From the January/February 2010 issue of ISO&Agent.
Many ISOs and merchant acquirers believe the prices they charge for card-processing services vary much less than when they could find merchants not accepting cards more easily in many locales. But as merchants consider ways to increase cash flow and reduce expenses during the "Great Recession," a term that took root last December to reflect the nation's latest economic disarray, many are shopping around for different service providers, and price remains a key factor in their decision to stay or leave.
"There are merchants that cannot sustain a livelihood even if you do drop their rates, even to a break-even rate," says Ted Svoronos, vice president at Group ISO, an Irvine, Calif.-based ISO. "They don't have the business coming through the door."
Many ISOs find some of the best techniques to keep merchants include communication and paying attention to transaction trends.
Badgered Merchants
Factor in a demanding economy that can push many small merchants into a fiscal abyss, and one may consider that ISOs universally are beleaguered by escalating attrition rates.
"We saw an increase in attrition in 2009 from 2008," says Michael Jaffe, vice president of marketing and new programs at NxGen Payment Services, a Whitefish, Mont.-based ISO. Jaffe attributes the increase in the attrition rate, which was between 12% and 15% in 2008 and rose to between 18% to 20% last year, to the general economy and to security and data- protection fees processors and acquirer assess.
While there is no industry average, given the fragmented nature of ISOs' merchant portfolios, NxGen's attrition rate is not out of line with what other ISOs have reported. Moreover, attrition rates vary among NxGen's merchant portfolios, Jaffe adds.
Because an ISO can work with different processors, it can have different merchant portfolios. And their needs and beliefs can differ as well
Security fees in particular can lead many merchants to switch service providers because they believe they are for unnecessary services or because another ISO does not charge as much or at all for the services, Jaffe says.
Include the merchant-security questionnaire the Payment Card Industry Security Council formulates that many merchants find difficult to understand, and the situation intensifies, Jaffe says. "Smaller merchants just throw their hands up and say they're not taking credit cards anymore," he says. "We also saw merchants who just did not believe us, no matter how well explained, that it wasn't just fees. Merchants don't buy into it. They just think they're being badgered."
But not all ISOs are experiencing increased attrition. The attrition rate at Omega Processing Solutions, a Fort Thomas, Ky.-based ISO, for example, has not budged in six years, CEO Scott Anderson says.
One contributing factor is Omega's broad range of merchants, Anderson says. "We're not heavily in the retail space, restaurant or business to business," he says, likening this to portfolios held by many of his peers that are not heavily concentrated in specific merchant categories.
The types of merchants dropping out of his portfolio include bars and restaurants that have seen "significant drops in traffic," Anderson says. Some merchants have abundant cash and little debt and can weather today's economy, he says.
Of course, no ISO can expect a diversified portfolio to sustain itself without some effort.
Omega, for example, routinely follows up with merchants when they move to different service providers, Anderson says. Sales agents also regularly talk to their merchants to gauge satisfaction with their payment services, he adds.
Merchant Devotion
Sales agents and ISOs alike have devoted themselves to retaining as many of their merchants as possible to address the recent economic turmoil.
A few years after Clayton Denton, owner of Centurion Payment Solutions in Dyer, Ind., began selling merchant accounts, he noticed satisfied merchants could help him reduce attrition. "The more merchants I got, the more I had to answer the phone when they called for customer-service issues or referrals," Denton tells ISO&Agent.
These calls shifted Denton's strategy to a stronger emphasis on retention. "In 2005, I really started to feel the crunch of competition," he recalls. "I was terrified by competition. I found my merchants were getting called two to three times a day and were visited [by competitors] once or twice a week."
Denton's merchants began to wonder about his place in the payments industry. "They called asking questions," he says. "It came back to re-closing my existing merchants, explaining how I fit into payments. That helped retain these merchants."
To contend with attrition, Denton relies on existing merchants and asks them to refer other business owners.
Despite a 20% decline in residual income from Centurion Payment's merchant portfolio, the company's attrition rate last year was the lowest in his 10 years selling merchant services, Denton says.
For U.S. Merchant Services Inc., a Port St. Lucie, Fla.-based ISO, reducing attrition also means maintaining consistent contact with existing merchants, says Steve Norrell, director of sales. U.S. Merchant Services built its own software to analyze transaction data to spot possible problems early on. Agents, for example, can monitor collected data to gauge how often to contact a merchant.
A merchant with only $3,000 in payment card volume during a month may only need to be contacted every six months or so because volume, if lost, may not hurt as much as a larger account switching, Norrell says. "Anybody doing $100,000 or more should be seen once a month" because of the value of these transactions, he says.
What To Do
Group ISO's Svoronos also praises the merits of communicating with merchants. "We want a merchant to stay with us as long as humanly possible," he says. "If the merchant is the way [to success], then you have to take care of the merchant."
Doing so means more than speaking with the merchant, Svoronos says. "Did I do everything in my power to keep this merchant on board? Did I do things for the sake of doing them correctly?"
Another suggestion is to avoid forcing merchants to hear pitches for new services, such as check acceptance or gift cards, Svoronos says.
"Don't try to force new products down their throats," he says. "There is a time and place where people don't want to buy anything more than they need at the moment. [Agents] have to become advisors or consultants."
Denton urges agents not to be too cautious, however. "A mistake I learned from is to make sure a merchant knows everything I offer," he says, recalling one merchant who switched to another service provider because it did not know Centurion Payment offered more than credit and debit card processing.
Denton now includes in each sales call a short reference to other services the merchant did not choose initially but may need one day. "I'm just making sure they at least know if they're looking for additional service to call me," he says.
Of course, not every attempt to retain a merchant will work. "There will be good days, there will be bad days for ISOs," Svoronos says. "Remember, it's just as bad for merchants."
Regardless of overarching economic conditions, the value of retaining income-producing merchants is something ISOs continually realize.
