The Green Sheet Online Edition
June 11, 2018 • Issue 18:06:01
The Green Sheet Advisory Board
What it takes to thrive in payments today - Part 3
This is the third in a series of three articles sharing responses members of The Green Sheet Advisory Board offered when asked:
- What top three tools of the trade are most critical for MLSs to succeed in payments today?
- Do ISOs need the same tools, or are other types of aids more essential to them?
- What are the most critical needs for equipment, software and systems providers? Are these different for long-time payment players than for payfacs and ISVs new to payments?
- What top three qualities must all essential players in the payments value chain bring to the table to foster success for themselves, their partners and clients?
The first two articles in this series appeared in The Green Sheet issues 18:05:01 and 18:05:02, published respectively on May 14 and 28, 2018. Thank you to all the experts who took time out from their busy schedules to participate.
CPP Maverick Bankcard Inc.
1. The payments industry has changed dramatically over the last decade with new players like Square and Stripe who've put a lot of pressure on MLSs and merchant acquirers to reconsider their pricing strategies and service offerings. Competition is more intense, so MLSs must expand their sales tools to succeed in today's marketplace. I think the top three tools of the trade today are: a comprehensive understanding of rates and fees; working with merchant acquirers who have valuable technology and analytics; and establishing relationships with POS companies, gateways, and VARs.
Rates and fees
Because of the Internet, business owners are much smarter today and will do more research when selecting a new merchant services provider (or potential vendor in general) than previously. There are many different pricing schemes today: interchange-plus, tiered, flat rate and now cash discounting, leaving many merchants overwhelmed. Not only do MLSs need to understand what their competitors are offering, as well as the pros and cons of the various pricing models, but they need to be able to dissect processing statements entirely. Processing statements provide the MLS with valuable insight on not just the core fees like the merchant's discount rate and transaction fee, but their interchange qualifications and card brand fees, too, which some merchant acquirers will mark up.
The MLS who can offer their wholesale prospect advice on how to qualify at lower Level 2 and Level 3 rates, what triggers a non-qualified downgrade or Electronic Interchange Reimbursement Fee qualification, and even point out junk fees their competitor is charging has a huge advantage over the lazier MLS who just wants to offer the lowest rate possible. MLSs who can act as a transparent, honest pricing resource will always be more successful, sign larger merchants, get more referrals and retain more clients than those who don't take the time to learn the ins and outs of how credit card processing fees work. For me, this was the biggest contributor to my success in sales.
Technology and analytics
Technology can be a huge advantage for MLSs today, which is why this is my second tool of the trade. MLSs should work with merchant acquirers that make selling easier, not harder. There's a lot of friction during the sign-up process, such as printing and physically signing apps, scanning lengthy bank and processing statements, etc. This is the last thing a busy business owner wants to do. Companies like Square and Stripe are succeeding largely because they took the friction out of the critical onboarding process, something merchant acquirers should take note of. It is no doubt merchants will choose a provider that has a more painless sign-up experience when given the same pricing, and MLSs have a plethora of partnership options.
As an example, we've completely revamped our application process to be more efficient and quicker. By offering a simple online application that ties into our proprietary dashboard and syncing it with DocuSign for digital signatures, our MLSs can spend less time managing applications and write more business. We also make the application process much more secure, too, since no sensitive information is shared via email anymore, and the number of eyes is reduced to essentially just the underwriter. It would be in the best interests of MLSs to find a merchant acquirer who has all the resources and tools for them to stand out from their competitors.
My last tool of the trade is for MLSs to establish relationships with POS companies, ISVs, and VARs. MLSs are selling fewer terminals today because merchants want more sophisticated POS systems, many of which the merchant now must purchase from the POS company directly. The MLS has less power now because the POS company or software vendor may offer integrated payment processing, or refer the merchant to their "preferred" processing partner. The MLS today is expected to be more of a consultant, so it's necessary for MLSs to know the different software vendors so they can provide the best solutions. Additionally, by establishing these relationships, MLSs become more involved and continue to be trusted resources, which helps them retain clients. Many POS companies offer referral commissions, too, so these relationships can be lucrative for MLSs writing a lot of new business. Learning which POS companies support our front-end platform, and then developing mutually beneficial referral agreements between our companies has generated a lot of new business for my company.
