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The Green Sheet Online Edition

October 09, 2023 • Issue 23:10:01

Advisory Board - Payments, a retrospective
Elite experts reflect on their tenure in payments - Part 2

Since The Green Sheet began, we've been honored to work with some of the industry's greatest innovators. Several such leaders serve on our Advisory Board and have joined in celebrating our 40th anniversary by reflecting on the following:

  1. When did you join the payments industry? What attracted you to this sphere? How have opportunities for new entrants changed since then?
  2. Innovations continue to transform the payments experience. What have been the most significant developments? How have they affected the direction of your company?
  3. Previously, the acquiring side of payments operated with little attention from outside. How has increased scrutiny challenged and strengthened the industry?
  4. What advice do you have for payments professionals that's likely to stand the test of time?

A portion of their insights follows. Additional perspectives appeared Sept. 25, 2023, in issue 23:09:02.

Thomas Aronica, Biller Genie

1. I joined the payments industry in 2005, a time when modern smartphones had not yet become ubiquitous. By then, merchants were already gradually becoming aware of predatory tiered pricing strategies and expensive long-term equipment leases. With a background in technology and mathematics, the payments industry naturally appealed to me; it seemed logical and intriguing. However, what truly attracted me was experiencing the inadequate support provided by the ISOs I had worked with, and a belief that I could do better.

Since those early days, the industry has undergone significant changes. Nowadays, any business owner can easily start accepting payments on their iPhone within minutes. Moreover, most merchants have become cautious due to past experiences with deceitful pricing strategies. In the past, it seemed like anyone could enter the payments business with minimal background knowledge and the promise of lower pricing.

However, those days are long gone. Today, new entrants in the industry need to differentiate themselves by providing value through technology. Success in payments now relies on offering innovative solutions and leveraging technology to enhance the payment experience for merchants and their customers.

2. The most significant development that influenced the direction of our company was the growing adoption of integrated payment solutions. Early on, we recognized a common frustration among our merchants was the lack of integration between the systems involved in the typical revenue cycle. From credit card terminals to payment gateways, online shopping carts, accounting software, general ledgers, and banks where deposits were received—none of these systems talked to each other, which created labor bottlenecks for the merchants we supported.

This led us to develop Biller Genie, a tool that seamlessly connects these disparate systems, automating reconciliation and streamlining back-office tasks. By integrating these, we've been able to alleviate the burden of manual work and provide merchants with a more efficient, streamlined payments experience.

Our primary focus lies in assisting other acquirers in leveraging these tools to acquire more high-margin and high-volume merchants. By offering integrated payment solutions, we enable acquirers to attract and serve a broader range of merchants, ultimately driving growth and profitability.

3. On one hand, this increased scrutiny has played a crucial role in exposing and weeding out bad actors who employed deceitful tactics to exploit unsuspecting business owners. It has helped protect merchants from entering into unfavorable commitments and has brought greater transparency to the industry. This increased vigilance has led to a more trustworthy, reliable marketplace for merchants and their customers.

On the other hand, the heightened scrutiny has also presented challenges for industry participants. Compliance with regulatory requirements and meeting expectations of various stakeholders require additional resources, time and effort. However, these challenges have pushed the industry to become more resilient and adaptive.

Market participants have had to enhance their systems, processes and technology to meet the evolving regulatory landscape. Thus, the industry has become more sophisticated and better equipped to address the emerging needs of merchants and their customers.

4a. Price only matters in the absence of value: While competitive pricing is important, it should not be the sole focus. Instead, prioritize delivering value to your merchants. Understand their unique needs and challenges, and offer solutions that address those pain points.

By providing value-added services, exceptional support and innovative solutions, you can differentiate yourself from competitors and build long-term relationships with your merchants.

4b. Make it a "make sense deal": A good deal should make sense for all parties involved. Consider not only what makes sense for your own business, but also what aligns with the goals and interests of your merchants, stakeholders and your acquirers. Strive for mutually beneficial solutions that create win-win situations for everyone in the ecosystem. This approach fosters trust, collaboration, and sustainable growth for all involved.

Allen Kopelman, Nationwide Payment Systems Inc.

1. I started in this business working for a local ISO. After a year or so, I was given a copy of The Green Sheet. This really opened my eyes; I wasn't making the money I thought I should make, and business owners were asking for different things that this company did not offer. So, in January of 2001, I co-founded Nationwide Payment Systems with my business partner, David Burney. The company we worked for laughed at us, told us we would fail and we'd be out of business in less than a year. I was unhappy working for them, so I left my residuals and moved on. It was either that or returning to the restaurant business where I'd worked previously.

Back then, paperwork was hard copies, Polaroid pictures, FedEx apps overnight, and downloading over a phone line. Three-tier pricing was the norm. A couple of years later, a merchant showed us a statement with interchange pass thru pricing. We hadn't seen that before, and we started going after larger companies with that pricing, which was very successful. Not many people were using that pricing model at the time.

Leasing was big. We also changed from the norm of 48-month leases and offered 12-month leases, which were higher monthly, and merchants liked the option—also no more calls about taxes and hassles with people who would stop paying or go out of business. Those leases would also end; no paperwork was needed. So that was a game changer for us.

Entering the business now is a lot different: free machines, free POS, upfront bonuses and buyouts, Cash discount/dual pricing/surcharge, etc. I've created ways to make a lot of money with just a few accounts.

2. Online applications and sending docs for e-signature; quick approvals; POS being more affordable, which happened with the switch from PCs to less-expensive Android devices; more gateway options; technology, in general, has changed the business for good and bad.

