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A 'climate change' in payments

Why is this happening?
Let's assume the most profitable accounts for an ISO aren't
very large enterprises, but rather SMBs. There are millions
of SMBs operating today. Now, I'm going to make some
broad assumptions based on my time working at a money
center bank, a super-regional bank and a community bank,
which I hope will clarify things.
SMBs typically bank with local banks (often called
"community banks") with less than $1 billion in assets.
SMBs have found they receive a better reception from a
community bank, particularly if their business is new, and
better customer service.

When I worked at a money center bank, lenders were often
heard to say, "We don't know how we can make money on
By Brandes Elitch a $1 million loan," which I found shocking at the time. But
CrossCheck Inc. a community bank with, say, $200 million in assets will be
very happy to make a $1 million loan to a local merchant.
've mentioned before that CrossCheck is located in Issues arise when merchants grow to the point where their
Sonoma County, Calif. We get about 6 million tour- credit needs exceed the legal lending limit of their banks.
ists here every year, and over 4 million come for the Then the banks either need to get other banks to participate
I wine and the beer. You may have read that climate in bigger loans, or the clients need to find new banks.
change is a reality for winemakers everywhere and is
affecting the terroir of the vineyard. This has made for bet- It might be instructive to note that half of all SMBs hold
ter wine in cool regions that previously experienced slow a cash buffer of less than one month (per a 2016 study by
ripening. But there are negatives: warmer, shorter growing JPMorganChase). Moreover, 25 percent of SMBs hold fewer
seasons that result in higher sugar levels and thus higher than 13 cash buffer days in reserve. A large bank will not
alcohol levels, but lower development of aromas and fla- be sympathetic to this situation, but a community bank
vors. is focused on helping local SMBs survive and thrive. A
local bank is willing to spend time understanding an
You could say that for winemakers, the world is changing SMB's leverage position, working capital position, vendor
beneath their feet. And you could say the same thing for relationships, cash flow, and employer/employee relations.
the people who sell credit card processing: the ISOs and A big bank: not so much.
merchant level salespeople (MLSs) who call on merchants
and provide a valuable service that is part sales, part Community banks have small staffs and don't typically
technical advisor and part business consultant. Indeed, have dedicated salespeople to sell what used to be
ISOs and MLSs are the heart of sales for the payments called cash management services, or Treasury products.
industry. Moreover, local banks will not have dedicated merchant
bankcard sales departments to underwrite merchants and
Here are three "climate change" events in the payments board them on their own platforms.
world that will have a profound effect on the sales process
for small and midsize businesses (SMBs): Community banks might have referral relationships with
ISOs or even processors through which they receive small
1. Fidelity National Information Services (FIS) bought referral fees, but the merchant relationships belong to
WorldPay for $43 billion. the processors, at least as far as merchant processing is
concerned. Nobody in the local branches answers specific
2. Fiserv purchased First Data for $39 billion. questions about merchant processing, boards merchants,
3. Global Payments acquired Total System Services Inc. or provides training and equipment setup.
(TSYS) for $26 billion.

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