hat's in your portfolio? Where do you go to sell the products and services you represent? Who are your customers? Do you understand the various ways all those different merchants do business? Do you know how those businesses run? No business in any industry operates solely on its own.

The concept of doing business depends on relationships of supply and demand, of providing products and solutions that fill needs. Customers depend on merchants and vendors to supply goods and services who in turn are customers themselves of other vendors, and so on.

This is especially true for the financial services industry, which makes it possible for all other merchants to do what they're in business for: accept payments from customers. No matter where those transactions are conducted - whether it's a retail customer buying something at a store, a business paying monthly invoices, or a bill-payment service taking cards and checks online - providers of financial services enabled the transactions to be completed.

It's easy to get wrapped up in the intricacies of how our own industry works - it's certainly complicated enough. Which makes it all too easy to lose sight of the basic rule of business: Know your customer.

Are you as aware of what's going on outside the world of payment processing as you should be?

There are organizations outside the realm of financial services that influence the way your customers do business and, as a result, affect the products and services payment professionals offer them. Trade organizations exist to promote the industries in which their memberships work. They also educate, lobby and analyze issues that affect their members.

The Food Marketing Institute (FMI) is one such organization. Representing the retail and wholesale food industry, FMI focuses on independent and chain grocery stores, which comprise one of the largest groups of merchants. FMI has 2,300 retail and wholesale members representing 26,000 stores (some of its members are chains with multiple locations) and a combined $350 billion in annual sales.

From the Merchant Level Salesperson's perspective, that's a considerable amount of transaction processing. It's not hard to figure out that there's gold in those shopping bags, paper or plastic.

Ted Mason, FMI's Director of Electronic Payment Services, Network Services and Emerging Technologies, said it is the organization's role to study, rather than recommend, technologies used in grocery stores. Committees are formed to oversee specific areas, such as legal, government relations or food safety. Committee members examine these issues and listen to comments from FMI membership to learn about trends they may need to be aware of for further study.

"Our basic goals are education and being proactive for our members," Mason said. "The business of doing business has become increasingly complex as we've gone from a system of barter to a cash matrix. We look at how we can help the food industry serve their customers. We accomplish that through research, reporting on the results as well as on trends and then facilitate solutions. We see wherever there is that need to get people talking and then serve as the middleman.

"We don't make recommendations on issues. Through our committee structure, we pick up on trends and look at issues and then key off the direction the committee members follow to dedicate priorities and resources toward educating our membership."

Mason is a member of FMI's Electronic Payment Systems (EPS) committee, which oversees relevant topics affecting the exchange of money for grocery items. The methods people have available to them to use when paying for groceries are increasing all the time, and it's important that FMI's members have a good grasp of what they are.

"The EPS committee is very active in the education process and in managing those people learning," he said. "We seek input for things high on the radar screen and engage in the dialogue process."

By surveying members and by conducting studies of issues the members bring to the forefront, the committee is able to pass on information. It also is able to synchronize data between suppliers and retailers. For example, Mason was involved in producing a recent white paper on possible directions for future POS solutions. Mason said associate membership opportunities in FMI, for businesses not directly involved in the grocery industry, give access to the organization's publications and conferences.

Mason knows both electronic payments and the grocery industry well; he grew up working in his father's stores and spent 17 years stocking shelves, bagging groceries and ringing up purchases. He also spent seven years in retail technology services with a large wholesale distributor.

He's been able to apply an important aspect of his experience to his role at FMI and involvement in electronic payments - an affinity for the Merchant Level Salesperson because of the respect his father showed the sales reps who called on him. "One thing I learned from my father was that he always listened to salesmen and their pitches," Mason said.

The business of selling food and the business of paying for food have long gone together to create a symbiosis of purpose, influence and innovation for each industry. People always need to eat. Devising new ways for them to quickly and securely pay for food at the cash register, while keeping transaction costs down, has meant POS equipment manufacturers and service providers have had plenty to do over the years.

The grocery industry not only has a huge transaction volume but also has the lowest net profit margin of all retail businesses, Mason said. Simple economics has required payment services providers to offer services at lower costs to process purchases paid for with credit, debit, checks, and more recently, through EBT programs.

Necessity is often a catalyst for innovation. Because of the number of transactions that take place at grocery stores and supermarkets, payment processors have responded to what the industry needs. More customers going through checkout lines than in any other type of retail environment have created a need for POS systems that can handle the volume accurately, quickly and inexpensively. While always staying neutral and never really recommending one solution over another, FMI has been involved in those developments and the interaction between the payment and food-distribution industries.

