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ISO and acquirer sales tactics vary, but so do merchants' responses to them, with some methods, such as referrals, gaining more accounts than others, according to a recent Aite Group LLC report. ISOs that understand the most effective acquisition methods and how different merchant categories react to them can increase their effectiveness at targeting and selling to merchants, according to observers.
"Reputation management is important in this field" because referrals are the best source of new merchants, says Adil Moussa, an analyst with Boston-based Aite and the report's author. Forty-percent of new accounts that merchants sign up for with ISOs and acquirers are business referrals from trade associations, vendors, accountants and friends, according to the report "And Besides Pricing? What Drives Merchants To Sign Up With Merchant Processors" released earlier this month.
Because of the importance of referrals and a company's reputation in garnering a larger share of referrals, "I don't think ISOs and acquirers are paying enough attention to their reputations in the market," says Moussa. ISOs and acquirers should be searching the Internet and industry publications to know what companies and merchants are saying about them, he says. "Respond to it and give your own version," Moussa recommends.
The effectiveness of referrals for ISOs is "true and not surprising," says Tom Stone, chief operating officer for Vision Payment Solutions LLC, a Portland, Ore.-based ISO. An ISO's likelihood of success is greater when dealing with a referred business, he says. "If you can be part of an association, and they put you up as the preferred vendor, when you call on association members they will be more likely to talk to you," Stone says, adding that good sales agents remember to ask for referrals after closing deals.
Another tactic popular among some ISOs, cold calling, is "pretty effective," with about 15% of surveyed merchants signing with an ISO or acquirer after receiving a cold call, says Moussa. He estimates acquirers make an average of 127 calls before closing one sale.
"There are a number of ISOs who do everything over the phone," says Stone, adding, though, that Aite's average number of 127 cold calls to make a sale sounds "a bit high."
The least successful method of acquiring merchants is through direct-mail campaigns, with only 2% of merchants choosing companies based on mail solicitations, according to the report.
The report results were surprising in that "things I took for granted that would work, the results showed that they didn't matter as much. For example, direct mail," says Moussa.
Categories Respond Differently
ISOs should approach merchants "by vertical," Moussa says. If ISOs and acquirers "are able to separate [merchants] into categories, [they] can target them more accurately," he says. "I was surprised to see the differences among the verticals," Moussa says.
The first step an ISO should take after acquiring a list of merchants is to look at each merchant's merchant category code and separate the merchants into groups based on the codes, he says. A merchant category code is a number assigned to a retailer by a card brand that categorizes the merchant by the type of services or products it sells.
Merchants need to be separated into categories because they all do not respond the same way to independent sales agent and acquirer sales tactics, with some categories responding better to sales calls or referrals and others responding to trade show information or Internet research, according to the report.
For instance, brick-and-mortar merchant respondents are most responsive to sales calls, with 24% indicating they found their processors through sales calls, according to the report. Restaurant merchants, however, respond best to referrals by professional trade associations, with 31% of respondents stating they found their processor through association referrals.
Aite surveyed 160 merchants for the report.
