The payments industry is evolving. Gone are the days when an ISO could rely on high margins and shallow merchant relationships to survive. Today, ISOs are struggling to meet new merchant expectations for superior customer support and innovative value-added services. Service providers and even terminal manufacturers are evolving quickly, but many ISOs are uncertain of what changes to make to survive.
In Part II of At Your Service, we'll take a closer look at Midwest Transaction Group and Innovative Merchant Solutions, two young and innovative ISOs that see nothing but opportunities in today's new environment, where service not hardwareis king.
Their success stories can jump start any ISO's efforts to realign business strategy with today's new and challenging market.
Ahead of Its Time
Charlie Creamer, President of Midwest Transaction Group (Michigan), a self-described non-traditional ISO, has positioned his company squarely in the future. In the 2.5 years since the company started, Midwest Transaction Group has acquired 1500 merchants in 26 states and maintained a 95% retention rate.
"We are unusual because our future as a company is based on a long-term processing relationship with merchants. We don't even lease equipment because we don't think that is in the best interest of our merchants," Creamer said.
The company also works on very low margins for equipment sales. "Why would you want a piece of equipment to get in the way of a long-term relationship?" Creamer asks. MTG's innovative thinking doesn't stop there.
MTG does not have independent contractors. Instead, all of its reps are direct employees. In addition, the rep that sells processing services to a merchant does the installation and ongoing customer service for that merchant. "We want our merchants to have a name, a person and a place that they can go to if they need something after they sign on." It is hard to
believe that this simple business decision is today considered innovative, but it is.
When MTG learned about the poor quality of service its merchants were getting from other ISOs that had outsourced helpdesks on nights and weekends, it decided to put staff members on call on nights and weekends to respond to merchant emergencies. "That person must call the merchant back within 5 minutes of when the message was left," Creamer said. This level of responsiveness set MTG apart from the competition.
It is no surprise that with such specialized customer service Midwest Transaction
Group is endorsed by more than a dozen state trade associations in Michigan and by the Michigan Chamber of Commerce. The company also does a lot of business-to-business transactions for manufacturing and distribution companies that provide their clients with the option to pay invoices by credit card.
"When you are doing corporate, business and purchasing transactions there is a lot of data required at the point-of-transaction in order to get the lowest interchange rate. Many companies don't adequately explain this to businesses to help them get the lowest interchange rate." To help merchants qualify for the lowest rate possible, Midwest Transaction Group utilizes a processing application created by CardTranz, that lets MTG guarantee a rate as long as the merchant fills in the blanks in the application before running the transaction.
To win new business, Midwest Transaction
Group representatives offer post-transaction monitoring, where they'll consult a company that is incurring additional fees and interchange charges, give them a competitive rate and teach them how to eliminate the extra charges. This review process occurs again 30-60 days after the merchant signs with MTG so that the MTG sales rep can help the merchant review extra remaining charges and get to the lowest possible fees.
"Many companies make more money if their merchants don't qualify for the lowest rate. But in the long run if the merchant finally understands what is going on, the
ISO is blamed. If we can help our merchants get the lowest rate it means we'll retain our relationship with them.
"All our merchants want from us is a fair price, the customer service level we've gotten them to grow accustomed to, and someone out there helping them qualify for the lowest rate possible. We do offer gift card and electronic check conversion, but first and foremost we want to be the experts at card processing," Creamer said.
Above and Beyond
"Our industry is funny," reflected Joe Kaplan, President of Innovative Merchant Solutions, an ISO based in California that is taking innovation and success to a new level. "ISOs are looking to drive more revenue through value-added services, but all too often they are more worried about expanding the services they offer and bringing on new business, and they don't realize that new business is a byproduct of the quality of the services provided to existing customers."
"Merchants today are more educated, and people are going into business for the second or third time. Word of mouth and better awareness is making it more and more difficult for people to take advantage of unsuspecting merchants," Kaplan said.
"Our sales reps sell more because we offer more value in every service we offer," Kaplan said. It is hard to dispute his logic when you see that the company started three years ago and has since signed up over 100,000 merchants.
The referrals keep rolling in because the company offers excellent responsiveness, live, menu-free phone support, and even a concierge service that can help a merchant book travel or arrange a party. "Once they use our concierge service, they won't leave, but they will tell their colleagues and friends about it, which in turn generates more referral business," Kaplan said.
Innovative Merchant Solutions offers the complete spectrum of bankcard services including check guarantee, debit, ATM, EBT, electronic signature capture, virtual applications, same day merchant accounts, gift and loyalty card programs including card customization services, gateway services, website development and in house 24 hour customer support. While most companies would claim that this makes them a one-stop shop for merchants, Innovative Merchant Solutions goes one step further.
The company also purchased the Bank of Oakland and appropriately renamed it Innovative Bank,
so that it could offer bankcard customers financial services such as checking, loans, savings accounts and CD's as well as, insurance, online banking, stock trading services, and even home loans.
Innovative Bank itself is a superior operation. In less than 6 months of SBA lending, Innovative Bank had already become the number one SBA lender in Nevada and 12th largest in California. The bank's lending activity also made it the 146th largest SBA lender in the United States as of September 30, 2002 among thousands of participating SBA lenders.
Based on their performance in the first quarter of the SBA's fiscal year, Innovative Bank expects to be the number one lender of small business loans in the United States.
"We know our customers because we visit our customers in person and we contact them regularly to check in. Each employee calls 3-5 customers a day and we always call our customers on their birthday," Kaplan said. "This is all done in an effort to establish and nurture a special relationship with our customers.
Many ISOs have become lazy. They find merchants by spamming them on email or hiring telemarketers to make cold calls. As margins shrink, they all send out more emails and make more cold calls instead of changing how they get their business and the quality of the services they deliver each day to their existing customers."
Those who are shortsighted about developing relationships with their merchants are paying the price, according to Kaplan. "When you think value-added service, don't just think about what gift card program or check verification service you can offer the next merchant that comes along. Think about creating a relationship with your existing merchants by serving their needs on all levels better than anyone else."
Deciding how to accomplish this is the first step an ISO can make to differentiate itself in the market, and the first step an ISO can make toward turning today's market changes into tomorrow's market opportunity.
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