A good example of FMI's approach is a study it conducted and reported on concerning retail transactions. In order to provide its members with tools to analyze what's going on at the point-of-purchase, FMI conducted the activity-based cost survey of payments transactions in grocery stores and published the results in 2000. It looked at transactions by payment type and dollar volume to identify frequency and costs associated with processing the various payment forms.

The study was undertaken because as retailers are eager to improve customer service and convenience for their shoppers and, as more and more of them are accepting various electronic forms of payment, concern over how much those payments cost them is rising. FMI set out to accurately assess the operating costs so its members gain an understanding of how much they're spending for all payment types.

The results indicated use of electronic forms of payment is growing but cash is still the most commonly used form of payment, comprising 39% of all transactions. Checks are second at 33% followed by electronic transactions at 25% and online debit and credit and offline debit cards, both at roughly 12%. Electronic benefits transfer (EBT), food stamps and WIC (Women, Infants and Children) transactions combine to make up about 4%.

When payment types are broken down by dollar amounts, though, checks come out on top, comprising more than half of the total dollar volume. Cash is only 17% of the dollar volume, which seems to indicate there are a lot of consumers making a lot of small purchases and using paper and coins. Paper food stamp dollar volume is less than 1%. The combined electronic payment dollar volume for EBT, credit and debit is 31%.

The retail payment study benefits both the grocery and payments industries, Mason said: "I wanted to get an industry message out there. This collaborative effort brings together two interests with common needs and engages them in a dialogue."

Along with fostering dialogues among retailers and other industries, FMI produces a number of trade shows each year covering various issues within the industry, provides a wide range of information and assists members with education through the Web site (www.fmi.org) and several print publications.

FMI has about 125 people on staff in Washington, D.C., as well as regional directors located throughout the United States. (Two hundred to three hundred members from Canada, Asia and Europe also participate in the organization.) Mason said another role the organization fills is to establish relationships at both state and federal levels, providing assistance and acting as intermediary between members and government agencies.

FMI's Marketechnics trade event is another way the organization fosters communication among industries. This annual show focuses on retail technology issues, many of which, logically, involve payment processing.

Mason said the most recent Marketechnics, in February 2003, attracted 5,000 people. "The show covers all technical systems that support the food distribution industry, from refrigeration to cash registers, including payments," he said. Next year's show will feature expanded participation from payment vendors and expanded space for exhibits, including biometrics and radio frequency identification, smart and other card technologies, and electronic payment systems.

Mason said that conferences and trade shows such as Marketechnics and the FMI Show and Fancy Food Show, which take place in May and are held in conjunction as "one grand show for the food industry," also offer excellent speaking opportunities for people in the payment industry. Again, the focus is to generate cross-awareness and open the door for communication.

Mason was a contributor to a white paper published by FMI's EPS Committee in September 2002. The document details the committee's findings on future concepts for the next generation of electronic payment systems and the possibilities for moving from mag stripe cards to biometrics, smart cards and ACH. While several technologies and methods are examined in the paper, the EPS Committee stops short of recommending one over another. It supports the notion of a cooperative design initiative between retailers and payment vendors to create affordable, easy-to-use solutions that are profitable for manufacturers.

According to the committee's findings, the most essential element in developing new payment concepts is to make sure terminal manufacturers listen to what this large constituency of retailers - their customer base - really wants.

The white paper says, "Care must be taken in clearly defining retailer wants and needs without overreaching and creating a vacuum where products may be produced, yet no one buys. The core design of next generation terminals should include the ability to add modules incorporating new technologies as they gain acceptance."

Because cost is a major concern for grocers - the potential buyers of the new equipment - the EPS Committee recommended the development of solutions that fill present needs and are easily expanded and adaptable for what's coming in the future. The white paper concludes by suggesting that next generation terminals might feature "plug-and-play" technology, making it simple for non-technicians to add functionality.

On the flip side, FMI is likewise involved with financial services organizations because the collaboration between retailers and vendors is essential for dialogue and the innovations that result. For example, Mason said, FMI has been part of NACHA's "vibrant supermarket constituency" for five years. He has been involved in setting standards for ANSI 8583 rules and activities concerning mag stripes in the EBT arena; he also chaired an EBT workshop that drew up standards documents and looked at national messaging standards.

Getting to know the customers in your portfolio means knowing the industry they operate in as well as the trade organizations that serve them. Getting involved in those organizations will only benefit your sales potential.

As Mason said, "There's been a tremendous explosion in ways we have as consumers to pay for goods and services. Our job is to assist in managing that matrix for the lowest net-profit industry and to help develop reliable and cost-effective solutions. Most important, our job is in letting people know what's out there."

Food Marketing Institute

655 15th Street NW

Washington, D.C. 20005

Phone: 202-452-8444

Fax: 202-429-4519

www.fmi.org