In recent years, new payment solutions from both industry insiders and outside tech startups, high-profile data breaches, venture capital investment, and unprecedented government oversight have increased public awareness of our industry. These factors, along with stepped up competition and margin compression, have caused numerous payment professionals to re-envision their businesses and seek solutions that help them serve in a broader capacity as trusted consultants rather than primarily as providers of payment processing. Given these changing conditions, what do you see as the latest, greatest innovation in payments that can take your business to the next level, and how do you plan to implement it? Following is the second portion of responses we received. The first group of answers was published in our March 14, 2016 issue; the third portion will be published in our April 11, 2016, issue. Thank you to the industry leaders who shared their perspectives here.
There is no doubt the payment processing industry has drastically changed since I started Elite Merchant Solutions back in January 2002. Any company in the payments space that thinks they can operate in the same fashion they did five years ago will almost certainly be on their way out of business. Previously, the offerings were relatively simple for the average small to midsize merchants. A sales rep would have a handful of point of sale terminals to choose from and would select a terminal to install at a merchant based on a variety of relatively simple factors that included the following:
If the merchant had software such as Micros or Aloha, you would simply provide a setup or VAR sheet to the software vendor and, in most cases, pay a nominal conversion fee and voilà, the merchant was up and running. If the merchant processed payments via online, a rep would select from a handful of popular gateways and, once again, the process was relatively simple.
Obviously, certain merchants required a lot more expertise and technical savvy; however, it was not the norm as it is today. The technology and offerings are so much greater today; we can no longer operate simply as a sales and servicing company to our respective merchants.
Today, we are technology companies constantly trying to innovate to get a competitive edge in a very competitive market place. All one needs to validate this transformation is to see the companies thus far in our industry that have been around for many years and have recently changed their respective names to identify as a technology company as opposed to simply a merchant service company.
When I talk to my fellow colleagues, a hot topic is always margin compression and "a race to the bottom," as some call it when referring to merchant pricing. Given there is no argument regarding declining revenues strictly from payment processing, companies must figure out ways to make additional revenue from other sources and/or provide merchants with services/technology that yield additional revenue and make pricing less of an issue.
For example, we have secured a deal with an early-stage technology company and, as I write this, are implementing this technology in a chain of high-volume grocery stores. The only reason this chain is switching to us is because of this technology and the value the CFO saw in implementing this technology into their stores.
They had better offers from a pricing perspective, but we were able to show this merchant tremendous value utilizing this new technology and, eventually, won the deal. I am very excited about this rollout, and if all goes as planned this will position Elite to win a lot of accounts at a margin that is still respectable, provide an additional healthy revenue stream, and the merchants are not likely to consider moving their accounts because of the benefits they are receiving from having this technology at their stores. This is a textbook win-win scenario.
Whether you are a seasoned veteran in the payment processing business or a new startup looking to make an impact, you have to be innovative and align yourself with the right companies who utilize cutting-edge technology.
Data has always been extremely valuable as it is vital when companies make decisions on an array of items. Now, with a swipe of a card and the appropriate technology employed, merchants can acquire a tremendous amount of data that can position them to be far more efficient and profitable than their competitors. It is mindboggling what data can be extracted these days and formatted to tell business owners invaluable information.
The best thing about technology is you don't have to be the creator to be a benefactor. At Elite we don't have an R&D (research and development) department as it is typically referred; we do, however, have an R&D (research and deploy) department, which means we research products and deploy the ones we think are going to be effective in winning sales for our reps.
The newfound appreciation and interest in the payments industry has caused payment professionals to think outside the box, and the terminal for that matter. Gone are the days when an ISA could walk in to a business and save a merchant hundreds of dollars a month in processing. Payment professionals are no longer competing with their local bank representatives, but the Squares and Stripes of the world. Even Apple and Samsung have moved in to the payments ecosystem.
With continued margin compression, new entrants to the market, and increasing regulatory scrutiny, diversification of services offered is more crucial than ever. Value-added services are expected to add 10.5 percent to revenue on average for processors in 2016. As merchants continue to become more savvy and accustomed to improved processes and technology in all other aspects of their lives, they are expecting the same from their merchant services partners. Payment professionals must become consultants in everything payments, not simply credit card processing; it is important to stay informed and always be looking for additional services to offer your merchant base.
It is not crucial to always be the first to offer the latest and greatest technology, but rather the first to implement good, solid solutions successfully. Having a comprehensive suite of features and services available that best fit merchants' business needs should be a key focus of any processor. Give your merchants a solution for everything payments, not just their interchange-plus rate. One of the biggest innovations that I feel will have a significant impact on both merchants and processors in the coming years is data analytics. Merchants are consistently looking for new ways to reach and grow their customer base. Knowing who their customers are, what they're buying, and when they're buying it seems like absolutely necessary information, but most small and mid-sized merchants lack tools to gather it.
With more solutions coming to market to fill that need, offering a data analytics tool for merchants will be a key revenue driver for processors either via a first-party offering or referral relationship. Something that a processor can offer a merchant with substantive value that allows them to protect and grow a business will go much further than shaving a few basis points off their fees.
Using elements of data analytics, like identifying customer behavior, is perfect for small and mid-sized businesses and will allow them to adjust marketing and offers to cater to their current customer base, as well as target new ones. Larger merchants can benefit even more from advanced tools like beacons and location tracking that can help identify trends of shoppers and customize mobile offers during the in-store shopping experience. "Data analytics" is a pretty broad term, but I think the real impact will be from processors that offer a viable, cost-effective solution for helping businesses grow and, in turn, allow processors to be less reliant on traditional processing fees.
Offering services like these, along with payment professionals positioning themselves to be consultants in the bankcard ecosystem, allows the commercial world to begin viewing merchant services providers as not just providers or service, but as partners in business development.
Technology improvements and service modernizations will continually grow and develop, but the real innovation is within the payment professionals themselves. Adapting and evolving from the "sale" to the "relationship" is the true innovation that will propel the payments industry the furthest.
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