By Jeffrey I. Shavitz
Charge Cards Systems Inc.
The marketplace is changing daily for ISOs and merchant level salespeople (MLSs) as our industry grows increasingly competitive. And traditional neighborhood retailers are overwhelmed by salespeople offering to lower their already competitive interchange plus pricing programs with "interchange negative." (I write "interchange negative" sarcastically to illustrate my point that ISOs are now giving away pricing to earn new merchant accounts).
As for-profit companies, we deserve to earn money for our services, and I'm always shocked when the first question asked to a salesperson is, How many deals do you write monthly? Rather, the appropriate and much more relevant question is, How much money are you increasing your monthly residual by? After all, profit and earnings should be our mutual goal.
Opportunities still exist to earn a fair and significant residual income in our industry. However, given the current market conditions, I suggest salespeople targeting traditional merchant accounts consider devoting a portion of their time to prospecting hard-to-place or, as they're commonly known, high-risk merchants as well. These merchants cover a variety of industries: travel, debt collection, furniture, telemarketing, start-up, MO/TO, loan modification, adult, nutraceuticals and many others.
Plus, in today's economy, owners of small businesses with average credit and Fair Isaac Corp. scores, as well as business owners who recently declared bankruptcy and are now starting new businesses (retail, MO/TO or Internet) may be considered high-risk due to their questionable credit. Merchants who were considered sound and would have been approved for conventional merchant accounts just a few years ago now fall into this high-risk category. Furthermore, most traditional processors and banks do not have the underwriting background, risk management capacity and business philosophy to accept these types of merchant accounts.
The value to an ISO or MLS is that profit margins for high-risk accounts are significantly greater than with merchants in the retail arena. A greater risk factor - due to chargebacks, higher returns and increased attrition - allows agents to charge higher rates and thus earn whole points versus basis points.
Certainly, I do not recommend that ISOs and MLSs who are concentrating on brick-and-mortar and traditional MO/TO accounts abandon these industries; however, I encourage them to consider spending 10 to 15 percent of their time prospecting to the hard-to-place merchant base and placing them with a processing partner experienced in these types of accounts.
Why? Because if they are fortunate to earn an account, it can yield the profits of 10 to 20 conventional accounts. A distinct vocabulary accompanies this industry space: Terms like rolling reserves, chargeback protection, e-wallets, redundancy, aggregation, coded accounts and cascading accounts are just some of many.
It's a different culture, but I believe there is a great opportunity in the next five to 10 years to continue generating significant business and residuals in the hard-to-place arena.
Jeffrey Shavitz, a member of the Green Sheet Advisory Board, is one of the founders of Charge Cards Systems Inc. He can be reached at 800-878-4100 or jshavitz@chargecardsystems.com.
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