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Street SmartsSM:
Your banker doesn't eat here anymore

By Michael Nardy

I want to open with a few comments about the direction of Street Smarts and the new sponsorship by Electronic Payments Inc. (EPI) of this column. For the past year, and for two years before that, the National Association of Payment Professionals (NAOPP) and Ed Freedman, respectively, have worked to educate merchant level salespeople (MLSs) and bring up-to-date, relevant topics to the fore in their articles. Indeed, I also wrote several articles during my tenure as MLSO (merchant level salesperson organization) Director and Advisor of NAOPP.

Of the sections in The Green Sheet that are so crucial to ISOs and MLSs, the education section is one of the most read, dealing with industry updates, trends, new products, sales tips and tools and interchange information. I am proud EPI is now a semi-monthly part of this section, and I will continue to bring to MLSs different articles appropriate to the merchant services industry environment.

For my guidance in writing this column, I rely upon you, the readers of The Green Sheet, to suggest topics via e-mail and also respond to online postings that will enable me to see what direction to take the articles I write.

I will use your opinions and comments about certain topics in this column and build upon them to give an overall perspective. In preparation for previous articles, a question was often posted (on GS Online's MLS Forum), and your numerous and varied responses were used. That format will continue under my tenure.

In addition, however, I would like to devote several columns to an earlier article I wrote for NAOPP titled "Interchange Insights." It is essential to understand the nature of interchange and how, despite the size of some larger players, ISOs and MLSs can still compete on that level.

I entitled the first version "Part I" with the hopes of continuing the series as new developments in interchange take place and as you need new categories defined. I think this will be the most noticeable change this column takes, and I hope it suits you. As always, your comments and feedback will be gladly accepted. For this article, I would like to draw upon my background in history and, more specifically, banking history to give some thought to the recent trend in bank mergers and the addition of large acquirers to the banks' portfolio of services. In short order, you will also see where the title for this article comes from.

Banking in the 21st century

For many years, the growth in independent, community-minded banks gave rise to a new breed of banker, one which is local or right around the corner. In fact, the banks associated with the "Main Street USA" business climate of towns all across America were often a source of pride in that they could be trusted and understood local needs better than anyone, certainly better than the big national bank with thousands of branches that just moved into town.

This also was true of MLSs, and it is still true today. The same cannot be said for your "local" bank. The first widely known bank merger took place in 1930 when Chase National Bank bought out Equitable Trust Co. From then, the merging and acquisition of banks has taken place at an almost whirlwind pace, especially in the last 25 years, to the tune of more than four major acquisitions per year.

Some of the largest bank mergers include First Union Corp.'s nine major acquisitions since the early 1980s, including its acquisition of Wachovia Corp. in 2001, after which it kept the Wachovia name; the BankBoston, Shawmut, Fleet, Summit and BayBank merger/acquisitions into FleetBoston, which was later (and finally) purchased by Bank of America (BofA) in 2004; and most recently, Capital One announced a purchase of North Fork Bank (which had earlier last year bought Greenpoint Savings) for $14.6 billion.

These mergers were no accident. Market share and market penetration are two key factors, especially when you consider BofA's purchase of FleetBoston, which gave BofA a lock in the Northeast (an area that had specifically seen numerous smaller, independent banks swallowed up earlier) and created the second largest bank in the United States with 33 million customers.

If there has been one method of operation by banks during the first five years of the 21st century, it has been "acquirer, acquirer, acquirer."

Bank mergers: So what's the point?

For MLSs, the previous tie-in to local community banks was a great feature to have as a method of bringing on new accounts. The local bank (where you also had your accounts, loans, mortgage, etc.) was a great source for leads and could look to you to keep the same hometown feel as a merchant service provider that the bank wanted to portray itself as having.

I suspect many of you have had numerous relationships with the local banks in your area, and they fed you leads, many times asking nothing in return. Early on, one bank told me, "Just service the accounts; that's all we want."

Two points to these bank mergers are affecting MLSs specifically. The first is that these larger banks have a bureaucratic hierarchy that is often difficult for single MLSs to penetrate, therefore cutting off many of the leads you were once getting. The second and more problematic is the access banks have to millions of customers solicited in every monthly bank statement that you, MLSs, don't have.

From the bank's perspective, merchant services is no longer something that should be sent to a local rep in the area; it is a revenue generator that can not only increase what the bank sees as an additional source of revenue, but more importantly, it also increases customer loyalty. Such loyalty increases revenue to the bank, and the bank sees less attrition as a result of offering peripheral services like merchant processing. Most importantly, it decreases the cost of acquiring new accounts because the accounts that the bank has obtained do not leave.

When leaving a bank requires payroll conversion, insurance conversion, direct deposit changes, new checks to be issued, mutual fund and other investment accounts to be transferred, potential 401(k) alterations, in addition to a merchant service conversion, the savings needs to be substantial to justify the switch.

Today, one of the largest threats to MLSs are bank M & As (mergers and acquisitions) as well as banks that are buying into processing companies (like BofA's acquisition of National Processing Co.)

When a bank has 33 million customers (not all of them are business banking customers), owning a processing company is a simple way to push out competitors by building that loyalty, decreasing attrition and lowering the cost of acquiring new accounts.

The essential personal touch

Consolidation of banks and their emergence into the merchant processing market will continue, but the question of how to sell against that is key in determining your success as an MLS. Focusing on the big national bank rather than on your own abilities as a local sales representative is a defeatist mentality.

Sell yourself, and let the banks' policies work for you. Let customers know that your chargeback fee can be waived, but ask when was the last time they heard of a bank waiving its $39 NSF charge? Ask customers if their banks are open on Saturday or Sunday or keep hours after 3 or 4 p.m. And be sure to ask when the last time their bankers ate at (or otherwise patronized) their establishments.

The fact is that larger banks fail to effectuate a local community attitude when each branch manager reports to a regional manager who reports to a division manger, and so on.

It is very simple for banking relationships to go sour, not because the local branch managers are bad people, but because their hands are tied by policies sent from officers above their heads. Many branch managers cannot, as I like to say, exercise the agility needed to make decisions on the fly or override corporate policies.

The Goliath nature of many larger national banks is what helps the David in every ISO and MLS sell against those banks day in and day out.

And if you think it's impossible to "beat the bank's rate" or convince merchants to move their business to you, just say, "I eat here twice a month; I bought my kids' school clothes at your store; I buy my office products from you; I get coffee from your shop every day; you did the plumbing in my house; I employ your sister as a secretary for my ISO office. When was the last time your banker supported your business?"

It's a sure way to highlight the growing differences between local service and a national presence, and a good way to let a bank sell against itself, giving you the successful close.

Some closing remarks

I hope you will enjoy reading this column for the next year as much as I will enjoy writing it. The payments landscape constantly changes, and I am glad to not only be part of it as the owner of a large ISO, but also as a contributing writer for a publication such as The Green Sheet.

Your questions, comments, suggestions and ideas can be e-mailed to me any time, and I am open to everything that comes my way.

I'm especially happy that I finally get to use what I went to college for; those English professors who told me I'd never be a writer and should go into the merchant services business, well, at this point, I don't know what they would say!

Michael Nardy is Chief Executive Officer of Electronic Payments Inc. (EPI), a founding sponsor of NAOPP and one of The Green Sheet magazine's Industry Leaders. EPI is one of the nation's fastest growing privately held payment processing companies offering ISO and MLS profitable partnership programs and cutting edge tools to help their portfolios grow. To learn more about partnering with EPI, visit or contact Nardy directly at .

Article published in issue number 060401

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