The Green Sheet Online Edition

July 12, 2010 • Issue 10:07:01

Merchant retention, taking the initiative - Part 1

We all know it's cheaper to hang onto existing customers than to acquire new ones. So, as ISOs and their partners struggle with economic uncertainties and changing consumer payment habits, customer stickiness becomes more important than ever. To find out what some of the best minds in our industry are doing to address this, we asked members of our advisory board the following:

1. What kind of initiatives are you taking at your organization to keep clients happy and loyal?
2. How critical are value-added services to this process?
3. What types of value-added services do you feel merchants need/desire these days, and why?
4. Are their wish lists realistic?

Following is the first portion of their responses. The second portion will be published in The Green Sheet, July 26, 2010, issue 10:07:02.

Steve Christianson
AAmonte Bankcard

The key for us is to continue the excellent customer service we've been providing for the past 20 years. Included in that is running interference whenever necessary for the industry's biggest blunder to date: Payment Card Industry (PCI) security standards compliance. We need to continue to be there when a customer merchant needs assistance.

On the West Coast, we still have 15 percent-plus unemployment, commercial vacancies, rents for prime storefront addresses slipping under $1 per square foot, merchants barely hanging on with many shuttering their businesses after three years of economic downturn. Real estate for homes is still tanking with foreclosures and short sales.

We, as ISOs, cannot find employees, due in part to the fact that continued unemployment payment extensions make it more profitable to stay home. California unemployment payments are close to $500 per week, and that is the first check you get.

Our internal analysis indicates that merchant business is currently down by more than 30 percent in the nation's inland areas.

Fortunately, as a company we have no debt, so we will survive. We also have a loyal merchant base and manageable expenses.

What most merchants want today is to break even because profits generated over the past few years are down significantly. Many mom-and-pop merchants are operating in survival mode, running their stores with no employees or fewer employees than in previous years.

As an ISO, we have had to cut our employee overhead by 50 percent these past two years. Reps who have built nice residual streams are finding it increasingly difficult to sign new business. The few new businesses that are opening in this market face a "feeding frenzy" of sorts from our own competitors. Existing merchants are hit by 10 to 15 processing solicitations every day/week.

Merchants and processors need to hang on for at least another two years before we see any real growth. I hate to be negative, but this is the trend with no real relief in sight.

Merchants and ISOs need to be optimistic if they can afford it. We all are working longer hours with fewer employees and doing more daily chores ourselves. Maybe it will get better tomorrow.

Jared Isaacman
United Bank Card Inc.

Customer satisfaction is the first step in merchant retention. However, that isn't always enough to retain merchants for the long-term. No matter how happy a merchant might be, there will always be other ISOs offering lower rates with little preventing them from switching. This is why value-added services play a prominent role when it comes to customer stickiness.

We offer a wide range of third-party products such as check services, gift and loyalty cards, prepaid services, and merchant cash advance that allow us to serve the broader needs of our customers.

Additionally, many of our proprietary UBC programs, such as the free ECR (electronic cash register) program and Harbortouch POS systems, offer enhanced value over standard merchant accounts. We believe these types of sticky products will continue to yield the greatest retention results.

To increase retention through improved customer satisfaction, we recently overhauled our customer service system to manage our merchant accounts more effectively.

This includes automatic detection of merchants that pose a higher risk of cancellation. These merchants receive enhanced call routing and priority queue direction to our more experienced support representatives.

The system operates in much the same way as airline frequent flyer programs. We can pinpoint our best customers and increase their internal status to Silver, Gold, Platinum and Titanium levels.

Based on these thresholds, the level of personal service and priority handling improves considerably. However, this doesn't mean that our average merchant is neglected by any means because we strive to provide exceptional service to all of our merchants at every level.

Rod R. Katzfey
Consultant

As the economy continues to recover, there will be bumps in the road forcing merchants to question whether the recovery is real or if it will retract again once all the stimulus money is no longer available. I have been advising clients that this is the time to be proactive and review the client base for any merchants that are within 90 to 120 days of contract expiration.

Reaching out to a merchant without acknowledging the fact that their contract is about to expire gives merchant level salespeople the opportunity to address any issues the merchant may have and is willing to disclose.

While making this visit or call, talk about your new product offerings or value-added services, so that you can gauge their level of interest. It is not uncommon for merchants to leave one processor for another simply because they were unaware of products or services that could have been made available to them in the first place.

There are two products gaining a lot of traction lately that I feel will be necessary for all ISOs, agents or processors to offer over the short-term to keep the spark with their current clients.

