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Table of Contents

Lead Story

Loyalty, the currency of choice

Ann Train

News

Industry Update

Disputes rekindled by Financial CHOICE Act

Barcode technology gets digital makeover

Home Depot joins chip-and-PIN protest

Aussie crackdown on card surcharges

Features

FICO pedestal cracking

Acquirer Earnings Roundup: May 2016

Mobile coupon tidal wave

ISOMetrics:
Restaurant patronage on the rise

Views

CFPB targets payday lenders: What's next?

Patti Murphy
ProScribes Inc.

Brexit doesn't mean UK will exit fintech race

David Poole
myPINpad

Will vaping go up in smoke?

Brett Husak
National Bank Services

Education

Street SmartsSM:
Shifting MLS strategies and models

John Tucker
1st Capital Loans LLC

Taking stock at mid-year 2016

Jeff Fortney
Clearent LLC

Five ways to combat attrition effectively

Aaron Nasseh
Finical Inc.

Guide to a successful portfolio acquisition strategy

Adam Hark
MerchantPortfolios.com

Company Profile

Traffic Jamming

New Products

Simple, secure cross-border payments

UP eCommerce Payment Solution
ACI Worldwide Inc.

360-degree solution for chargebacks issues

FPR-360
Chargeback Gurus

Inspiration

Finding opportunity

Departments

Letter from the editors

Readers Speak

Resource Guide

Datebook

Skyscraper Ad

The Green Sheet Online Edition

July 11, 2016  •  Issue 16:07:01

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Street SmartsSM

Shifting MLS strategies and models

By John Tucker

I recently polled GS Online's MLS Forum about my thoughts on phasing out old, outdated merchant level salesperson (MLS) approaches and rebranding to meet the demands of today's markets, which is the overall theme of Street SmartsSM during my tenure as the column's author.

First, I'll revisit my supposition regarding the need for MLS rebranding. From the 1980s to the early 2000s, ISOs could hire from hundreds to thousands of MLSs on 100 percent commission, throw them a couple terminal brochures, show them how to do a rate analysis, and give them a canned sales script coupled with 50 unrealistic objections to said canned script, and send them out to randomly cold call merchants in person or by phone.

Need for new strategies

This strategy no longer works due to three circumstances that existed previously that are no longer present today:

  1. The majority of merchants were unaware of most aspects of payment processing. Many still didn't accept bankcards as a payment option, but more and more of their customers were asking to use cards instead of cash or checks as a payment option.
  2. Banks and the card brands (bank associations at the time) neither resold card processing nor provided education on the service.
  3. The Internet was not widely available as an educational resource for merchants. So for most merchants, MLSs were the only people seemingly in America who knew anything about bankcard processing. The markets and territories were wide open. It's why you could get significant profit on a merchant account and lease merchants $250 terminals for $100 month for 36 months.

Thus, the old strategy is dead today, and any ISO still promoting it is setting its MLSs up for failure. However, not everyone agrees with me.

Healthy debate

Ted Kulongoski, the 36th Governor of Oregon, said, "A debate is healthy and no one in this chamber, starting with me, has a monopoly on being right." Surely, I have no monopoly on being right. I am grateful to have been selected to pen Street SmartsSM, one of the most respected educational columns in our industry.

One of the reasons I wanted to "quarterback" this column was because I felt the need to address topics related to MLSs that were not being discussed by our industry's media. And I am delighted that MLS Forum members are helping me move this spirited discussion along.

Born to sell

"Sales is not for everyone," MLS Forum member Steve Norell wrote. "Someone has to be a lawyer, doctor or garbage man. It is said time after time that the great salespeople are born, not made. Every successful salesperson believes that they can sell anyone, anyplace or anytime. That is what makes them great. That is why to a great salesperson there is no such thing as a cold call, even when it is [a cold call] by definition."

Forum member Dhessco offered a similar perspective. "I still believe that I could be dropped off in any town in the country and close a deal. Period," Dhessco wrote. "Not being arrogant, it's simply fact. For anyone that has been on the street selling should be able to do the same thing. Obviously not 'anyone' can do it."

Steve and Dhessco's perspectives are based on the notion that a good salesman is mostly born with the ability to sell no matter what circumstances or business variables are present. However, this means, quite frankly, that the following do not matter because a good salesperson will succeed because of his or her innate abilities: having to sell into bad markets or territories; follow up on bad leads; sell solutions that don't compete on price, quality or value; sell into over-saturated markets; and sell in markets where no demand for your product or service exists.

And following this line of thinking, the old way of selling would still be viable for MLSs. But this doesn't make sense. We aren't selling low dollar/low risk products, such as Girl Scout cookies or tickets to a movie involving costs from $5 to $20 (low dollar), and if the product is horrible, the buyer only loses $5 to $20 (low risk). We are talking high dollar/high risk products, such as merchant cash advances (MCAs), for which you need to have certain circumstances and business variables present before a merchant will even consider said product.

Market-driven sales

For example, 95 percent of my merchant customers who entertained an MCA had lower than a 680 credit score, with 15 percent under 500, 50 percent between 520 and 575, and 30 percent between 600 and 680. Based on national credit score metrics, anything less than 670 is poor credit; scores under 580 are considered very poor credit. Add to this the fact that the merchants were disorganized and had less than stellar cash flows or financials.

Unable to get approved from the traditional market, when a working capital need arose (such as an emergency or growth opportunity) such merchants had to seek an alternative product with a short "turn" and a high cost. My innate sales abilities didn't create this. What created it were merchants without credit/risk profiles solid enough to qualify for traditional products who needed a working capital infusion for their businesses. Being equipped with this information allowed me to tailor my marketing to those most likely to entertain my MCA. This is a far cry from the inefficient "random" cold calling methods that are promoted by far too many within our industry.

Technical, analytical pros needed

"What has always been so great about this business is the idea you can take any path you wish," Dhessco stated. "Some companies just decide to stick with one. Let's say I wanted my company Processing Solutions to only handle antique stores. I would create a point of sale software, integrate the payments, learn the pain points/current processes of said antique stores, and thus have created a solution geared toward this vertical.

"My employee sales reps would call upon antique stores, easing their pain with our wonderful POS. My company would essentially 'manufacture' a modern MLS according to your definition. The problem is that I only need to pay this manufactured sales agent enough to live modestly, such as pay rent, health insurance, student loan, Prius note, etc. … If I'm going to provide data, market research and all the tools to identify potential merchants, they are going to be hourly or salary employees tasked with defined duties."

This might be the only true solution to today's more complex marketplace, which requires more technical and analytical sales professionals. Maybe it's time we start backing away from the "recruit as many external (independent contractor) MLSs and see who sticks" model and more to the hiring of technical/analytical professionals on a W-2 basis, meaning they would be employees.

Shift to employee model

ISOs need to do more to equip their agents (whether they are employees or independent contractors) with the tools and resources that will allow them to succeed. These include information on complex issues; innovative solutions; market segmentation; market research; innovative marketing; strategic networks; and training on how to sit down and have a diagnostic, consultative conversation with a merchant by asking a series of tailored questions.

Maybe it's time for more hiring of technical/analytical employees, equipped with the tools/resources listed above, and to phase out the independent MLS contractor. This discussion along with my focus on rebranding the MLS will continue.

John Tucker is Managing Member of 1st Capital Loans LLC, as well as an M.B.A. graduate and holder of three bachelor's degrees in accounting, business management and journalism. Tucker also has over nine years of professional experience in commercial finance and business development. You can contact him by email at tucker@1stcapitalloans.com or by telephone at 586-480-2140.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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