2. For ISOs working with MLSs and resellers, the same factors apply as stated above, but ISOs also need to focus on developing attractive reseller programs. Ultimately, MLSs want to maximize their residual potential so not only do ISOs need to offer competitive and transparent buy-rates and rev-shares, they also need to provide the necessary tools for their MLSs to succeed and retain clients.
A large part of our MLSs' success has been our proprietary dashboard, which has made it easier for them to sign up prospects and, more importantly, get applications approved faster. Nothing is worse than waiting for your prospect's application to get approved only to find out a pending application with your competitor was approved quicker. ISOs need to streamline their underwriting process to be quick and efficient, especially when payfacs are offering instant approvals.
ISOs also need to give their merchants valuable tools and resources. This makes it easier for their MLSs, since they will have more to offer and create stickier relationships. ISOs and MLSs should sell on value, not on price. For example, if an ISO can offer clients a suite of banking services or even analytics to help them grow their business, this makes it easier for the MLS and may create more income opportunities. Building an army of knowledgeable MLSs fosters organic growth, but ISOs should focus on VAR/ISV partnerships, too. POS companies are realizing the income potential in offering integrated payments. ISOs should seek these types of partnerships as well to establish diverse sales channels.
3. Software and equipment providers offering payment processing capabilities are facing significant competition as technology advances innovation and new opportunities arise. Success for these companies lies in the ability to keep up with the technological advancements that are changing the payments ecosystem such as EMV, contactless payments, mobile pay, etc. Regardless of whether software companies are established or startups, they all need to consider the current and future payments environment so they can innovate appropriately.
For example, the introduction of the tablet/iPad as an alternative to big, expensive legacy POS systems was a great innovation that helped smaller businesses get more affordable equipment. This put a lot of established POS providers on their toes. Many have now followed suit by offering tablet POS systems in addition to their legacy systems. Being able to pivot with new payment technologies and developments is crucial. One cannot ignore the importance of data security either. It appears not a day goes by when you don't hear of a large retailer getting breached. Equipment and software providers need to prioritize security and PCI compliance.
In addition, software and equipment providers should have integrated payments on their mind. More POS companies are offering integrated payments to provide customers convenience, as well as partake in processing revenues. If executed strategically with the right processing partner, a large equipment vendor with a few thousand clients can add a lucrative income stream by offering payment processing. This may even make customers stickier, as merchants are utilizing more and more services, making it harder for them to leave even if there's no cost in doing so. The more value you offer your customer, the stickier they become.
4. The top three qualities we all need are honesty, patience and creativity. Regardless of your role or position in the payments ecosystem, you need clients to be successful. The same goes for any business. Being honest and transparent with vendors, clients and other partners is the biggest factor that will foster long-term growth for you and your company. This is especially critical for smaller players and new entrants as you build your reputation, seek referrals and generate buzz around your company. Word of mouth can be a huge contributor to success or failure. Anyone whose core values include honesty will succeed in the long run.
Building a large client base or portfolio in the payments world is not easy and doesn't happen overnight. As the owner of an ISO, I still keep my sales hat. This role has taught me more about patience than anything else. It took years to build relationships and establish trust to reach the point where the largest clients I have signed felt comfortable using our services. Individuals working in customer service can also attest that patience is key. If you are patient and persistent, your prospects and business partners will respect that. There is nothing worse than an aggressive and pushy salesman offering a limited time product or opportunity.
Lastly, you must be creative to get a leg up on your competition. The bankcard industry is saturated with hundreds of ISOs, POS companies, gateways, etc. We constantly review our marketing campaigns and pricing strategies to make sure we are remembered when speaking with prospects and other potential business partners. We've been more creative with our technological innovations, which has paid dividends for us. Having a creative mindset will also ensure your company is staying current with new trends and regulatory changes, something the bankcard industry is facing now. With new payment methods gaining momentum, businesses that cannot offer merchants the tools and technology to keep up with consumer demands will soon be left in the dust. Creativity will provide big rewards to the players who want to invest.
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