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In defense of processor increases

I realize, too, that my company's overhead has grown
much over the last few years. I have seen increases in
rent, business insurance, banking costs, payroll taxes,
salaries, and Internet and phone system maintenance. So
why would I think our processor's overhead would be any
different?
Vanishing profits

When my office signed our original agreement with our
current processor, margins were strong, and writing deals
at IC + .35% + $0.20 was the norm. Better than 50 percent of
our signings were also tiered setups, which traditionally
have been more profitable. Today, it isn't uncommon to see
deals priced at IC + .10% + $0.06 or lower, and very few
deals arrive with tiered pricing.

By Steven Feldshuh To make deals more appealing to merchants, some MLSs
Merchants' Choice Payment Solutions East aren't even marking up the monthly fees. So, when I
pulled deals submitted a few years back and compared
used to shake each time I received word from a pro- them with deals submitted today, I realized how profits
cessor that there would be a cost increase on tiered are being killed. Since we share in the residuals with our
merchants, an increase in monthly fees or a newly processor, that company, too, has seen lower margins from
I created fee. With any impending price change loom- our business, while experiencing overall increased costs.
ing, I would become bent out of shape, certain we were
going to lose merchants. I would think, "How dare they do Is it possible the reasons why Heartland, Mercury,
an increase!" Then I took a step back, did some analyzing TransFirst, Moneris and many other processing entities
and started to examine my own business model. That's found even larger entities to work with in 2016 is that they
when reality kicked in. were feeling the pinch of lower margins, possible higher
attrition, and increased costs due to the Payment Card
What I realized is that cost increases today can't solely be Industry (PCI) Data Security Standard (DSS) and EMV
blamed on the greed of the processors. The realization (Europay, Mastercard and Visa) in addition to government
I came to was that new expenses are very much being regulations? Our industry continues to consolidate, and I
driven by the merchant level salesperson (MLS) strategy am sure in 2017, other large deals will make the front page
of selling at any cost to get the deal. of The Green Sheet.

Diminishing returns Seeking new revenue sources
We, as ISOs and MLSs, have been in a steady race to So is it any wonder processors have to become creative
continually lower merchant rates, even if it means the and come up with new revenue sources? A few years
amount of money earned from residuals is not worth ago, monthly fees such as those for PCI compliance or
the time. My own office stats showed that today it takes noncompliance, breach insurance, regulatory products,
a minimum of three new accounts to make the same and others just didn't exist. The same thing can be said
amount of profit we used to make just a few years ago on
one account. So, in reality, since agents continually offer
stupid rates to merchants, they are equally to blame for a My own office stats showed that
portion of the processors' increases.
today it takes a minimum of three
The incentive for MLSs today appears to be in gaining new accounts to make the same
signing bonuses, not in building residuals; therefore,
deals will be signed with any cost structure. When leasing amount of profit we used to make
was in its heyday, MLSs strove to lease equipment. Today, just a few years ago on one account.
many agents merely look for the company that pays the
highest signing bonus.

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