By Steven Feldshuh
Merchants' Choice Payment Solutions East
So, you have been in the merchant service business for several years. You have spent countless hours in the field, have worked with call centers, had a taste of operations, handled risk for six months and understand the current technology available to small to midsize merchants to a large extent.
Then a call comes in from an angel investor who wants to enter the payments space, because that investor has seen the success of Silicon Valley payment companies and wants a piece of the action. You are called because you have done a great job and were recommended by your largest restaurant group. You have published some industry articles and are a committee member for two industry organizations. The good news is you are respected and haven't crushed people to attain success.
Your angel investor wants to invest $1 million in your company and, being fair, is looking just for a small piece of the action. The $1 million would be an initial investment. After researching the group represented by the woman who contacted you, you realize this is a serious play. And you pause. The issue isn't that you do not feel confident in your abilities; you just are not sure which direction you would go and how you would spend the money.
Yes, drawing up a business plan would be a good first step, but what idea would you want to develop? Obviously, you are drawn to the opportunity, because the upside results could be huge. The investor is experienced with raising funds but is looking to you for your background and ideas, as well as for your skill in implementing the business plan.
The idea for this article came from GS Online's MLS Forum. Forum members Steve Norell and TheCreditCardMan, along with some other forum participants, believe that the key for small ISOs, or sub-ISOs, is to develop our own unique technology that integrates with POS systems, and ties in our processing and other applications that businesses are hungry for. As I started to research the various applications that are available at a cost or for free, I realized there are developers who have the answers and can become your best friends.
As an example, I was asked about gift cards on Poynt POS systems and realized that there were two gift and loyalty programs already available for the terminal. Clover POS seemed to have even more, with dozens of unique applications that a merchant could work with. So what I believe is necessary is getting an understanding of applications that have already been developed and putting together a playbook of what really is important to one's customers and run with that.
But my potential investor wouldn't be satisfied with that response, because she is looking for something unique and something the company could control. Does that mean a piece of hardware needs to be developed? Or devising an application that hasn't been developed or seen yet in the market place? How does one think of something revolutionary?
In speaking with some industry folks, I found the overwhelming response was that most merchants do not have the time to listen to you preach about the latest and greatest applications, but if they were given the ability to play with or demo some of these apps, they might bite.
But how does one reconcile the fact that the applications may cost the merchant $15 a pop, yet you might want them to try out an application a few weeks after a system has been installed? The answer to that is to load up the system, and when a merchant opens and plays with an application, the merchant is given a trial period to test-drive it. When the trial is over, the merchant can either select the application and get billed, or reject it and not get billed. I don't know how many of the applications developed today give you that option. But they all should.
Is it possible to be unique; to develop something special, unusual and potentially a game changer in our industry? The answer is yes, but I believe the service or product needs to be revolutionary. When Square appeared, the concept was shot down by a lot of us merchant level salespeople (MLSs). Who would go for high flat-rate pricing, no live customer service and the use of a cutesy iPad? I guessed wrong on that one like a lot of us did. So what could someone do that is revolutionary? One might start with asking Apple to develop a unique product for you, but we know that isn't going to happen.
The angel investor who sought my expertise wanted me to devise a unique product or service to work in a certain vertical. The business vertical chosen obviously would need to have enough merchants to make it worthwhile. The business type also would have to be stable, which would likely have necessitated significant investment to attain. The product or service also probably shouldn't be something that Amazon is already targeting. Generally, it seems when investors put a lot of funds into something, the product or service has already been proven to work, and typically, it has a large audience. With this in mind, I researched some verticals and narrowed my search to two industries: food and auto.
In the food industry, getting into a brick-and-mortar business requires a large amount of capital for a good size business. But as we all know, restaurant failure rates are very high. Getting into the auto industry requires probably even more capital, and car manufacturers seem to limit the number of locations selling their cars based on population size. If you think of Manhattan, with a population that is growing, there are only one Mercedes, one Audi, one Volkswagen, one General Motors, one Ford and one Volvo dealership on the island.
For this article, I decided to research the auto industry, and what better way to do research than to pretend I am looking for a new car. Up in Westchester, N.Y., where I live, I spent two Saturdays (to the chagrin of my wife) going to a total of 15 car dealerships. At each one, I nosed around and tried to figure out how the location was processing, and if it had anything special from the world of processing. I figured out that the best way to see processing in action was to go to the service department. I also realized in today's dealerships, you can walk in, have a coffee, a roll or candy, and grab a bottle of water ‒ and never speak to a soul.
In the 15 dealerships I visited, I didn't find one that had integrated processing with credit cards. They all seemed to still use VX 520s, FD130s, Ingenico and PAX terminals. I did find one dealer that struggled with a virtual terminal, because the card reader didn't work. I didn't see any wireless terminals, the use of which would have made sense as a courtesy to customers and to speed up the payment process.
Most of the locations had one or two terminals at a cashier, which meant a lot of walking for customers. Four of the terminals didn't accept chip-based cards; the signage said "Please swipe." Given that some of these dealerships probably process $3 million to $6 million a year in credit and debit card volume, maybe there is something here to improve.
But what type of revolutionary product could an auto dealership use? What type of applications would be so exciting that one could get the attention of the owners of these businesses? I thought of wireless terminals in the shape of a car, but then each dealer might want their own car shape, and would this really help this business segment? I was left wondering what radical change could be made to insure walk-in success in this vertical. Unfortunately, I am neither a designer nor a developer, so I will leave that thought in your minds.
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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