Grow Your Merchant Processing Business
By Marla Knutson
In the past five years, the business climate for merchant processing has changed significantly. Profit margins are continuing to shrink and consolidation within the industry is at an all-time high. According to Mark Abbey, a partner with First Annapolis and a guest speaker at the recent Electronic Transaction Association’s Strategic Leadership conference, the top 10 acquirers have 40 percent more of the market share today than 10 years ago. Collin Rouse, a senior partner with GTCR, a major investor in the transaction processing industry, also stated at the conference that this growing trend in consolidation is no reason for small- to medium-size entities involved in merchant processing to succumb to the large processors. During the regeneration of the payment processing industry over the past 10 years, the small- to medium-size companies are in fact thriving and producing a profit because they understand the need and are more equipped to deliver value-added products and services to their customers. This same parallel exists today in banking.
In today’s competitive landscape, banks must produce more volume in order to realize the same profit margins they experienced just two years ago. The good news is that, today, small- to medium-size financial institutions have the opportunity to increase their profits and market share by delivering value-added products and services to their existing and potential customer base. These value-added products and services allow banks to equip their merchant customers with the tools they need to fuel growth and remain competitive, which in turn strengthens the bank’s relationship with the merchant customer and increases the opportunity for customer retention.
To grow their merchant account portfolio, banks must first stop concentrating solely on delivering merchant processing of Visa and MasterCard. Banks need to expand their merchant processing capabilities to include American Express, Discover, JCB, check services and pre-paid products such as gift and stored-value cards. By offering many payment-processing options on one terminal, PC software or Web product, banks are creating value for their merchant customers by offering them a full suite of products and services from which to choose.
A key ingredient to ensuring that a bank’s suite of products and services is not only complete, but also first-rate, is to select a payment-processing provider that understands price and value are not the same. Just as banks must understand the needs of their merchant customers, a payment processor must understand the market challenges and strong competition today’s financial institutions face, and provide them with the products they need to retain their current customer base, increase business and elevate their bottom line.
Not only should a bank’s payment-processing partner offer the latest and greatest products and services, but they should also help the bank stay abreast of the newest technology and emerging trends in the payment processing industry. By doing so, this will allow the bank to keep their customers up to speed on expanded payment processing options, and provide the bank with additional opportunities to further their customer relationships.
Over the past few years, the types of payment-processing products and services available have changed dramatically. For example, stored-value or pre-paid cards have evolved into a true payment form and are estimated to become a $347 billion business as soon as 2007. Visa estimates that the total number of transactions in 2003 that involved some type of pre-paid card totaled $2.1 trillion.
Pre-paid card users cut across the spectrum. Government entities use them to disburse social security, veterans’ and child support benefits. Businesses use them for payroll, incentive/bonus plans, flexible spending accounts, insurance claims, workers’ compensation, promotions, rebates and customer service. Some companies also use pre-paid cards to cover such things as petty cash, relocation, private and government purchasing and various other corporate expenditures.
Consumers use pre-paid cards for things such as online shopping, travel, gifts and teen spending, as well as numerous other general purposes. Customers understand they provide convenience and security. Retailers offer pre-paid cards to gain customer loyalty and promote future sales. In 2003, 97 million Americans paid more than $43 billion for gift cards and two-thirds of the users spent more than the card’s value upon redemption.
These are just a few examples of the numerous opportunities that banks have readily available to expand their product and service offerings and add real value to merchant customers. As the industry continues to evolve and become even more competitive, banks must be open to new ideas and solutions that can help them stay ahead of the competition and enable them to increase their merchant account business profit margins and market share.
Marla Knutson is president of TransFirst Financial Institution Services, a Dallas-based provider of transaction processing services and payment enabling technologies.