Merchants have more options than ever. Shoppers can use their phones to pay, tap and pay, etc. The acquirer side is a bit complicated due to mergers and acquisitions reducing options. And some companies bought by PCs and VCs changed how they do business, and only sometimes for the better. Most investors need help to understand what they buy.

Example: Company A buys Company B and finds out they have a few merchants selling "adult toy/novelties" seemingly harmless. Then they get a call: "We can't process for these merchants. Please move them ASAP, or we will turn them off. We don't care that the previous company processed them for the last seven years."

Or an ISO changes their bank, and that also causes the merchant to get either shut off or told to move with a 10/30-day notice.

The technology has helped us close more business and do it more efficiently. Also, working with that tech pre-COVID helped us because we didn't have to make many adjustments. We were already doing video meetings, video/screen sharing demos, and closing business with e-signature apps.

3. Fintech and Payfacs have disrupted our industry and will continue to do so. Regulation: The U.S. Congress needs more clarification on the payment system, how it works, and that there is plenty of competition. Senator Durbin and his cohorts want to gang up on Visa/MC and lower interchange with no understanding of what the results will be.

In my B2B Vault podcast, we've discussed this a few times. We'd love to have Senator Durbin on the podcast or get an invitation to DC to explain the business, let them know the healthy level of competition today and that business owners/merchants have more choices than ever.

Regulation will not help small business owners because the price to process payments will stay the same for them. Large companies like Walmart, Amazon, etc., will benefit because they have the money to do routing, etc. They benefited most from the Durbin Amendment, while small-ticket merchants paid more for processing.

Regulation: Consumers will be the biggest losers. They will pay more for banking and have less access to credit; rewards, points and cash back will be gone. Australia and the EU did this; the end results weren't good for consumers. If the government were to regulate interchange, this business has many smart leaders who would change the pricing model to hardware/software-as-a-service with fixed costs. That would end up changing the business, though that model has been around for a while. Or they could change the name of the fee; a percentage could be charged for using the "hardware and or software."

When the government makes rules, businesses make changes to protect profits, so the outcome is that business always wins.

4. I often get calls from agents asking for advice. Here are a few things I tell them: Answer your phone. Answer emails. Keep your website updated; even if you're a single agent, you can at the very lease have a landing page. Consider sending a newsletter to your merchants monthly. Read contracts and pay a lawyer a reasonable fee to read it. Learn a new skill.

Have a LinkedIn profile and company page. When you go after a larger merchant/business, they will go to Google and look you up. We are in the digital age; potential customers will look at reviews. And other info about your or your company. Many will not agree with this, but our biggest competition is coming from the internet.

Justin Milmeister, CPP, Elite Merchant Solutions

1. I officially joined the payments industry in early 2002. I was about a year into commercial real estate sales, and I was on a listing appointment with a fairly large retail shopping center. Upon finishing my appointment, I walked into a restaurant to grab something to eat, and the owner was there and said he couldn’t take my credit card for payment. He was visibly angry.

I asked why not. He told me his terminal has been broken for three days, and he couldn’t get through to the support number. He'd sat on hold for over an hour several times and eventually hung up. He grew angrier telling the story.

I didn’t think much about it until maybe three months later. A friend I hadn't seen in about a year and a half called me to go out. Last time we hung out he was selling cars at a Ford dealer and basically broke. He offered to pick me up and he drove up in a brand-new Porsche. I said, what the hell are you doing these days; he said credit card processing. About three months later, I started my own payment processing company.

When I started in the industry it was all about leasing terminals. Many companies weren’t paying residuals, paying just on leases to sales reps. In the “golden age” of payment processing, margins were much larger than today, and the competition was far less. Starting in the payment processing business today would be far more difficult now, because of severe competition, margin compression and the fact leasing terminals is virtually nonexistent.

I always said leasing kept the lights on while residuals were the pot of gold at the end. However, if a new entrant came with a unique product or software that filled a void with merchants, they could rise quickly and be profitable in a short period of time.

2. The first approximately seven years in the payment space, virtually none of the SMBs we targeted used software other than larger more upscale restaurants. When a rep signed a merchant, you would basically choose between three terminals, Hypercom T7P, Nurit 2085 or Verifone.

If it was an ecommerce merchant, we would select a gateway from a handful of choices at the time. Then came the all mighty Eclipse terminal that can do check guarantee and credit cards, which was cutting edge at the time. We sold a ton of those. Finally, much more sophisticated software came to market that filled merchants' needs and efficiencies at an affordable cost. Presently, a tremendous number of software companies have built phenomenal products that do it all, yet if a merchant wants to use their amazing product they must process with that company and nobody else. As a company, we've forged several relationships with software companies that allow third-party companies to resell their products, and we've forged strategic relationships with software companies to be their exclusive payment processing provider.

3. I have to be honest: the best thing ever for our company was the Dodd-Frank consumer protection act when interchange fees were capped on debit cards. Overnight, we had a huge windfall doing absolutely nothing because back then interchange pass-through pricing was not common for SMBs, so our cost went way down, and thus our margins skyrocketed.

4. I recommend going to at least one tradeshow a year, preferably two, to get a feel for what's going on in the industry and see new products and services being exhibited. If you sit back and watch the paint dry and think business today will be the business tomorrow, you will be closing your doors in a matter of time. Stay ahead of the curve. Try to be first to market a new cutting-edge product before the masses. end of article

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