Considering Check Guarantee?
If you are one of the organizations that is considering adding Check Guarantee to your sales process, or are perhaps thinking about moving from one Check Guarantee service provider to another, then this information may be helpful.
Why have a Check product in your service offering? :
The best answer is, because customers need it! You are, after all, interested in meeting your customers needs, and have established that your business provides payment system solutions. Since checks represent the largest share of POS payments and are continuing to grow, and Bad Checks are on the rise, you should be providing payment solutions for your customers.
According to Stores Magazine 1 when retailers were recently asked, "Have your stores experienced an increase in bad checks over the past year?" retailers responded, "Yes," 64.7% of the time.
In addition, research reflects the fact that checks continue to be an instrumental part of the retail payment system, accounting for between 23% and 24% of all retail sales, according to Chain Store Age magazine and the accounting firm of Ernst & Young, in their jointly sponsored 1996 survey.
Even Visa acknowledges that checks are the primary payment method in personal consumption, noting in their Bank Card Acquirers Workshop, in 1996, that checks are 45.2% of the Payment Share of Personal Consumption Expenditures.
There are a number of companies providing Check Guarantee and Verification services. Currently some 50 companies handle the outsourced authorization responsibility for either Check Guarantee or Verification, with a host of collection companies handling collections for retailers who are internally managing their own checks.
Given the risk management options available to retailers, the "Big 6" accounting firm of Ernst & Young found in their 1996 retail survey, that one in four merchants avail themselves of third-party verification or guarantee services, while another 16% say they use manual approval methods, and 13.3% have established an in-house system.
While this might seem like most of the opportunities to sell check services is already gone, this is certainly not the case. You might be surprised to find out that only 5.1% of the volume has been penetrated; only 8.1% of merchants and only 20.2% of all locations use Guarantee or Verification.
Looking only at the retail environment of some 4 million businesses, checks will represent nearly $5 trillion at retail of the $70 trillion that will be written in the U.S. this year, and all Guarantee and Verification providers combined will report numbers for 1996 that will likely not exceed $255 billion (see previous chart), leaving nearly 95% of the market open.
Finally, with regard to the need in the marketplace, in the Stores Magazine/The Reid System survey (see footnote on the front page) 64.7% of the retailers responded "No" to the question, "Do you use a Point-of-Sale Check Service?" while they also said "Yes" 64.7% of the time to the question, "Do you feel the greater protection offered by Check Guarantee Services justifies their cost?"
Given that by the year 2005 the number of checks will have increased another 20%, and the value of those checks will grow over $87 trillion, both the need and opportunity for Check Guarantee is obvious, but how do you find the best provider?
How should you choose a Guarantee provider, and what are the strategic and market considerations? :
The most important answer is choose a program that is most compatible with your existing sales direction.
Compatibility: Compatibility with the Check Guarantee service provider will be important to your long-term relationship. If your sales direction is not established retail, but rather new businesses, small retailers, seasonal, wholesale, or the Internet, etc., you need to be sure that your Check Guarantee provider will handle one or all of these market segments, or determine the amount they WILL handle. Also, be sure that they understand that the majority of your business may come from a particular segment.
Conversely, if your Check Guarantee provider is primarily focused on major accounts, you should determine if their customer service group will be able to handle your start-up or small retailers to your satisfaction.
Geographic: Your concerns should also include any restrictions as to where you can sell, as well as any pricing increases made by the service provider, when they affect areas that are primary to your sales focus, e.g., restricted states or "red-lined" pricing areas.
Considering other geographic issues, you should determine where initial and ongoing training will occur, and if your sales force is widely dispersed, you need to establish who will be responsible for travel costs and training materials.
Support: Since your organization will interact with the Check Guarantee provider's Sales Support function, as well as any technical programming group for account set-up, you should be concerned about whether they are the same employees who handle the Check Guarantee provider's own sales force.
In addition, if solicitation information is passed for proposals or special mailings, will your information be secure?
You should resolve your concerns with these or any other competitive issues, such as the fact that the check service provider may be a bank card competitor to your organization, by choosing the "provider" who can best meet your needs. But don't forget, the resolutions should be clearly spelled out in the contract.