ACH use is becoming commonplace with more merchants as the cost of acceptance of credit cards and debit cards continues to rise. This product has been around for many years, but I have found just recently that merchants are beginning to realize the cost advantages of accepting ACH.

Another hot product is mobile payment capabilities. With the launch of the iPhone and all the new applications being added every day, more customers want to use their phones instead of carrying around all that plastic. Several companies have developed and implemented products that allow you to take advantage of mobile payments.

I think it is important for processors and their partners to capture the interest and offer this form of payment.

With continued uncertainty in the economy and the enactment of new legislation, it is important for us to embrace the merchant and provide the payment tools needed to stay in business. Merchants rely on us as payment experts so they can focus on running their business.

Allen P. Kopelman
Nationwide Payment Systems Inc.

Merchants always want everything for the lowest cost possible, and merchants today have many concerns, like PCI compliance, filling out self-assessment questionnaires (SAQs), PCI scans and PCI fees.

Merchants are more concerned about the fees related to PCI than anything and what kind of value they are receiving for these fees. It used to be when you spoke with a merchant about merchant services they wanted to know your rates. Now they want to know about annual fees and PCI fees. Even though pricing has compressed, these other fees are what are adding up.

Trying to educate merchants on PCI compliance is a bear. Who does it? How do you do it and not get sued for giving advice? How does a merchant fill out the SAQ and answer questions that they really don't understand?

As far as value-added products, we let merchants know what is currently available: gateway software, iPhone applications for processing, gift cards and cash advance. Merchants who never considered gift cards are now taking a second look at that opportunity.

Many who are not Internet savvy are working to get on the net to reduce operating costs. All of these are opportunities to sign merchants and help existing clients with their growing processing needs.

If merchants had a wish list it would be that all the new fees that Visa, MasterCard and American Express added on in the last couple of years would disappear.

AmEx no longer offers a rate and no transaction fee; they now have a transaction fee. Visa and MasterCard added new interchange categories, a new international card fee, over limit fees, excessive authorization fees, a base II fee, this fee and that fee. Merchants just wish it was simple.

Merchants realize that in order to make money they need to accept credit cards, and as long as credit cards are the form of payment people use, the card processing business will continue to thrive.

Biff Matthews
CardWare International

1. Our managers who are in regular contact with clients often ask how CardWare is doing in meeting their needs and expectations. Critical are customer expectations that may not have been communicated to us, so it is important to draw those out. Managers also ask what new programs, services or products are on the customer's short- and long-term horizon.

Clients receive a monthly report card on our meeting the documented service level agreements between us, as well as a comparison against industry metrics. The sales manager and I continually seek new products or services that may benefit customers. We keep our customers informed of these via email, which often contains links to the particular products and/or services.

2. CardWare assists its customers in maintaining a leading edge with services, products and technologies that will differentiate them from their competitors. This also differentiates CardWare from its competition. Value-added services are critical in achieving that two-faceted goal.

3. Merchants want what their customers want - mainly value, convenience and security. Far too many salespeople still lead with price. That horse died several years ago, so get off it.

Value is what one receives for what one pays. Burned earlier by price, merchants are better informed, so they expect and demand value. Any product or service that improves the consumer experience adds value, thereby adding to the merchant's value to their customer.

Prime value adds include:

• Faster, easier check through. Complete the sale at the point of decision on the sales floor versus at a checkout station or line. This approach also increases the sale. "On the floor" applies to hospitality as well as retail. Lodging already does this with express and in-room checkout. How about express, remote check-in which is already being done by some.

• Integration. Streamline and automate the exchange of payment data with other applications.

• Consumers want greater control over their finances and how they pay. A merchant with multiple payment options that a customer may use individually or in concert gives the consumer that control.

• Consumers expect merchants to have technology that increases data security.

• Environmentally responsible processing with receipts emailed or stored electronically, or paper receipts that are short or printed on paper with a higher recycled content.

• Not at the forefront, anticipate inquiries about the environmental impact of POS system manufacturing, plus the disposal of outdated systems.

4. The merchant's wish list is absolutely realistic. In addition, it's important to keep in mind that merchants don't drive the payments industry; consumers do.

As I noted in an earlier article, "Stemming the attrition tide," The Green Sheet, May 24, 2010, issue 10:05:02, follow the money. Add value, increase stickiness by helping current merchants give their customers what they desire and expect, and your merchant will be loyal. Do the same for prospects to more easily add loyal merchants in the future.

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