Thank you for inviting me into your office by way of this article. I promise to keep this brief, but valuable. In fact, I don’t think you will finish your coffee before you finish this article. However, I do think the content will prove valuable enough to pay for that coffee a few times over. So why I am here…
Merchant Processing: A Necessary Evil?
Let’s be honest. The merchant processing industry is wrought with aggression. Your merchants are bombarded on a daily basis with requests for rate reviews. The sales approach seems pushy. And if you want your merchants’ processing business, you run the risk of putting your bank in a sales model over a service model.
Not only is merchant processing an aggressive market, but it’s a complicated one as well. We’ve determined at our office that it’s just like providing insurance: the buyer feeling highly involved in a transaction but not highly interested in the service. Phrases like “basis points,” “EMV,” “PCI,” and “virtual terminals” are thrown at the business owner so quickly, that they feel overwhelmed. Meanwhile bankers’ heads are full of words like “compliance” and “liability shift.”
No wonder Square has become so popular. No monthly fees. Plug and play. Slick. Sure the processing rate is a bit higher, but what business owner won’t pay a little extra for simplicity?
How can banks compete in this market? By being smart about their merchant services partner.
What should banks look for when choosing a merchant services partner? I’m glad you asked. Because that’s exactly what I’m about to discuss.
Does your financial institution partner with an ISO or Direct Relationship?
ISOs (or Independent Sales Organizations) have developed a bad reputation. Many ISOs are small companies without the infrastructure to deliver on their promises. If the ISO owner is out of town, they often delay returning phone calls when there is a problem. This leaves the merchant with a somewhat bad taste in their mouth and can often make the direct relationship seem more appealing.
Direct relationship to merchant banks can work in many cases. But it has been my experience that direct relationships put a heavy burden on the bank to not only maintain a high monthly app count, but to do so in a way that makes sense for the merchant bank – not the community bank. The risk with direct relationships appears when a community bank wants to market merchant services in a way that makes sense for their community, not the merchant bank’s bottom line. For example, if the bank wishes to bundle the merchant services offering, that can take longer to bring to the market than the merchant bank is willing to accept. And hidden fees become less hidden…
So what’s our alternative? I recommend looking for an ISO with a strong history in the industry. Consider factors likes: How long have they been in business? What types of industries are the willing and unwilling to support? What’s their risk tolerance? Who owns the risk? Financial stability and strong reputation will be essential to ensure that the long-term relationship with your merchant is protected.
Good ISO relationships can provide a lot of direction to a merchant without being loyal to one specific merchant bank. They can also pull from a variety of processors in order to integrate with any existing technology platforms (addressed in #3). This also translates into more options for riskier merchants.
Does your merchant relationship offer Level 3 Processing?
One of the hottest pricing structures in today’s merchant processing industry falls in the world of Level 3 pricing. Level 3 allows for lower processing fees in lower risk environments – specifically B2B environments using p-cards (purchasing cards) or corporate cards.
While a transaction in a retail environment might capture 3 points of data, a p-card or corporate card contains 26 additional fields of data. This means that by capturing that data, Level 3 processor can lower the merchant’s fees.
If you are a bank that cannot provide Level 3 processing for its B2B merchants, you are not offering them the best in modern payment pricing!
Payment Processing AND Payment Logistics?
When you consider the variety of payment technologies and payment processors on the market today – it’s kind of a blood bath that leaves many merchants confused.
The merchant might like software A and processor B – but because of certain agreements, those two don’t play nicely together. At that point, merchants get frustrated – not only are they not able to get the set up they want, but now that have to do even more research to find a solution that will work for all parties involved.
When you’re looking for a merchant processing partner, it is smart to consider the technology platforms that come with the processing. Does the processor write its own software? Does your processing partner play well with others for an optimal merchant experience?
How’s that coffee coming? I don’t want to take up much more of your time. I’m just here to make sure we’re all maximizing the client experience. Go ahead – highlight some interesting thoughts or questions you might have. You can always contact my team if you have any additional questions. Next coffee is on us.