Independent sales organization Eureka Payments LLC has no ambition to be a one-size-fits-all merchant-services company. Instead, the Eureka, Calif.-based start-up is pursuing only mobile merchants and those accepting card-not-present transactions.
Eureka executives contend not enough merchant services are available for such types of merchants.
A slew of products are available to mobile merchants, but they come with a wide range in costs, and many merchant-services companies offer only a few devices, leaving the mobile merchant without much choice, Ken Musante, Eureka president, tells PaymentsSource.
Eureka also sees opportunity in targeting online merchants, especially those that have had difficulty getting merchant accounts elsewhere.
Musante says he and his colleagues—Scott Bartlett as chief operating officer and Steve Kimberling as executive vice president of sales and marketing—have expertise in card-not-present merchants and only will work with those that abide by the card brand rules and those of the Federal Trade Commission.
Musante’s experience stems from the 1993 founding of Humboldt Merchant Services, an ISO that Moneris Solutions Inc. bought in 2008 (see story). He left Moneris in March. Both Bartlett and Kimberling worked at Humboldt with Musante.
Eureka works with seven acquirers that Musante declined to name, including some based outside of the United States. Offshore acquirers often are likelier to accept high-risk merchants, such as those with many card-not-present transactions for subscription services.
The diverse group of acquirers also may help retailers, even high-risk ones, get a merchant account at a lower rate than they might otherwise, Musante says. And these merchants may not need as large a reserve account, he notes.
Part of the explanation for why that is possible is that Musante, Bartlett and Kimberling are the only Eureka employees, and they have no plans to hire other salespeople.
“If the merchant is not getting access to use, he may not get our experience,” Musante says. “We need to provide a very controlled, concierge-level of service. The difference is we have substantial upfront investment in the merchant.”
The investment is not in money but in time.
“By investing our time with each merchant, our cost in terms of hours involved is very high,” Musante says. “Once we get the merchant, we want them to stay so we can recoup the investment.”
Eureka’s strategy could pay off, says Adil Moussa, an analyst at Aite Group LLC, a Boston-based consulting firm.
“If you have a very good underwriting department and some very good rules in place, it makes sense” to specialize in higher-risk merchants, Moussa says.
That helps explain why Eureka is keeping its staff small. “The more direct access they have with merchants, the more they can understand the risk they’re exposed to and make efforts to try to mitigate that risk,” Moussa says.
The profit margins on high-risk merchants can be larger than those with lower-risk merchants. Moussa says he has seen discount rates, which includes interchange and other processing fees, as high as 10% for high-risk merchants. Many traditional merchants pay a discount rate of about 2%, he says.
Eureka’s wireless merchants mostly will have typical retailer discount rates for their card-present transactions, Musante says. “A lot of the higher risk [merchants] will be priced higher,” he says.
The risk for Eureka is that not many of these highly rewarding merchants are out there, Moussa says. “It’s not like there’s millions of them,” he says.
Specializing in certain types of merchant has risk as well. “It’s always the same classic question: Do you want high-volume, low-margin merchants or low-volume, high-margin merchants?” Moussa says. “In today’s market, if you can find a niche and hold on to it, it is definitely to [an ISO’s] advantage.”
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