Compensation: In the current marketplace Check Guarantee compensation ranges from a one-time payment to ongoing residual payments, or combinations of the two. One-time payments vary greatly and are generally based on the size and complexity of the account, but seldom exceed $10,000 per account.
Residual based payments range from 10% to 20% of the revenue stream (average is 12%), with higher payments tending to have shorter time frames or less reliability of continued payment. Failure rates among Check Service providers has been high, so you should check out the payment history, and ask for payment references.
"Life of the account" residual payments are available from a number of companies, many of which require either ongoing support or ongoing sales to receive ongoing payments. You should look for a "no requirements" arrangement.
Exclusivity: Your concerns should include any requirement for an exclusive relationship that is not bilateral. If you are being asked to give up your right to sell competing services, it should gain your organization control of some market or business type, or at least preference over the Check Guarantee provider's own employees.
Should you position Check Guarantee with your Customers and Sales Force?:
The number one answer in this case, if your organization hasn't previously sold Check Guarantee or if you are moving to a new provider, is don't start with your own customers.
The safe route is to let your sales organization make its sales mistakes, and they will occur, with new customers.
In terms of building a successful long term program, the most important ingredients are:
1. Sell the service to the Sales Force. Your sales professionals must understand why you are adding Check Guarantee, what you expect as results, and what is in it for them.
2. Provide initial and repeat training. Your seasoned sales professionals will resist training, in particular if they have previously sold a check product of any kind, even if it was years earlier, and perhaps even Verification. Some will tell you that they have forgotten more about selling products like this one than the sales trainer even knows, and that the time will cost them money. These are all good excuses of course, but it's product knowledge that is new to the process, and as much about what not to say or promise, as what to say, that will be important to understand. Shaping specialized programs that share risks and rewards between the service provider and the customers is more common today than ever before, so a canned approach is seldom the right direction.
3. Share the income with your sales organization. The most common reason that this is not done is that the ISO organization believes there is not enough money in the Guarantee service to share. Given the fact that the average bundled rate in the industry today is 1.30, and the average residual is 12%, it means the average rebate is nearly 16 points. In addition to the fact that this is comparable to the basis points that you have to share on your bank card sales, the sign-up fee for check guarantee is also generally more than for bankcard sales.
4. Provide contests for your organization. In the beginning, it is important for an organization that has been selling something else to know that reps are doing what you ask, that is selling the new product and making it work for them. The best way to make this clear and to reinforce it along the way, is through contest announcements. The announcement of the contest results says that, "Suzy Smith or Hot Shot Bo Bo Barnes are making sales, doing well, and earning money, so I can too."
5. Provide some level of "Check Only" leads. It is important that the organization learn that the product can be sold without the other things they do, and how to lead with Check Guarantee. As an example, it may be very hard to get in to see a major auto dealer about their bank card program, but quite easy to get in to pitch Check Guarantee. Once the sales organization learns that the products and services each have a "stand alone" strength, they will become more comfortable and find more opportunities to gain from each sale.
Finally, when you begin to launch your first or new Check Guarantee program you need to ask yourself the following, "Can I make a business case to my Sales Force for selling Check Guarantee?"
Make more money, Use Check calls to call back on Bank Card and visa versa, Trade check savings and/or Set-up fees to help close bank card deals, Sales rep. has more opportunities to make more money.
Given the fact that Visa and MasterCard are eyeing the 45% of the market that is not cash, credit card, Money Order, Travelers Check, Food Stamps, Preauthorization, or Remote payments, we can safely say that this market will be available for significant opportunities until checks begin to decline and/or debit costs significantly decline. Why are you waiting to participate?
This story is a portion of the information presented by me at the March 21, 1997 Spring Meeting & Exposition for the Electronic Transaction Association. Perhaps you should plan to attend the next ETA meeting scheduled for September 19-21, 1997, in Long Beach, California to learn more about this and other important industry subjects that will enhance your efforts as an Independent Sales Organization.
1 Stores Magazine and The Reid System, on-line survey, published January 1997. See Previous Green Sheet.
