From the March 2010 issue of ISO&Agent.
As sales companies, ISOs depend on a steady stream of merchant leads to stay in business and increase revenue. The dilemma, however, is finding these leads, especially when it seems all the bountiful merchants already accept credit and debit cards.
Getting merchants to switch is one element of today's sales model. Many ISOs have found their best success when a third party, such as the merchant's bank, a local chamber of commerce, a trade group or point-sale-software system developer, refers the prospective merchant to them.
ISOs that understand some best practices surrounding referrals, such as what to include in the agreements, how these leads differ from ones generated by other sources and the special handling they require, could benefit the most from their referral deals.
Referral agreements are a popular source of sales leads and are responsible for 29% of merchant acquisitions overall, with 19% of new accounts coming from association and value-added reseller referrals and 10% coming from other merchants, according to "Merchant Acquiring in 2010," a report released in November by Boston-based consulting firm Aite Group LLC. Aite surveyed 45 ISOs and acquirers between July and October for its report.
The Set Up
Many organizations, such as banks, local business associations, Web-site designers and software developers, refer their customers to ISOs and acquirers for merchant-processing services. The ISO or acquirer then shares with those organizations a percentage of its processing revenue, or it may provide the referring organization a one-time finder's fee when the merchant begins processing transactions.
ISOs using referral agreements as a source for merchant sales leads may want to heed the advice of their peers when crafting the deals. In many cases, the referring entity becomes an agent for the ISO. As such, contracts must be clear and specific, says Will Detterman, CEO of Leap Payments Inc., an Agoura Hills, Calif.-based merchant-services provider with a 2,000-merchant portfolio.
"The big deal is defining clear roles and responsibilities and communication," Detterman tells ISO&Agent.
Everyone signing the agreement must understand why and how they get paid, Detterman says. Details also must include who is to receive payments within the referring organization.
Detterman also includes examples of how the payments will work, something helpful for those unfamiliar with credit and debit card processing. "It helps set expectation levels appropriately," he says.
Some ISOs prefers that referring organizations sign a standard agent agreement, says Kyle Morgan, president of Mercantile Processing Inc., a Fenwick Island, Del.-based merchant-services provider. Unfamiliarity with agent agreements may cause some to hesitate signing, or the length of the contract may intimidate them, Morgan says, noting some agreements can be 16 pages long.
"You have to see what your referral partner is willing to do," Morgan tells ISO&Agent. "If you can get away with giving them a standard agent agreement, do it."
Morgan recommends using shortened agreements if necessary but eventually moving the referrer to a standard agent agreement. "Tell them that's where the real money is made," he says.
Best Practices
Like any business process, some best practices have emerged in dealing with referral leads.
One priority is to keep the referrer informed about where the sales process stands at each step, Morgan says. He advises sending an e-mail when the lead comes in and for each step along the way, such as when the merchant submits an application. That level of notification should exist for when problems happen, Morgan says.
Many times Morgan also likes to find out which person within the referring company actually told the merchant about Mercantile Processing so he can send the person a $25 gift card. That works well in the case of bank referrals, where a teller made the referral. This practice engenders goodwill about the ISO, and it is a low-cost expense, he says.
Morgan also makes it a point to attend trade shows to meet with managers from other companies that serve merchants. Often it is there that he begins talking to future referral partners.
"You have to build that," Morgan says. "You have to take the time." These third-party companies focus on their software or Web-design services instead of on payments because payment processing is not their primary enterprise.
It usually takes a sizeable check generated by about 10 merchants signed up through the referral program before the referrer becomes excited about the agreement, he says. "They start really seeing the value then," Morgan says.
Adjusting The Pitch
Once referral agreements are in place and leads start arriving, an ISO likely will need to adapt the sales pitch subtly, observers says.
The sales pitch adjusts if the merchant supplies a copy of a recent processing statement, something referrers can ask for and pass along to the ISO, Detterman says.
The sales pitch with referral leads is not much different from Leap Payments' typical pitch, Detterman says. "We're talking to existing merchants and educating them on what they are paying and giving them a better package," he says. "We don't do any cold calling. Our pitch is pretty consistent across our [sales] channels."
The pitch does not have to cover the fundamentals of payment card processing because the merchant already is familiar with them, he says. The merchant, however, should know about the services the new ISO offers.
Having a copy of a previous merchant-processing statement can speed up the sales process, Morgan says. "By the time the salesperson calls, the merchant could be ready to close the deal," he says, citing the importance of having an experienced ISO salesperson when working with referral leads.
"We want someone who is experienced and can answer every question," Morgan says. The ISO salesperson also is representing the referral partner, and nothing should jeopardize the relationship between the ISO and referrer, he adds.
To that end, the ISO adapts the sales pitch to reflect that the merchant has asked for the information.
Ask merchants "What do you want from us?" Morgan advises. "Do the follow up, but never go for the push," a reference to the sometimes frequent return calls to merchants to get them to sign a processing deal.
While in a merchant's business, salespeople often persist in asking the merchant to switch ISOs until the merchant says yes. "Don't do that with referrals," Morgan says.
Working with referral leads offers ISOs the potential to secure loyal merchants with relative ease, a feature that continues to motivate many ISOs to pursue referral agreements.
