The Green Sheet Online Edition
June 6, 2007 • 07:06:02
Street SmartsSM
Veritably valuable added services
Value-added products are getting more attention as the credit card processing market approaches saturation. They enhance a portfolio's worth considerably, bring more flavor to the product-offering table and provide an additional source of revenue to ISOs and merchant level salespeople (MLSs).
Additional obvious benefits to agents who offer these products include lower merchant attrition and increased margins due to packaged pricing.
There is a wide selection available of value-added products and services, which are also known as value-added reseller (VAR) products.
I have picked some of the more popular ones to discuss in this article: check services, gift and loyalty cards, ATM services, and remote deposit capture (RDC). In order to sell these, MLSs need to have a fundamental knowledge of the benefits the products bring to merchants.
Check services
Check service offerings have existed for a long time, but those who are new to the payments industry may need an explanation to better understand this product. There are several different aspects to check services:
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Check verification
This service compares information on checks that merchants receive at the POS against a central database, which verifies that there is no negative information pertaining to the accounts concerned.
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· Merchant benefit: Reduced number of bad checks written at the POS
· MLS benefits: Residuals, lower merchant attrition.
Electronic check transfer
The electronic check transfer (ECT) program converts paper checks into electronic items at the POS. The electronic item is then processed through the automated clearing house. Funds are automatically deposited into the merchant's bank account, which cuts paperwork and improves cash flow.
ECT combines the benefits of paper checks with the speed, safety and ease of electronic money movement. It delivers a streamlined check-acceptance program for merchants.
The program requires that the customer writing the check sign a printed receipt authorizing the electronic transaction.
A copy is given to the customer (just like a credit card or ATM receipt). And the individual's bank statement subsequently displays the merchant name, amount of the transaction and settlement date.
ECT transactions are authorized and settled similarly to credit card transactions.
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· Merchant benefits: Reduced number of bad checks, fewer trips to the bank for deposits, less paperwork, improved cash flow
· MLS benefits: Residuals, lower merchant attrition.
Check guarantee
Check guarantee is done right at the POS. The salesclerk simply enters the customer's information into the POS terminal or cash register. Within seconds, the processor authorizes (or denies) the check from its database.
This quick process helps prevent merchants from losing customers whose checks are approved or from delaying them at the POS. The processor basically purchases the check for its full amount. If it does not clear, the processor will do the running around to collect the funds.
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· Merchant benefits: Guaranteed payment after approval per guidelines, can be used in conjunction with ECT or verification
· MLS benefits: Residuals, lower merchant attrition.
Recurring payment product
This service enables merchants to process customer payments by automatically initiating a charge to their checking account or credit card each time a payment is due. This allows merchants to control the timing of customer payments. It also enables them to schedule payments in advance, according to their cash-flow needs.
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· Merchant benefits: Reduced collection efforts on receivables, better cash flow
· MLS benefits: Residuals, lower merchant attrition.
Gift cards
Gift cards are quickly replacing paper gift certificates. The country's largest retailers and chain restaurants have been using and heavily promoting them for the past several years. Small to medium-sized merchants issue gift cards as well.
Gift cards work just like old-fashioned paper certificates. A merchant can set them up in predetermined denominations or variable amounts. Cards are activated at the POS.
When a customer redeems a gift card, the merchant swipes it through the POS system to verify and readjust the balance, based on the current transaction.
The newest trend in the gift card arena is third-party gift cards. These are cooperative ventures involving popular retail chains, Visa U.S.A., MasterCard Worldwide and American Express Co.
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· Merchant benefits: Increased average ticket, new customers
· MLS benefits: Residuals, lower merchant attrition.
Loyalty cards
Loyalty cards work the same as traditional hole-punch loyalty cards. When customers make purchases, a set value per dollar spent is added to their cards. When the amounts on their cards reach a certain level, customers can redeem them for discounts and/or products.
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· Merchant benefits: Increased average ticket, customer loyalty
· MLS benefits: Residuals, lower merchant attrition.
ATM services
Many may not consider the ATM arena to be value-added, but it definitely is. The market for this involves fewer merchants, primarily bars, hotels and convenience stores.
Residual revenue comes from two avenues: 1) the surcharge added to each transaction by the merchant – usually $1.50 to $ 3; and 2) revenue from the debit networks. Residuals are usually paid to the processor, which passes them on to the ISO after deducting the cost of the transactions.
ATMs may be placed at merchant locations in several ways. Merchants can buy or lease them, refill the money, as needed, and keep 100% of the surcharge. Merchants can also own ATMs but have an ATM service company refill the money. In this case, the surcharge revenue is usually split.
Another common option is for ISOs or MLSs to own ATMs for which merchants refill money, as needed. Surcharge revenue is generally split in this type of arrangement.
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· Merchant benefits: Additional income, more traffic, increased cash expenditures at the POS
· MLS benefits: Residuals, lower merchant attrition.
Remote deposit capture
The value-added product that I hear the most about is RDC, which is also known as remote back-office conversion. Agents, agent banks and one merchant have recently asked me about it. So what is RDC?
Basically, it is a way to truncate and clear checks electronically. In simpler terms, it is a way to scan checks at the merchant level and have them deposited to merchants' banks.
The passage of the federal Check Clearing for the 21st Century Act (known as Check 21) in 2004 eliminated legal impediments to check truncation and revolutionized banking. There is, however, some resistance, the majority of which stems from concerns about increased risk of compromised transactions.
RDC allows merchants to run checks and electronically deposit them into a chosen account. This enables merchants to access funds much more quickly than with traditional deposits. RDC also eliminates frequent trips to the bank.
RDC is an attractive product to offer agent banks. Margins for the banks are shrinking due to current economic conditions. RDC allows more deposits to be loaned out at better margins than when certificate of deposit funds are used.
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· Merchant benefits: Quicker access to deposited cash, fewer trips to the bank
· MLS benefits: Residuals, lower merchant attrition, ability to attract agent banks.
To sum it up, value-added products give us another sales avenue. They can generate significant income for ISOs and MLSs. I hope this basic information helps you cash in on this potentially lucrative area.
If you have any suggestions, questions or just simply want to say hello, please do not hesitate to get in touch.
Safari Njema (safe journey).
Dee Karawadra is the founder, Chief Executive Officer and President of Impact PaySystem, based in Memphis, Tenn. He and his team have a wealth of knowledge on the merchant services industry, with a niche in the petroleum market. Dee's experience on the street as an agent has guided him in laying a foundation for an agent program that is both straightforward and lucrative for his agents. Contact him at 877-251-0778 or dee@impactpaysystem.com
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