By Adam T. Hark
Preston Todd Advisors and MerchantPortfolios.com
Unless your notion of viability includes continuing a provincial, mom-and-pop payment processing company, you are now an official member of the new order of merchant acquiring: providing merchants with end-to-end business management solutions that also happen to integrate payments.
As such, you're faced with the challenge of identifying which payment or financial technologies to "hitch your wagon" to. Allow me to share some insight into the rationale that drives this strategic decision and better positions your company for a prosperous future.
One major consideration is to understand where your portfolio is strong, and acquire complementary technology. Any qualified payments consultant will (should) advise you that the first step in acquiring value-added products and services through the acquisition of a financial technology is introspection. Understanding your existing business, and areas where you have already had success selling to specific merchant types, is the most critical aspect of making a sound decision in identifying which technologies might be complementary.
Complementary technologies are key; there's no reason to rush willy-nilly into uncharted waters, where you have no preexisting familiarity with the types of merchants being serviced by the technology you're acquiring. For example, a payment processor with a concentration of auto dealers in his or her portfolio should be investigating software-as-a-service (SaaS)-based dealer management solutions, not looking at content management systems for local municipalities.
The idea is to leverage what you've already built. Do a standard industrial code/merchant category code distribution analysis of your existing portfolio to identify concentrations of merchant types. Understand why these concentrations exist: is it happenstance or do your agents have a history and expertise in certain segments that has facilitated their ability to sell so effectively? The answers to these questions will help guide you.
Also of major importance is choosing a financial technology that won't overwhelm your current operational and sales capabilities, and budget. Understanding the premise of your new business model, where it's really the technology that's the primary product or service, you need to know what your organization's operational and sales limitations are in anticipation of your expanded offering.
There likely won't be any 1-800 number to pass off customer service and tech support to, as is the case with pure payment processing. Operational expenses will go up with the additional payroll needed for information technology resources and bringing your sales channel in-house (selling technology typically requires an internal sales force, where quality control of a highly educated and knowledgeable sales force can be closely managed).
All of these add up to increased overhead, increased workloads and a renewed emphasis on budget management, so you need to be careful and choose a technology that you can implement that won't negatively impact the financial health, sales and production, and operational efficiencies of your company.
As a proponent of incrementalism when employing a new strategic direction, I suggest starting off with something simple that won't put excessive stress on your existing platform. By way of example, an integrated appointment booking and rewards/loyalty solution may be a better technology to start with than a full-fledged enterprise resource management system. Know your limitations and choose a technology that your existing platform can handle.
Find a technology solution that satisfies your existing clients' "wants." How often do you, your salespeople or your customer service representatives ask your clients how their business environment could be made better? You know that they need to accept payments safely and securely, but if they had their druthers, what would they want that would make their businesses run more efficiently, and enrich their customers' shopping experience? The answers to these questions will provide valuable insight into which complementary technologies you may want to explore.
Acquire a technology that does what it's supposed to do. Whichever technology you embrace, make sure it's going to do what any good payments or financial technology ought to do for your payment processing business: enhance customer acquisition, boost customer retention, and bulk up bottom line through higher margin products and services.
Explore all the different technologies out there. It's essential to familiarize yourself with the vast number of payments and financial technologies that exist today. I mentioned SaaS-based business management solutions in the examples above; however there are "infrastructure" technologies that also ought to be evaluated – a good example of this is omnichannel. Allocate sufficient time to properly evaluate all of these options.
The premise for acquiring payments and financial technologies for integration into your existing payment processing platform is fairly straightforward: creating more value for your customers through additional product and service offerings ultimately translates into value creation for your company.
Think beyond the payment transaction. Understand all of your merchants' wants and needs, and acquire the technologies that will help satisfy them. Also know that acquiring a technology doesn't necessarily mean you need to buy it; you can achieve the same result by establishing any one of a multitude of strategic relationships with interesting technology providers.
Adam T. Hark is co-founder of Preston Todd Advisors and MerchantPortfolios.com. With over a decade of experience in payments, payments technology, and fintech, Adam advises clients in mergers and acquisitions, growth strategy, exits, and business and portfolio valuations. He can be reached at email@example.com, firstname.lastname@example.org or 617-340-8779.
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