By Dale S. Laszig
DSL Direct LLC
The equipment replacement program has been a staple of credit card processing for decades. Like other forms of insurance, it's designed for use during service interruptions. Customers who opt in to the program, which is sometimes called a merchant club, pay a monthly fee for conveniences such as equipment repair and replacement, supply discounts, automated supply deliveries, and enhanced help desk support.
Protection plans made sense in the early days of payment processing when merchants were learning authorization and settlement, but can they remain viable in the digital age? Following are comments from payment pros on how the merchant club has evolved, why they sell it, and how it benefits merchants and ISOs.
Many merchant level salespeople (MLSs) think of their merchants as extended family. Stories abound of agents delivering paper rolls at 3 a.m., working overtime at grand openings, and socializing after-hours. As merchant portfolios grow, MLSs may not always be available to lend a helping hand for every customer emergency. Merchants who opt in to club membership receive expedited service and a safety net for times when their agents are away.
Reliance Star is a full-service ISO that offers an array of processing solutions including gift; loyalty; check conversion; ATM sales and service; cash advance; remote deposit capture; and stand-alone, integrated and customizable POS solutions.
Reliance Star founder and Chief Executive Officer Fenella Yin Fang Kim is a Certified Payments Professional and graduate of Goldman Sachs 10,000 Small Businesses program. Kim has more than 10 years' experience in every aspect of acquiring. She is also an active member of Women Presidents' Organization and Women Networking in Electronic Transactions.
Kim noted that merchant club offerings can be a differentiator for MLSs who are trying to win new business. "Many merchants tell us that their current processors provide free supplies and paper rolls," Kim said. "To stay competitive as an ISO, it may be necessary to provide additional benefits and discounts to merchants.
"As the industry evolves, we are seeing more and more merchants moving away from traditional countertop terminals into tablet-based POS systems. The merchant club offers merchants a convenient way to manage the costs associated with maintaining these systems including the larger, more expensive paper rolls."
DigiPay Integrated Solutions is a payments solutions company focused on global transaction processing, security and a range of leading-edge technologies. DigiPay architects and integrates enterprise-level solutions that can be managed through its secure, cloud-based hub.
CEO Mike Ackerman is a payments industry veteran with 30 years of executive management experience in merchant processing and payment technology. He considers the fast-approaching October 2015 Counterfeit Card Liability Shift as an accelerator of Europay/MasterCard/Visa adoption in the United States.
"A majority of issuing banks will have chip cards out next year," Ackerman said. "As U.S. retailers see an increased number of these cards at the point of sale, they may also be more receptive to buying equipment protection plans.
"Merchants are not just worried about breakage; they want functional, secure, and compliant equipment, and that means having the ability to upgrade their POS in response to changing requirements. So if acquirers charge twenty to thirty dollars per month for a merchant club with VIP benefits and free paper rolls, in one year the acquirer has covered the price of an EMV reader, while providing the merchant with convenience and flexibility."
Ackerman also noted that the race to encrypt and tokenize credit card data hardly matters for transactions utilizing stolen card data.
To mitigate pervasive security threats that retailers and e-commerce merchants are facing, many acquirers are combining the increased costs of security monitoring, compliance and data breach insurance into merchant club bundles.
"It's not possible to combat today's fraud using yesterday's technology," Ackerman said. "Considering the magnitude of some recent security breaches, it stands to reason that merchants will need to rely on real-time authentication, or they will risk perpetuating the very fraud that their systems are built to protect."
In a study conducted with hundreds of enterprises around the world, information technology (IT) specialists Grant Geyer and Bryan Dunphy found only 32 percent of validated incidents were identified by the control group's incident detection systems. They shared their findings in a guest chapter in the 2009 book Beautiful Security in which they stress the need for detection programs that evolve in parallel with the threat landscape.
"A resilient model for incident detection allows for a broad set of technologies and techniques, so that incidents invisible to one or several detection methodologies will be caught by others," Geyer and Dunphy wrote. "A resilient incident detection model will also ensure that the inevitable failures in one part of your monitoring infrastructure – whether due to human error, application failures, or networking mistakes – will be buffered by other detection capabilities."
Many merchants balk at monthly and annual fees associated with securing and maintaining IT and payments infrastructures. They fail to grasp the catastrophic expense of a data breach, which has put many Level 4 merchants out of business.
ControlScan delivers integrated security and compliance solutions that help small and midsize businesses secure sensitive data and comply with information security and privacy standards. The company supports business owners, franchisees and merchant service providers with technology, services and expertise.
ControlScan's Senior Manager of Security Consulting, Chris Bucolo, is a long-time payment professional with over 25 years of experience working for banks, processors and ISOs. Bucolo has over seven years' experience in Payment Card Industry (PCI) Data Security Standard (DSS) and security consulting.
"A majority of breaches are preventable," Bucolo said. "But the biggest misconceptions that many business owners have in thinking about security are considering only the network, and their assumption that better security has to cost a lot of money.
"There are so many other entry points involved, such as processes involving employees and procedures as well as physical aspects, including the need to monitor POS equipment for skimmers and tampering. The bottom line is it's advisable to take a holistic approach to protecting and securing an environment. Many steps can be taken to improve securities that are not onerous from a cost standpoint."
He added that while merchant clubs are ancillary to other services provided with credit card processing, security should never be considered as optional.
An array of merchant club packages facilitates merchant enrollment by offering products that are right-sized to the needs and preferences of individual business owners.
"Our four packages support our merchants at every phase of their growth, from a basic services plan, to a plan that incorporates regulatory and security fees, to a web services bundle that includes web design and hosting, to a full service e-commerce package with shopping cart," Reliance Star's Kim said.
Convenience, an elite class of service and simplified merchant statements are just a few of the benefits available to merchants who opt in to merchant clubs. MLSs who sell them will also gain a competitive advantage and powerful retention tool. 
Dale S. Laszig manages business development and strategic initiatives at DSL Direct LLC, a payments consulting company that helps clients promote, design, and deliver secure, leading- edge technology solutions. Her clients include software integrators, manufacturers, retailers, and value-added service providers. She can be reached at 973-930-0331 or dale@dsldirectllc.com.
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