The Green Sheet Online Edition
June 11, 2018 • Issue 18:06:01
Veritably valuable added services
Editor's Note: The following is excerpted from Dee Karawadra's Street SmartsSM column published in The Green Sheet June 25, 2007, issue 07:06:02. It was a time when value-added products and services were typically ancillary to payment processing. Today, technology is enabling merchant level salespeople to offer additional, powerful business management services; some have become more central to the sales equation than payment processing. To read the full article, please visit http://www.greensheet.com/emagazine.php?story_id=153.
Value-added products are getting more attention as the credit card processing market approaches saturation. They enhance a portfolio's worth considerably, bring more flavor to the product-offering table and provide an additional source of revenue to ISOs and merchant level salespeople (MLSs).
Additional obvious benefits to agents who offer these products include lower merchant attrition and increased margins due to packaged pricing. There is a wide selection available of value-added products and services, which are also known as value-added reseller (VAR) products.
I have picked some of the more popular ones to discuss in this article. In order to sell these, MLSs need to have a fundamental knowledge of the benefits the products bring to merchants.
Check service offerings have existed for a long time, but those who are new to the payments industry may need an explanation to better understand this product. There are several different aspects to check services:
- Check verification: This service compares information on checks that merchants receive at the POS against a central database, which verifies that there is no negative information pertaining to the accounts concerned.
- Electronic check transfer: The electronic check transfer (ECT) program converts paper checks into electronic items at the POS. The electronic item is then processed through the automated clearing house. Funds are automatically deposited into the merchant's bank account, which cuts paperwork and improves cash flow.
ECT combines the benefits of paper checks with the speed, safety and ease of electronic money movement. It delivers a streamlined check-acceptance program for merchants. The program requires that the customer writing the check sign a printed receipt authorizing the electronic transaction.
A copy is given to the customer (just like a credit card or ATM receipt). And the individual's bank statement subsequently displays the merchant name, amount of the transaction and settlement date. ECT transactions are authorized and settled similarly to credit card transactions.
- Check guarantee: Check guarantee is done right at the POS. The salesclerk simply enters the customer's information into the POS terminal or cash register. Within seconds, the processor authorizes (or denies) the check from its database. This quick process helps prevent merchants from losing customers whose checks are approved or from delaying them at the POS. The processor basically purchases the check for its full amount. If it does not clear, the processor will do the running around to collect the funds. Merchants gain guaranteed payment after approval per guidelines and can us it in conjunction with ECT or verification.
- Recurring payments: This service enables merchants to process customer payments by automatically initiating a charge to their checking account or credit card each time a payment is due. This allows merchants to control the timing of customer payments. It also enables them to schedule payments in advance, according to their cash-flow needs.
Many may not consider the ATM arena to be value-added, but it definitely is. The market for this involves fewer merchants, primarily bars, hotels and convenience stores. Residual revenue comes from two avenues: 1) the surcharge added to each transaction by the merchant – usually $1.50 to $ 3; and 2) revenue from the debit networks. Residuals are usually paid to the processor, which passes them on to the ISO after deducting the cost of the transactions.
ATMs may be placed at merchant locations in several ways. Merchants can buy or lease them, refill the money, as needed, and keep 100 percent of the surcharge. Merchants can also own ATMs but have an ATM service company refill the money. In this case, the surcharge revenue is usually split.
Another common option is for ISOs or MLSs to own ATMs for which merchants refill money, as needed. Surcharge revenue is generally split in this type of arrangement.
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