By Barry Davis
The merchant acquisition industry is at a crossroads. For decades, ISOs and merchant level salespeople (MLSs) have been able to collect steady revenue by concentrating on the sale of credit card processing services. This one-track approach will not be sufficient moving forward for ISOs that want revenue growth and MLSs who want to make real money.
Merchants' needs are changing, and the industry needs to adapt. For agents, this will require learning how to cross-sell new products and services in addition to credit card processing. This isn't just a matter of adding incremental income for sales agents – it's a make-or-break strategy at a time of tremendous upheaval for merchant acquirers.
Demands on the front lines
To understand why cross-selling is critical, let's walk through what's happening on the front lines of American local business. For many years, ISOs have been undercutting each other on price, setting in motion a race to the bottom and industry commoditization. Despite this trend, merchants are flocking to third-party processors specifically because they offer broader solution sets than traditional banks, according to a new report from Mercator Advisory Group titled Payment Acceptance in a Complex Environment: Banks, Watch Out. The message is clear: merchants want partners who help them solve the broader range of the business problems they face each day.
"Small businesses are more complicated and diverse than you may imagine as they try to compete with larger businesses for consumers' attention," said, Karen Augustine, Senior Manager, Primary Data Services at Mercator, and the report's author. "With the wide range of services offered, merchants are looking beyond their banks for card processing services, often finding alternative suppliers of expertise and services that address their increasingly complex and specialized ... needs."
The need for better tools
Imagine you own a small, independent restaurant. You read stories about mom-and-pop restaurants trouncing national chains, and you take heart in the future of your business. But you also recognize that you need better tools to attract, retain and delight your customers, or you'll never reach your business potential. You don't have time to figure out all these problems and manage the daily operations of your shop, so you're eagerly waiting for someone to show you a set of simple solutions that make sense.
ISOs and MLSs are incredibly well positioned to come knocking with the solutions merchants desire. The challenge is to rethink the sales process and move toward a more consultative experience. Agents need to become experts on a broader range of products and services and learn how to incorporate solution-based cross-selling into every interaction with merchants.
A market in flux
Today's merchants face a fundamentally different business environment than even a few years ago, as the digital ecosystem unleashes new opportunities and challenges via big data, online consumer review sites, marketing automation, and alternative financing through fintech innovators. As an ISO or MLS, a good starting place for understanding this new environment is to take inventory of the daily tasks merchants must complete to run a competitive business. You must be able to understand the daily problems of Main Street commerce and present solutions using terminology merchants understand.
Payment partners can build a better solution set for merchants by expanding their product and service menus to address these critical emerging needs. From there, it's all about flipping the marketing and sales pitch from savings to solutions. This will almost certainly require retraining sales teams and rethinking marketing activities to ensure that a consistent message goes out from the front lines.
The benefits of real solutions
The upside for making this transition is huge. Most acquirers and ISOs are losing 25 percent of their merchants each year. Merchant attrition impacts merchant acquirers on two dimensions. First, it carries a $2 billion price tag in lost revenue for payment processors. Second, because it takes three new customers to make up for each merchant that leaves the portfolio, the industry spends $1 billion annually in acquisition costs. That's a total of $3 billion every year in direct costs and lost opportunity.
According to IBISWorld, the credit card processing and money transferring industry is valued at $75 billion in annual revenue, with a projected annual growth rate of 4 percent. If the status quo persists, the best-case scenario is merchants stay on the carousel, and the industry bleeds revenue and profits through the massive inefficiencies caused by churn. Worst-case, merchants flock to competitors who can effectively cross-sell broader solutions, and your business shrinks into oblivion over time.
The payments industry's $3 billion attrition problem is an opportunity for solutions-based ISOs and MLSs during this time when merchants want more from their partners. Those who make the leap off the commodity carousel and start cross-selling real solutions will close more accounts, build stickier merchant relationships, and make more money from the elevated status as a partner in solving everyday business problems.
Barry Davis is Vice President of Business Development at Womply, a SaaS company that partners with the payments industry to provide a technology and data platform to small business merchants in more than 400 industry verticals across the United States. For more tips or advice on modernizing your sales pitch to merchants, reach out to us at firstname.lastname@example.org.