The Green Sheet Online Edition
September 12, 2016 • Issue 16:09:01
Is it time to hunt for greener pastures?
When should you start searching for "greener pastures"? The thought enters everybody's mind in most businesses. Whether it arises due to a call from a headhunter or from an amazing offer from an industry colleague, everyone has been there. The question has two possible answers: yes and no. This sounds silly, but given that you are striving to create wealth as a self-employed individual, it's important to recognize promising opportunities, while understanding that the proverbial green grass doesn't always grow under all conditions.
The payments industry continues to evolve due to advances in technology. As in the past one sees larger processors and banks scooping up smaller entities to either give the big boys more scale or to add some technology that the acquired company developed. Because we all face compressing margins, today more than ever, we need to have a solid plan in place, that gives direction and provides for safe growth.
Those who plan are doing the right thing. Most of us whose forte isn't planning either need a partner who plans (I have one) or need to understand that to make a living in payments requires a minimum five-year plan. Building a strong foundation based on recurring income is the goal, but getting to the point of comfort takes significant time, and for that, the right payment processing partner is of utmost importance.
What to look for in new relationships
So who is the right partner for you? This question will pop up as you grow, your business matures, and you gain knowledge and evolve in the industry. Yes, many companies advertise enticing offers, but you must be wary of unrealistic promises of riches and expensive free items. In truth, only a certain amount of money can be made on each processing business. If the offer seems too good, you are right, it is. So what should one look for? In no specific order let me spell it out, based on my own experience.
- People you can speak with candidly: If you are restricted from everyone in upper management, take an immediate pass. If a company is too big, and you can't ever speak with the top people, you will get lost in the shuffle. Management in the best ISOs want to speak to the breadwinners. Without you, and others like you, there is no new business. I'm not saying you have to feel all warm and fuzzy about these people, but you need to know they are there for you when you need them. Having that open line generally brings transparency and an exchanging of ideas. Remember, someone in top management today has gone through everything you have gone through and will go through in the future.
- Pricing you can understand: You need to be able to understand your "cost pricing." When a schedule isn't perfectly clear and spelled out, it's trouble. Cost pricing has to be realistic for today's market. If you feel competitive, you probably are. You don't necessarily have to be the lowest guy on the street, because hopefully you are building your business based on your value, not only on pricing.
- Honest merchant pricing: My rule of thumb has been if a processor is setting up pricing that can screw a merchant, or mislead the merchant, what are they going to do with your residuals?
- The best residual split, not the best bonus: Most of us come into the payments business with little financial backing. Building residuals takes lots of time. Taking a smaller account activation bonus, with a shorter claw-back period on that bonus and a higher residual split, makes the most sense. The bonus can be used to offset the equipment placement. Getting the best residual split is what one should be looking at over the long term.
- Ability to build value and favorable buyout terms: When you negotiate your agreement, understand that residuals can give your life much more flexibility than an 8 a.m. to 6 p.m. job. If you can get something in writing about a minimum buyout from your processor in case you have a change of heart about the business, it is a plus. Building accounts builds up a value. Books of residuals are continuously being bought and sold. The value of a book of residuals is typically based on size of accounts, number of accounts and how long they are processing with you. A specialized book based on some unique technology or software will bring even higher value.
- Excellent technology offerings: When running a business, a good agent portal is essential for seeing what's going on with your merchants and residuals. A good sales office portal enables you to add a sales force if you are looking to build a business that way. Such a portal allows you to enter your own accounts, build your terminal files and communicate without picking up the phone. Your processor also needs to be continually enhancing its offering of processing systems. The availability of terminals, Android/iPad systems, gateways, virtual terminals, and multiple processing platforms is important. You don't want to be stuck with only one processing platform. Simply put, it limits your ability to place deals, and with the trend toward more software at the merchant level, you need to have multiple platforms.
- National meetings: No one wants to waste selling time, but national meetings can be very important. I have found that at national conferences some sales groups are willing to exchange ideas, which can eliminate costly mistakes. Generally, at these meetings the agenda provides for introduction of new equipment, systems or services, some of which have merit. But to me, it's getting with the top brass. I've learned much about a company and its vision by sitting next to one of the generals at a lunch table. All the flyers and notices cannot replace this open free discussion.
- Help when needed: Typically, early on we run into cash flow issues, especially when the business is either growing too slowly or very quickly. Upfront, find out at what point a processor or bank would be willing to loan you funds against your residuals at a fair rate. Since we all need to eat, and reward ourselves with income for our work, we need to know that once we accumulate a meaningful residual, our processing partner will loan money against it. This isn't to cash out, but to cash in on continued growth.
So, if you are not realizing in your business the benefits I just highlighted, maybe it is time to look for those greener pastures. Just make sure that if you decide moving on makes the most sense, you find a home that offers as many qualities as possible that are conducive to your long-term business growth. Be careful, be smart and read between the lines. No one is perfect, but there are strong, safe, sensible programs out there for you.
Steven Feldshuh, President of Merchants' Choice Payment Solutions East, has 18 years' experience in sales and ISO development. Directly prior to joining MCPSE in 2012, he was President of Payment Partners. In his current position, Steven devotes the bulk of his time to assisting agents in building their portfolios. Contact him by email at email@example.com or by phone at 212-392-9202.
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