By Marla Knutson
Today’s financial institutions have found a new focus to aid them in a competitive market while still being able to focus on their core banking products. This additional area of focus means many financial institutions now understand the need to outsource the sales of non core banking products. What they’ve learned in the process of outsourcing is enlightening – it’s not an exit, but instead an extension of their business. If done correctly, the company or processor that the financial institution uses can sell the bank’s ancillary products and bring in additional demand deposit accounts (DDA) and revenue in the process.
The Growing Imporance of Merchant Services
In the past, financial institutions were the only organizations offering merchant accounts and credit card processing capabilities. Even 15 years ago, only 34 percent of the financial institutions we interviewed considered merchant services very important. Today, merchant services have become increasingly important with more than 60 percent considering merchant services very important to their businesses. At the same time, the entrance of independent sales agents (ISAs) and organizations (ISOs) created several options for merchants. Today, competition for merchant acquiring is fierce and technology is constantly changing. For many financial institutions, it doesn’t make sense to compete at this level, especially when they can better spend their time on their core business such as increasing their consumer and commercial lending, expanding into new markets or focusing on their small or mid-size enterprise customers. The next question is -- how do you choose the right processing partner and what are the benefits?
The Ideal Relationship
Banks of all sizes can outsource their merchant sales program and see the benefits - you don’t have to be among the largest financial institutions. You should, however, be diligent in researching and choosing the right partner. Choose a processor that is well-established in the industry and has a good reputation for overall service.
You want a team of sales professionals that will exemplify your bank the way you would like to be represented and provide the same level of customer service that merchants expect from your organization. Remember, the partner will serve as your representative, seek new merchants on your behalf and ask previous customers to come back to the bank based on your new offering.
According to a BAI study directed to small business customers, bankers tend to focus on three relationship building elements – convenience or proximity, service and localized decision making. BAI’s study indicates that payment products and services should be part of the mix.
For merchant processing, you also want to be sure that the company has innovative products and services to meet your merchants’ needs. They need to offer up-to-date technology products and platforms such as Web-based payment gateways, 24/7 reporting capabilities and the ability to adapt as needs change. This focus on technology will assist your customers in improving efficiencies and ensure Payment Card Industry Data Security Standard (PCI DSS) compliance throughout their business processes. PCI DSS, which was developed by major payment brands such as MasterCard Worldwide and Visa International, is designed to help facilitate the broad adoption of consistent data security measures on a global basis, and ultimately, help organizations proactively protect customer account data.
To be sure your partner offers secure and industry leading processing solutions, ask if your processing partner provides the following offerings to your merchant customers:
Payment processing - credit, debit, prepaid - through a comprehensive, secure platform;
Easy implementations with a reliable HelpDesk (24/7) for on-going support;
Solutions for small to mid-size business needs, including virtual terminals;
Access to robust online data delivery tools for reconciliation – where merchants can track sales, credits, chargebacks and perform account management tasks anytime; and
Equipment solutions with valuable, integrated offerings for their businesses.
Beyond the products and services, you want a partner that will listen to your merchant customers’ desires, not just close the sale. A sales team with the business know-how to serve as consultants can help your customers improve their business through processing efficiencies, ultimately impacting your bottom line.
Sales Benefits &
The potential revenue statistics for this outsourcing approach are eye-opening for financial institutions. It’s anticipated that one dedicated sales representative can cover approximately 12 bank branches. Following is the breakdown of estimated profits that can be realized with this program:
Around 144 new merchant accounts in a year;
Approximately 40 percent, or 57, are new clients for the bank;
Of the new clients, 50 percent, or 29, will open new DDA accounts;
An average DDA account represents an additional $1,400 per account in revenue;
$1,400 in revenue x 29 accounts for a total of $40,600.00 per account representative.
Merchant processing and opening a DDA account are often tied together as a business decision. The risk of losing a DDA account increases significantly when merchants are processing elsewhere, which can impact a financial institution’s business as the return on investment on a DDA account can be much higher than other bank offerings. According to Ernst & Young’s 2005 Cash Management Survey and analysis from First Annapolis consulting, merchant services has been shown to double the revenue generated from DDA accounts and also materially increase revenue derived from other cash management (and even lending) products. Estimates show financial institution customers create roughly 30 percent more revenue in total with merchant services.
Earlier this year, BAI also reported on a Webinar given by Deloitte Consulting Principal Frank Sui, where he cautioned banks to not get caught up in short-term profitability numbers. His suggestion is to look at overall customer profitability, customer retention rates and the likelihood of referrals.
This is sound advice. A financial institution considering outsourcing its merchant sales program to a partner should review all of its products and services for customer retention opportunities, including processing. With a dedicated account team focused on your business and your customers’ businesses, you have the opportunity to work together on consequential cross-selling opportunities. Whether it’s technology, internal processes or loans, it can help your merchant customers’ businesses, too.
TransFirst has begun offering this approach through its Partnership Program to a number of financial institution customers across the country. With a commitment to customer service, TransFirst’s dedicated sales team and account executives provide merchant business support, starting with innovative processing solutions. They work with the bank to ensure customers are getting all of the products and services they need to run their businesses well.
For the financial institution, TransFirst expands their support and sales functions and also takes the opportunity to cross-sell traditional processing and ancillary products that add to the bank’s retention base. And at the end of the day, it’s a partnership designed and dedicated to success – your success as a financial institution and the success of your merchant customers, too.
Marla Knutson is president of TransFirst’s National Financial Institutions Services division. She was named the Electronic Transaction Association’s (ETA) 2007 Member of the Year and works closely with New York Bankers Association of which TransFirst is an endorsed partner. Founded in 1995, TransFirst is one of the top 10 largest processors in the United States.