By Paul Hunter
Sterling Payment Technologies
For the past 10 years or so, while larger merchants have been taking advantage of the benefits of complex integrated payment systems, most small to midsize merchants have been limited by the electronic cash registers (ECRs) they've purchased off the shelf at big-box retailers.
But now, thanks to wider acceptance and the declining price of electronic cash register technology, smaller companies can afford integrated payment solutions and enjoy the business intelligence of more sophisticated systems.
This shift is advantageous for smaller merchants, but it has created a challenge for some ISOs. "We were selling terminals but a lot of our competitors were giving terminals to merchants when they signed up for credit card service," said Hiram Hernandez of First Capital Payments in Rochester, N.Y. "It was getting harder for us to sell terminals when our competitors were giving them away."
First Capital Payments was not the only ISO to feel the pinch. "When POS resellers started selling credit cards, we lost revenue sources for selling equipment," said Darrell Story, Office President of My Credit Card Agent in Killeen, Texas. "In the span of about six months, we lost 120 accounts to resellers."
To adapt to this new landscape, First Capital Payments, My Credit Card Agent and other ISOs have became authorized POS resellers or have purchased POS businesses so they can provide integrated payment solutions to merchants, along with equipment and support.
"We had to find a different way to approach merchants," Hernandez said. "Offering integrated payments allows us to enhance the conversation. Instead of just discussing terminals, we can now talk about things like how to control inventory, reduce over-ordering, and decrease theft and fraud."
There are two major benefits to ISOs and merchant level salespeople (MLSs) who add integrated payments to their businesses. First, this approach creates new recurring revenue streams while adding more product payment types.
For Jerry Faith, co-owner and Chief Operating Officer of ISO Transpay Solutions in Louisville, Ky., purchasing a company that offered POS systems created valuable new revenue streams. "We are selling equipment and hardware as top-line revenue now," Faith said. "And we are adding programming, maintenance , service, and paper for the POS systems, and then the credit card processing and gift and loyalty cards."
My Credit Card Agent has enjoyed similar success. "By offering integrated payment solutions, we've brought on other items merchants need, like surveillance, text inserts and Internet," Story said. "We've also added billable services in providing regular service to the registers."
Second, this approach battles customer attrition. Attrition is one of the biggest costs for ISOs and MLSs. One way to help merchants succeed and offer value is not to drive the price down, but to continuously provide solutions. "POS systems save merchants time, which saves them money," Faith said. "By offering integrated solutions, we've become a consultant in their financials and day-to-day operations."
J.R. Studle of South East Card Services Inc. in Pompano Beach, Fla., is an ISO who became an ECR reseller in order to "stymie" the competition. "Most merchants in Miami get visited by salespeople almost daily," Studle said. "Many of our competitors doing the cold-calling only know how to claim they have lower rates.
They see the register and integrated solutions we've provided, and they don't know how to offer anything better. The register is a means to an end - the integration itself is what keeps merchants wedded to us."
ISOs and MLSs who are becoming authorized POS resellers are concentrating on the biggest market segment of merchants with an ECR need - those who now are essentially using calculators on top of cash drawers with older, stand-beside credit card terminals.
"You have to recognize you're not going to easily take business from an integrated system," Studle said. "You do need to concentrate on the less sophisticated merchants and explain to them why their current cash registers are costing them money, let them tell you what their problems are, and then consult with them about how an affordable ECR can help."
For ISOs considering becoming authorized POS resellers or purchasing a POS business, consider the following three tips:
Rather than taking a "shotgun" marketing approach lacking rhyme or reason, identify merchant niches currently operating unsophisticated cash registers and concentrate efforts there.
For example, Transpay Solutions has recently seen good results by marketing directly to liquor stores.
"Most small liquor stores have small cash registers without the ability to scan," Faith said. "We are able to provide an affordable integrated system that works with equipment they're used to and also provides the ability to scan and have back-office reporting."
ISOs who find a niche and then learn about that industry to better meet those merchants' needs are often the most successful. "It enhances your credibility as a salesperson when you can intelligently discuss the merchant's business," Studle said. "Merchants are more willing to confide in you about their challenges and listen to your advice."
South East Card Services, for instance, targets small restaurants, cafes and fast-food merchants; it also focuses on small Latin supermarkets. Studle and his partner have a good handle on how to package, pursue and set up ECR systems that fit these merchants' unique needs. This also enables them to have more productive conversations with merchants.
2. Learn how to support the products so this line of business can become a profit center.
Because customers are looking for solutions, it is important that ISOs and MLSs seeking to become resellers go through product training to understand exactly how the systems they will be selling can help merchants. Make sure the company backing the product you're selling understands the challenges of the end-user and can help you communicate solutions to your merchants.
"You want to train with someone who knows what the merchants need to know about how the products affect their businesses - getting people through checkout faster, preventing theft, pulling reports at the end of the day," Faith said.
Keep in mind that ISO owners can always hire someone to become the expert on the integrated payment products and to do the programming, training and installation with the merchants. "There is a learning curve on learning new equipment and it can get a little time-consuming, but it's not that hard," Story said.
3. Find a product that combines a register with integrated payments.
"I'd recommend that most ISOs work with products where the initial hard work has already been done," Studle said.
Take advantage of others' research efforts and best practices to maximize effectiveness. Rather than spending countless hours trying to piece together ECRs and integrated payment solutions for small and midsize merchants, ISOs considering becoming resellers should look for products that already combine the two.
"Not having to go to 15 different companies and sorting through thousands of software options to piece together the right mix of equipment and payment products saves a ton of time and money," Story said.
In addition, working with a processor that understands integration trends and has invested in support programs to help get ISOs and MLSs started is likely a smart move.
Smaller merchants can now afford ECRs with the high-tech features that large merchants have been enjoying for years. It's good news for smaller companies, but it changes the game for ISOs and MLSs.
Giving POS systems away to get the processing destroys a valuable revenue stream for payment professionals while lowering the perceived value of their services. It may be a smart move for some ISOs to consider becoming authorized POS resellers or purchasing a POS business so they can provide integrated payment solutions to merchants.
"If some of us don't make this jump in the industry in the next five to 10 years, I don't think you're going to be in the industry, because of integrated payments," Story said. I agree. Do you?
Paul Hunter is President and Chief Executive Officer of Sterling Payment Technologies, a national company based in Tampa, Fla., offering a complete range of payment processing services to merchants, including credit, debit, fleet, gift card, rewards and loyalty programs, electronic benefit transfer (EBT), and check authorization and acceptance. Contact him at paul.hunter@sterlingpayment.com.
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