Managing Merchant Processing Programs
By Robert Abate
Merchant processing varies in resource commitment, marketing support, pricing, potential revenue streams and, most importantly, recourse vs. non-recourse.
Financial institutions now recognize the need to outsource what was once solely an in-house service. Merchant processing, although a strong potential revenue generator, requires in-depth product knowledge, competitive pricing and responsive customer servicing.
The right partner or outsource candidate recognizes that this cross-sell opportunity is essential in solidifying existing clients and developing new business relationships. Consideration needs to be given to your partner’s pricing policy, market penetration, sales and technical logistical support and their ability to service your client’s specific needs. Their product portfolio should have a myriad of services compatible to that of your customer’s system requirements and processing methodology (i.e. software integration, Web-based services, multiple terminal users, wireless, etc.).
Your partner should also have representatives that enhance the bank’s image and are able to call on existing and potential DDA relationships with both the branch manager and business development officer.
The processor’s methodology should always recognize that it is five times more expensive to acquire a new customer than to retain an existing customer. Therefore, it is necessary to maintain an ongoing relationship through communication and periodic visits. This process allows the processor to continue to review pricing, customer service, new products and discuss future growth plans. The residual benefit of this marketing approach prompts many clients to give referrals.
The processor’s mission is to enable financial institution partners to retain and solidify commercial client relationships while generating a viable, incremental revenue stream through merchant processing. Programs should be tailored to meet this goal by providing significant marketing support and an array of products and services that makes a difference.
Today’s marketplace is fast-paced, aggressive and highly demanding. To compete, financial institutions need a transaction processing partner that not only responds to what the industry demands, but anticipates industry challenges and develops customized processing solutions that promote long-term growth and profitability.
WHY MERCHANTS CHANGE PROCESSORS
Escalating costs, unaccountable fees, evolving state-of-the-art technology and an increasing need for flexibility and customization are just a few of the many reasons why merchants must evaluate existing processing relationships.
Credit and debit transaction processing is a critical component to a merchant’s overall operational landscape, demanding significant time, money and resources. With that in mind, a quality processor’s experienced team should work with each merchant to determine the most appropriate and meaningful processing program – one that meets unique requirements, maximizes efficiencies, streamlines processes and reduces costs in an environment that demands nothing less.
CUSTOMER SERVICE AND TECH SUPPORT
A major factor that separates one processor from another is its customer service and technical support staff. Experienced operations and point-of-sale professionals, along with their representatives, make it easy for merchants to start, maintain or expand their processing program.
Beginning with start-up, they should assist the merchant in analyzing current requirements and provide all the necessary staff training. When a processing program is ready to begin, they should develop a point-of-sale plan tailored to meet the merchant’s particular requirements, including detailed implementation schedules and training procedures that ensure smooth, orderly and timely transitions.
Also available should be 24-hour support and assistance, seven days a week via a “Help Desk” toll-free number. Highly trained staff members should be able to instantly diagnose and resolve any communication problems or hardware malfunctions.
With high “buy rates,” some merchant processors and independent commissioned sales people are unable, in many cases, to satisfy that DDA relationship the bank wants to acquire or maintain. In that event, opportunities are lost to provide the many services and products the bank hopes to offer.
Additionally, many processors neglect to educate the merchant on the hidden fees that they can incur or to assist the merchant in recognizing how to cap, limit or avoid these charges (i.e. mid-qual, non-qual, surcharges and downgrades). Furthermore, the intrinsic value of helping the merchant upgrade to integrated processing solutions for PC usage, practice management software, Web-based Internet services, accounting software, etc., is also an area in which most processors are remiss in bringing to the merchant’s attention.
The processor should establish a true partnership with its client banks. As opposed to giving back basis points that amount to very little because of low discounts, remuneration should be based on all fees, hardware and peripheral services generated by your merchant portfolio.
THE CONVERSION PROCESS
Unlike individual merchant locations, financial institutions may use more than one processor for processing their merchant’s credit card transactions. This unique ability offers banks the ongoing opportunity to compare one processor’s level of service and pricing to that of the processor currently in place.
In other words, if you really are not totally satisfied with the processing company you are currently with you can select another processor and utilize them at the same time to determine which works best for your bank.
Once that final selection is made, all merchants should be reviewed on an individual basis and all facets of the relationship weighed and considered. A detailed, timely conversion and marketing plan should be presented to eliminate unnecessary confusion and to accomplish agreed-upon goals.
After the initial conversion plan from your former processor, your new partner should recommend that a complete and thorough review of all commercial DDAs be performed. This process will allow both bank and processor the ability to select applicable prospective merchants for card processing. At the end of this task, a mailing can be formulated and sent out by regions.
The object of this effort is two-fold, in that DDA commercial accounts that are currently processing with another financial institution create a degree of vulnerability because these commercial accounts may switch banks entirely. Secondly, with commercial DDAs currently with the bank, it is most probable that 10 percent to 20 percent of this group is either currently accepting credit cards (through another processor) or are applicable candidates.
A smooth and orderly conversion with a processor who has had experience in bank conversion offers you the best chance to assure that your goals are accomplished successfully.
THE PROCESSOR’S COMMITMENT
Registered member service providers of Visa and MasterCard have a continuing commitment to provide their clients with the most cost-effective, responsive and reliable transaction processing program within the industry. Unfortunately, many processors are simply sales teams, commission-oriented and using a bank to create an entrée into DDA relationships.
Caution must be given as to the agreements your merchants are asked to sign, penalties for non-compliance or cancellation and hidden fees that are not discussed with the merchant. The many interchange levels require specific line-item pricing to eliminate downgrades and surcharges. Most processors will not be specific in their merchant pricing categories, thus prompting these erroneous charges that earn the processor revenue that is neither shared nor identified.
A processor should be thoroughly examined and proven in the marketplace. A processor should have an extensive service menu, industry experience and ability to utilize all resources when designing a customized and innovative solution to meet and exceed the requirements of your clients.
The essence of your due diligence and referral requirements are necessary to confirm their management’s commitment to service excellence. Their commitment should be consistent … the dedicated servicing of your client’s specialized needs.
Robert J. Abate is executive vice president of NationalCard Processing Systems and is responsible for the agent bank program. He is also a former Consumer Credit Committee chairman of NJBankers (1986-7 and 1992-3) and is well known throughout the New Jersey banking community with an extensive prior career in New Jersey banking, including serving as senior vice president of National Community Bank. He can be contacted via e-mail at email@example.com.