By John Tucker
1st Capital Loans LLC
To continue the discussion I began in prior Street SmartsSM articles about merchant level salespeople (MLS) reinventing themselves and rebranding to play more fulfilling and useful roles in the increasingly complex payments and merchant services ecosystem, I will share further commentary from members of GS Online's MLS Forum in this article.
My supposition, and that of others who care deeply about the future of our industry, is that we must be far more creative in our approach to serving merchants and no longer fall back on leading with outmoded rate-savings or free-terminal pitches. Straight from the recently polled forum, here are more perspectives on this much-needed transformation.
Several forum members focused on industry specialization. Forum member THECREDITCARDMAN wrote, "I would emphasize becoming an expert in one or two industries. My career began as a shotgun, selling restaurants, auto repair, doctors – whatever I could funnel into my pipeline. My aha moment came when I became a sharpshooter in a narrow niche market. I became an expert on that segment's need and have become a go-to guy up and down that vertical with referrals."
Clearent was of the same mind, stating, "I believe that specialization is the key. I don't mean specialization in product, but specialization in industry. For example, everyone knows how easy it is to get a restaurant approved, and how low their risk truly is to the provider. However, everyone would also agree that the margins continue to shrink since everyone sells them. Yet, there are several industries that are low risk, but a little harder sell because they require some general knowledge about that industry. Gain that knowledge, and you gain access to better margins."
Dhessco continued the specialization commentary with the following: "Market … it depends on the Market. I will say it again. It depends on the Market. True, the days of walking in the first day cold calling and selling a $99 lease are over. You have to be on the merchant's mind and the first person they think of when merchant services comes up."
For CCNJ, it's all about market specialization but in the form of a one-stop shop. "For me, I think the thing that helps the most is all of the services I offer," CCNJ posted. "I'm not just a merchant services company; I'm a full payment solutions operation and sell the company that way when speaking with a prospect. Many appreciate the fact that I can help them in any area of their business where they may need help, and I'm only more than happy to take the additional business as the client learns more about what we do."
Specialization is important today, just as it has always been, because selling merchant processing services to a restaurant will look totally different than selling the services to, let's say, a company that predominantly operates through an online shopping cart via its website.
A restaurant is a card-present merchant, which means just about every ISO or MLS in the country can not only approve said merchant, but it can also usually approve the eatery without much hassle or burdensome documentation during the underwriting/boarding procedure.
A restaurant is also usually solicited by every Tom, Dick, and Harry, both experienced and new to merchant services, due to accessibility to the location through Yellow Page listings, as well as through the proverbial parking your car in a commercial area, walking down the street and doing cold calls in person to potential prospects along the way. As a result, restaurant owners more than likely know more about merchant services than merchants whose businesses are less accessible and thus are up to date on all the latest technologies, POS systems, financing products, etc.
In contrast, an online business is a completely different story. For one, online merchants are accepting card-not-present transactions, which means the underwriting process for this type of merchant account is going to be longer and will involve more documentation and risk management procedures.
Because such businesses' names and contact information aren't widely available in directories, they typically do not have storefronts MLSs can randomly walk into, and they usually do not experience as many solicitations pertaining to merchant processing. This means that the latest technologies, risk management procedures and other innovative solutions are likely to be of great interest to these types of merchants because the information and services MLSs can provide will be new to them and perceived as valuable.
Some forum members believe pitches based on rate savings (while inefficient) can still work in certain situations today. For example, Steve Norell said, "As much as I hate to say it, merchants still respond to how much they can save on their processing. It seems foolish to me, as the savings these days are negligible at best. Also, no matter what they are told the savings are, there is no real way to prove said savings because our industry has made the method we use to price merchants unintelligible."
While I've certainly led with lower rates before when selling merchant services, in the back of my mind, I have never truly believed it made any sense on the surface. For one, the majority of merchants have no idea what interchange is, what dues and assessments are, or how much markup has been incorporated into the pricing quote ISOs and MLSs offer them. Without fully understanding how the pricing works, how are merchants able to truly shop based on "rates"?
Well, the answer is that they are not, even though they think they are. This makes it easy for merchants to fall prey to accepting an enhanced billback rate structure that would set the qualified rate at, let's say, 1.85 percent and the billback bucket at 2 percent. Merchants might believe that they are going to be paying 1.85 percent when, in fact, they will end up paying nearly 4 percent for a number of their transactions. Shopping for merchant accounts is not like shopping for tires, but merchants have been treating the shopping of merchant providers like this for years, despite not having a clue as to how pricing is configured.
Forum member mbruno shared his thoughts on what MLSs need to focus on when approaching merchants today. "There will always be a place for feet on the street and cold calling in various forms, such as walking into the business next to a current client or pitching the restaurant you happen to be at," he wrote. "However, as the prime method of building business, I think it's a much harder and more expensive way to grow a business (today). Given that the race to the bottom has provided most merchants with 'excellent rates,' the sale usually needs to focus on other value adds."
Forum member amsprocessing added to this discussion, as well, stating, "The well-versed agent has indeed reinvented himself. However, I bet that represents less than 10 percent of the feet on the street."
I still believe the 80/20 rule applies to our profession in some regards. That is, I would say that only 20 percent of MLSs truly produce consistently (or have built portfolios that do) and the other 80 percent are wandering around without much production volume or a portfolio that's been built up to provide value.
I also firmly believe that the majority of said 20 percent have already rebranded themselves and use new titles, such as alternative financing specialist, payroll specialist, technology specialist, or perhaps an (insert industry here) specialist with a one-stop shop smorgasbord of tailored services/products to that specific market.
The majority of the 80 percent are still using outdated methods such as leading in with rate savings and free terminal pitches, targeting over-saturated industries such as restaurants, and have not truly rebranded as professionals with some sort of niche specialization.
The issue with this, though, is that most of the major ISOs in the country train their MLSs to be in the 80 percent group, instead of training them in such a fashion to be in the 20 percent. Is this based on ignorance of what truly makes a successful MLS, or do these ISOs just not care that much? As my time as quarterback of Street SmartsSM continues throughout the year, I will take a more in-depth look at this situation.
Let me know more of what you think about my supposition by emailing me directly at tucker@1stcapitalloans.com, and I will include your commentary in an upcoming Street SmartsSM column. In the next article, to wrap up the month of June, I will return to the topic of rebranding as an alternative financing specialist by outlining one of many strategic blueprints you could use to establish a "broker" office.
John Tucker is Managing Member of 1st Capital Loans LLC, as well as an M.B.A. graduate and holder of three bachelor's degrees in accounting, business management and journalism. Tucker also has over nine years of professional experience in commercial finance and business development. You can contact him by email at tucker@1stcapitalloans.com or by phone at 586-480-2140.
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