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This article appears in the Feb. 12, 2009, edition of ISO&Agent Weekly

Merchant Warehouse Inc., a Boston-based ISO, says its BINSmart Cost Manager software can steer merchants to the lowest-possible transaction rate for card payments. The software makes the analysis in less than a second, Henry Helgeson, Merchant Warehouse president and co-CEO, tells ISO&Agent Weekly.

"It will estimate the lowest possible cost on each transaction," Helgeson says. The actual rate is not determined until the transaction is authorized. BINSmart examines each transaction before authorization using a Hypercom T4220 payment terminal configured to work with the software.

Getting merchants the best price is vital. Most merchants, 78%, cited too-high pricing as a factor in leaving a processor, according to "The Allure of Greener Grass: An Analysis of Merchant Attrition," a report recently issued by Boston-based Aite Group LLC. To provide context, 48% of merchant respondents cited the next-most-important factor, "slow reaction to my needs," for leaving. Aite surveyed 160 merchants for the report.

 "Our terminal is smarter than PIN-steering," Helgeson says, citing terminal technology that asks consumers for a PIN when using a debit card to transact. Smaller merchants can benefit from this type of technology without needing the budget of a large merchant, Helgeson says.

The Merchant Warehouse Web site lists the Hypercom terminal at $289. Helgeson would not disclose the fee for BINSmart but says Merchant Warehouse sales agents started selling BINSmart this week at a "premium."

Reacting To Price Competition

Helgeson does not fear the service will lower the ISO's revenue, although transaction rates may end up being less than without the BINSmart analysis.

"Most of our agents feel they're making money because they can sign up so many merchants," he says.

BINSmart is Merchant Warehouse's reaction to competing on price, Helgeson says. ISOs have seen profit margins fall in recent years as merchants became saturated with payment terminals and clamored for lower transaction rates.

According to a review of 89 ISOs working with Calpian, a Dallas-based ISO lender, the first-month average residual revenue has fallen from $45 in September 2005 to $20 in February 2007. Calpian released that survey last fall.

"We needed a way to sign merchants, and we needed not to be in a margin war," Helgeson says. Sales agent should not see a reduction in their revenue margins with merchants using BINSmart, but a reduction in what merchants pay overall, he says.
Merchant Warehouse built the BINSmart database and will update it as the card brands release new interchange rates.

Eventually, Merchant Warehouse will incorporate the BINSmart service into POS systems from PC America, a POS system maker that Merchant Warehouse is working with (ISO&Agent, 1/29), Helgeson says.

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