As niche markets in the United States go, the one for mobile merchants may be the largest. You know it's formidable when no one can agree on its size. Anywhere between 6 million and 15 million such merchants roam the nation, and a very small, equally nebulous percentage of them take payments electronically. It is therefore a market ripe for the picking for ISOs and merchant level salespeople (MLSs).
As is true with any niche market, boarding mobile merchants takes patience and attention. It also may take ISOs of a certain size and maturity to navigate the risks associated with mobile merchants. But, as all ISOs know, with scale comes reward.
Mobile, on-the-go merchants are easily defined but hard to pin down, literally. They conduct business out of their cars and trucks; they can be pool cleaners, general contractors, plumbers or door-to-door salesmen. They also include mobile vendors, like purveyors of hot dogs and coffee. They might also be brick-and-mortar merchants who sell their wares at flea markets, farmers markets and tradeshows on weekends.
More likely than not, mobile merchants' businesses are on the smaller size and not transacting great volumes or selling large-ticket items. Additionally, such merchants are often new to business ownership; they may have gone into business for themselves after being downsized out of corporate jobs, or they may be young entrepreneurs just out of college. But what all mobile merchants have in common is their lack of tethering to traditional POS equipment.
The ongoing revolution in wireless telecommunication is the ultimate driver behind mobile payments. The ubiquity and increased functionality of smart phones has resulted in payment companies new and old rolling out "sleeves" and dongles that convert phones and other handheld devices into payment terminals that accept traditional bankcards. As the price for owning a smart phone has decreased, so has the general cost of using the devices to process transactions.
The unanimous opinion of industry leaders and award-winning ISOs contacted for this article is that the secret to closing mobile merchants rests on three components: a variety of solutions, a fair price for processing and excellent customer service.
ISOs must supply an array of devices to fit merchants with differing needs. ProPay Inc., winner of the 2010 ISO of the Year award at the Electronic Transactions Association's Annual Meeting & Expo, offers proprietary devices like the MicroSecure Card Reader and the just introduced ProPay Jack, as well as VeriFone Inc.'s PAYware sleeve. ProPay also has a dedicated 800 number for mobile merchants to conduct MO/TO payments.
"Giving them a family of readers to choose from is important because some of them would like having that sleeve," said Bryce Thacker, Executive Vice President, Sales and Marketing at ProPay. "Others don't want to go to that expense and so buy a much less expensive reader."
Other issues involve the sites where mobile merchants are conducting business. "They could be in a convention center, at a flea market or a craft fair," said Scott Nelson, Vice President, Marketing at ProPay. "At a convention center, you just don't have data access. So the MicroSecure Card Reader is a good solution," because you can swipe a card, encrypt the data and process it later when you can access a secure connection.
CoCard Marketing Group LLC offers payment sleeves for smart phones. The sleeves are from ROAM Data Inc., VeriFone, First Data Corp. and National Processing Co. That variety allows CoCard to maneuver the selling process away from a one-size-fits-all approach.
"It makes us more consultative in our sales rather than product pitch people," said Rick Pylant, President and Chairman of CoCard, as well as President of the ETA. "We can go in there and find out what the merchant wants [and] get the right plan and program put together specifically."
Eureka Payments LLC, which specializes in mobile merchants, offers USAePay's PaySaber sleeve (with receipt printer), PaySaber Jr. (without receipt printer) and VeriFone's PAYware.
"You want to have a solution that works for merchants that have phone lines but no power," said Ken Musante, President of Eureka Payments. "You want to have a solution for merchants who have iPhones. You want a low-cost solution available, and you want to have a very robust solution for fleet vehicles. And you want to have solutions for one-off merchants. So the trick is not to say, 'Yeah, we have one mobile solution, or this is our mobile solution,' but to have a variety of solutions available."
Musante said Eureka Payments starts with the assumption that most merchants new to the mobile space will be processing payments via a smart phone or tablet computer, such as Apple's iPad. Startup costs for those devices are minimal. And fees that successful ISOs charge are equitable and easy to understand.
ProPay has found its boarding rate remains high and its attrition rate remains low because of the company's simple, transparent pricing. "The people typically aren't finance people," Nelson said. "They don't understand the payments industry. And we make it very simple for them. We don't load up their account with a bunch of fees for this and for that - statement fees, monthly fees, equipment fees, etc.
"It's basically a simple, blended rate, a simple online sign-up process - that they can essentially go to our website and literally, within minutes, have a full-blown merchant account and be ready to accept credit cards. That's what these people like about it. It's simple, straightforward pricing."
Pylant agreed pricing is very important to CoCard's success with mobile merchants, especially with the competition provided by Square Inc. With its free dongle that plugs into the audio jack of iPhones, iPads and smart phones that run on Google Inc.'s Android operating system, Square has generated significant media attention.
But there are concerns about the security of the device, and it may be taking advantage of new, ill-informed merchants by offering no monthly fees but charging 2.75 percent of the purchase amount for each swiped transaction. When CoCard comes across merchants who process with Square, Pylant tells them, "You're dealing with Square? You've got to be kidding me." Contrary to Square, CoCard prices mobile merchants like traditional merchants and undercuts Square "by a mile," Pylant said.
The same applies to Eureka Payments. "We try to give merchants a very fair lower rate," Musante said. "There is going to be a monthly fee associated with it. And with that, if it makes sense for them to stay with Square, or some other form of solution until they get to a size that it makes sense that they have a monthly fee - great."
