IMGCAP(1)]
This article appears in the April 2, 2009, edition of ISO&Agent Weekly.
Today's economy is about nurturing merchant loyalty to ensure residual income remains fixed to the agent or ISO.
While loyalty-program vendors have differing approaches, the expectation among their ISO clients is the same: Help retain merchants while making additional revenue.
At Ameribanc National Ltd., CEO Dan Lewis sees loyalty as one of four services that complement his ISO's credit and debit processing. The other three are electronic check services, PIN debit and a gift card program.
Lewis uses a loyalty scheme devised by Affinity Solutions, a New York-based loyalty company, which has no up-front cost to the merchant and relies on a network of banks to promote the reward program.
Affinity's contracts are with banks, which provides the loyalty company with relevant transaction information.
Merchants sign up to participate in the loyalty program and can choose the type of consumer reward, such as cash back after a certain level of purchases. Each time the consumer uses the bank's payment card at a merchant, transaction information is captured by Affinity without the retailer or processor getting involved.
Varying Loyalty Models
Another loyalty company uses a model that eschews sharing customers with other businesses in favor of a program specific to individual merchants.
The closed-loop loyalty system from Business Builder Alliance creates a database of participants for each merchant, says Walter Dubowec, chief marketing officer for the Rancho Santa Margarita, Calif.-based company.
With the Business Builder program, consumers enroll via a Web site that features the merchant's logo by registering up to 20 payment cards.
Each time participants use one of their cards at a merchant, they earn reward points. At certain point levels, Business Builder issues gift cards that consumers can use only at that merchant, Dubowec says.
Merchants pay $299 to join the program plus a $599 monthly fee.
Early testing of the program at one merchant, which saw invitations containing a gift card sent to 50 potential customers, resulted in 20 new customers attracted to the business over one month, Dubowec says.
ISOs can resell the program and earn money from a portion of the merchant's sign-up monthly fees, Dubowec says. He would not disclose the specific percentages but says the monthly fee revenue could be as much as $140 per month, depending on the contract between the Alliance and the ISO.
Each of these programs has high hopes for growth aided by ISO sales.
For Lewis, a critical factor in evaluating Affinity was if there were enough banks in the regions where his merchants are so the loyalty program could be offered by all of the ISO's sales agents.
Lewis also wanted a simple program. "We wanted something that was kind of a no-brainer," Lewis says. His sales agents have incorporated it into the standard sales package, because it has no up-front cost for the merchant, Lewis says.
ISO Compensation, Issuer Costs
Affinity pays a commission for enrolling merchants, typically between $100 and $150, says Jonathan Silver, Affinity president and CEO. For each new merchant to an issuer's program, the ISO receives a fee of $20 to $250 a year.
The ISO also gets a share of the administrative fee Affinity charges the merchant, Silver says. For example, if a merchant chooses a rewards level of 5%, it may charge an administrative fee of 1.5% above that level, which it shares with the ISO.
A merchant with $200,000 in annual card volume could pay $1,200 a year for the Affinity program, assuming that card issuers in the program represent 15% to 20% of that volume, Silver says.
He likens the marketing provided by the issuers as a better tool to motivate consumers than traditional advertising outlets.
"Almost all of that $1,200 is being used to incent the consumer," he says, cheaper than $300 a month for a newspaper ad.
"Newspapers are a dying channel and that opens up an opportunity for us to step in," Silver says.
The revenue sharing structure is important, says Ryan O'Connor, president and CEO of Boulder, Colo.-based Velocity Payments LLC. However, he also is interested in the loyalty company's financial health when evaluating a prospective vendor.
O'Connor advises caution.
"You have to make sure [loyalty companies] are working with your processors, and the processor is willing to send the [transaction] data," O'Connor says. "It's a great lead generator for finding new merchants, especially if the merchant is really sold on their affinity program."
O'Connor also says that a loyalty program must be sellable across an ISO's merchant base in order to get the most revenue out of the program.
Generally, loyalty programs are not confusing for salespeople or merchants, he says, and they typically have low costs for merchants.
"If you have the merchant accounts and the ability to drive more consumers to your merchant, everyone wins," O'Connor says.
