By Roger McNamara
My conversation with representatives of an ISO that had prospered by serving business-to-consumer (B2C) enterprises was going as many had gone before. Despite their success, they had seen declines because of COVID-19. It was eating into their income as B2C businesses, location after location, closed or were submitting less card volume—the lifeblood of the ISO's residuals.
So I asked, What is your plan?” I was stunned when they said they were going to redouble their efforts in B2C and target lawn care and plumbers in B2B.
I did my best to explain that lawn care and plumbers were not B2B verticals but home services, which were still B2C merchants. A better example of selling in the B2B market would be converting business invoices to plastic for transactions that have buyers and suppliers.
ISOs are fiercely independent by nature. Many have been in the business for years, perfecting and refining their businesses for enormous gains, building large books of business in a very giving B2C segment. But is this independence keeping this very same group from moving on to the next frontier, B2B? I think it is, and here is why. Success in the B2C sphere has for years been largely driven by three factors. First, cost savings, when the ISO works with a merchant to reduce costs based upon identifying where the merchant might have been paying more than the ISO would charge them. You know it better as the race to zero. It is a dangerous game, as next month or at some point in the future another ISO will more than likely play it with the same merchant account.
Second, customer service. ISOs endeavor to live up to such promises as, "We do it better; we answer the phone when you call; heck, we even drop off paper when you need it." Third, and a little more recently, technology. ISOs offer a front-end submission system or pathway to a gateway to make it easy for merchants to do business with them. The B2C segment has been awash in demand and opportunity, but it is no longer as great as it once was.
So, what is the alternative and why are ISOs reluctant to jump into B2B? The alternative to B2C is, of course, B2B. There is a $10 trillion opportunity in the market today, with only 8 percent of B2B payments on card.
For the most part, you can’t see this opportunity from the street. You can’t usually walk into a B2B enterprise and engage with decision makers. Therefore, it can be scary for the ISO. Plus, the sales cycle can be longer and slightly more complex than, for example, signing and setting up a typical restaurant with tip function, something many an ISO has focused on and mastered.
Adding to all this is that ISO owners and merchant level salespeople are not receiving the training to effectively capture the B2C market, and those that seek to break in often apply the same sales tactics to B2B that they did in B2C. Thus, many reps selling in this space have resorted to an push-button approach that involves, surcharging, cash discounting and talking about Level III data, etc., which may result in accounts that activate but never reach their full volume potential and are not long-term solutions for merchants in competitive environments.
B2B is not B2C. Breaking into this market requires an understanding of how a supplier and a buyer interact. For certain, there is no easy approach. An understanding of the competitive threats of ACH, wire and check are paramount.
Gone are the days of getting a business to give you 2.5 percent, just for the pleasure of it and for their buyer. No, you have to be able to extract that value from the process and lay out the value levers for the supplier. You want the B2B merchant not to have to do the transaction but want to do the transaction. Selling price won’t cut it, as B2B merchants don’t want any cost, as they perceive that their account receivable costs are zero. Are they? Do you know how to assess this? Can you position plastic as a payment alternative? Will you speak their language when you do?
Selling B2B will not be easy, but as an ISO or merchant level salesperson, what is your alternative? More of the same? COVID-19 has ensured that the B2C ship is sailing, and chasing it from the dock is a bad strategy.
A new boat is pulling in, and it has a ton of space on board. It is filled with decks and decks of opportunity, yet precious few are sailing on it right now. The time is right to re-evaluate your strategy to seek out what you need to be successful in the B2B space so as to balance your portfolio and connect what might be disconnected.
Roger McNamara, president, Guide2Interchange LLC is a 25+-year veteran of the payments industry, most recently as the director of business development with American Express in the United States. He has sold more than $200 billion worth of card processing and now leads a B2B merchant sales training organization. You can reach him by email at Guide2Interchange@gmail.com or by phone at 561-379-3151
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