Of course, good customer service is fundamental to the success of any business. But offering great solutions at affordable prices, without backing it up with great customer service, is akin to being a great dancer who shoots himself in the foot. However, having all three achieves a whole greater than its parts and compounds a company's success.
"We provide a very valuable service, and our customers like us," Nelson said. "They tend to stay with us for long periods of time. And those people who are obviously happy customers, they talk about us.
"In our research, when we talk to our customers about how they found out about ProPay and what was compelling, a large percentage of the time it's because they were referred by a business associate or a friend who had been using a ProPay account and was very satisfied with it."
Nelson estimated that 75 percent of ProPay's business is generated through referrals. The face of the organization for those referred mobile merchants is not usually a ProPay agent, but its website.
"We rely heavily upon the website to make that sales pitch for us and obviously having them come to the website from a referring customer helps," Nelson said. "They are prepped. And then when they get there, I think we reinforce the message from a referring customer to make it very easy for them to get them through the sign-up process to get a merchant account."
Eureka Payments also relies heavily on its website to generate business. "We don't hit the street for mobile merchants," Musante said.
For the most part, it's direct marketing, or specific direct marketing, and follow-up sales." He added that there are not enough mobile merchants in the Eureka, Calif., area to make "hitting the streets" practical.
"If someone is clicking you off the Internet, you've got to really work to build that trust up," Pylant said. "If they're coming from your lead sources, you've got that respect and trust prebuilt before you even have to do the sales process."
Despite the promise of the mobile merchant arena, it is not for everyone, especially ISOs new to the business. Mobile merchants often do not process enough transactions to generate significant residuals. "The way traditionally that ISOs have started is by living off of the equipment money for the period of time until they can finally get residuals rolling," Pylant said. "If you still follow that same model, there isn't much money on the new mobile services that are out there." He added that boarding mobile merchants will build residuals slowly, not quickly.
Thacker believes entering the mobile sphere can be particularly challenging for new ISOs. "They may spend a ton of time and not see much in compensation back," he said. "It took years for us to reach a critical mass."
ProPay, which has serviced e-commerce merchants for 14 years, jumped into mobile merchant processing several years ago. That foundation in e-commerce allowed ProPay to weather the ups and downs that come with the mobile merchant sector.
"To be able to board people like we do and underwrite people as quickly as we do and avoid the risk, that's taken years to figure that out," Nelson said. "That's sort of the secret sauce."
Mobile merchants that jump into electronic payments may also find it difficult to grow. "An awful lot of these merchants start up a company and go out and have a product they want to sell, and they never make it," Pylant said. "That's the downside to it. There's an awful lot of very, very small merchants that start up this way.
"If these folks have been in business for awhile, it's no big deal. It's pretty much the same as we always do. But a lot of these folks are just brand spanking new and, if they aren't doing a tangible product, it gets a little tough."
Thacker said, "I think there's opportunity here, but I don't think we should wear rose-colored glasses about it. It takes some savvy."
The landscape for mobile payments is rapidly evolving, however. Dongles and sleeve devices may be intermediary (or perhaps secondary) solutions as ISOs like ProPay leverage their scale to create online social commerce marketplaces. ProPay's service is called Zumogo. With Zumogo, customers put bankcards on file to be used for purchases at participating Zumogo merchants.
"What it eliminates is the cost of any terminal," Thacker said. "You don't have to have a terminal plugged in either on a sleeve basis or the audio jack."
The smart phone application allows customers to find localized Zumogo merchants and pre-order goods and services. "They say, oh, I think I want to go get a beer at this pub, at this restaurant, they simply announce they are on their way," Thacker said. When the merchant adds up the tab, the funds are taken out of the customer's prefunded ProPay account.
The Members Group, a payment solution aggregator and integrator for banks, recently launched a similar solution. Dwolla Spots is an app that takes advantage of geo-location satellite positioning technology on smart phones to allow customers to easily find local merchants.
"Think about a farmers market," said Jeff Russell, Executive Vice President at TMG. "No real fixed infrastructure. And now all of a sudden I have an iTouch or an iPad, and someone wants to walk up and buy whatever I'm selling - produce or some good."
There is no need for a physical terminal, as business is conducted over the Dwolla network between consumers' prefunded, free-to-sign-up-for Dwolla accounts and merchant accounts.
TMG charges merchants a flat fee of 25 cents per transaction. It can charge that negligible amount, independent of the size of the transaction, because the transactions are bank-to-bank money transfers processed over the automated clearing house network and, therefore, bypass the more expensive networks of the card brands.
Russell reported that since Dwolla was introduced in early March 2011, over 1,000 merchants, particularly in the Midwest, have already signed up for the service.
A trend recognized by Pylant is that traditional brick-and-mortar merchants are converting their payment mechanisms to smart phones simply to lower processing costs. These types of merchants are also apparently getting outside in search of new business.
"One of the interesting things we're seeing is occasional mobile merchants," Russell said, such as coffee shops setting up booths at farmers markets or pizza joints traveling around to local sports events and selling pizza by the slice.
"The bottom line is they need affordable, easy-to-use solutions when they're out and about, or cash will remain king.
"You're seeing people trying to reach out in different ways and build new business models," Russell said. "And as they do that, they've got to find new ways to get paid."
With mobile payment solutions in your arsenal, backed by cutting-edge pricing and superior customer service, you may not have to find mobile merchants; they may, in fact, find you.
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