally, by reducing the complexities of point-to-point encryption, PCI security standards, and tokenization technologies; establishing new reporting analytics; and benchmarking their own data against competitors to make better informed business decisions, payment companies can engage and inform merchants and other users as trusted consultants in the industry.
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