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This article appears in the Sept. 3, 2009, edition of ISO&Agent Weekly.
Like most companies, merchants are experiencing the negative effects of the turbulent economy. From decreased transaction volumes to compressed margins, today's merchants are a financially stressed group largely focused on finding additional revenue and diversifying their payment products, observers agree.
The "vast majority" of merchants are experiencing decreased transaction volumes, says Dennis Hamilton, vice president of business development with TransFirst Holdings Inc., a Hauppauge, N.Y.-based processor. "Any time we talk to [merchants], there aren't many that have said their volume has increased."
Payment processor Heartland Payment Systems Inc. earlier this year reported a 9.7% decline in second-quarter same-store sales compared with a year earlier, the largest such decline in Princeton, N.J.-based Heartland's 12-year history, according to the company. Small and midsize merchant transaction-processing volume declined 0.6% during the quarter, to $15.2 billion from roughly $15.3 billion, according to Heartland.
"Economic weakness is continuing to pressure small and midsized merchants," Robert Carr, Heartland chairman and CEO, said in a statement.
The economic stress on merchants has changed the way they regard payment services and the ISOs that provide them, observers say.
ISO merchant-service sales pitches that worked with merchants before the economic downslide are less effective now, agree industry professionals. Instead of focusing solely on which provider can deliver the most cost savings for card-acceptance rates, many merchants are seeking a company that can help them generate revenue through additional products, such as loyalty and prepaid programs.
"It's not the same old sales message," says Donna Embry, senior vice president of Payment Alliance International, a Louisville, Ky.-based ISO. "It's no longer a matter of 'show me your statement, and I'll save you money,'" she says. Effective sales pitches now acknowledge merchants' desire to improve their cash flow and add revenue-generating products that supplement their basic card services, says Embry.
The economic situation in the United States has created an opportunity for ISOs to introduce new discussions with merchants, says TransFirst's Hamilton. The economy "allows an easy entrance" to discuss the revenue possibilities around additional payment products and services that merchants may not have, he says.
Before And After
Before the economic downturn, merchant focus was "strictly" on price for card-acceptance services, says Rhoda Steward, director of sales at First American Payment Systems LP, a Fort Worth, Texas-based processor. Though price remains important, merchants are looking for "products that will help them expand in the future," and they want to work with companies that offer multiple products, she says.
Hamilton agrees. "Some people say, 'I don't sell on price. I sell on service or relationship.' Then the first thing out of their mouths is, 'Let me show you how to save money,'" he says. "Now it's about building an expanded relationship" between the ISO and merchant.
The shift from price as merchants' main concern began in mid-2008, estimates Steward. Merchants began to evaluate their businesses when same-store sales began declining and decided they needed more value and options from their ISOs, she says.
Since then, merchants also have become more informed about payment-service providers, says Steward. The economic downturn, the industry focus on data security and recent high-profile data breaches, such as at Heartland Payment Systems, have made merchants "more cognizant of who they are partnering with, not only their service provider but their venders," she says.
Many merchants had been seeking the lowest rates and not performing due diligence on the companies offering the low prices, says Steward. "Now they are asking what you will offer in terms of security. They're asking about products and services and if the provider is financially stable," she says.
