ISOs are working to take the confusion out of what some merchants consider misleading pricing in the merchant-acquiring industry.
In one example, IMS Inc., a Westmont, Ill.-based ISO formerly known as International Merchant Services, is providing merchants with detailed pricing information and sharing the terms of its processing agreement with First Data Corp.
IMS requires its merchants and agents to sign nondisclosure agreements because it provides confidential information they normally would not receive.
The move by IMS and other ISOs to create "transparent" fees is a marketing approach that some merchants may find valuable. The changes are coming at a time when ISOs are looking to reduce their merchant-attrition rates.
In fact, IMS made the pricing-disclosure decisions partly because "our competitors are calling our clients every day to get their business," says Bryce Gartner, IMS chief marketing officer. Increased transparency can build stronger, longer-lasting and more-profitable client relationships, Gartner says, adding that stronger relationships built upon open pricing may result in fewer clients lost to competitors.
ISOs that operate with transparent pricing can present the fees they disclose as necessary to cover added benefits to merchants, says David Fish, senior analyst with Maynard, Mass.-based Mercator Advisory Group. "It may take some product-development testing, but it might be something that merchants would be willing to pay a premium for," he says.
An Oath of Silence
The payments industry suffers from too little pricing transparency and too much misleading information, says Gartner. Acquirers are using subterfuge, for example, when they offer merchants "free" terminals, he says.
"A terminal is not free," Gartner asserts, adding that companies compensate for the so-called free terminals by adding or raising fees.
IMS began testing a more-transparent pricing model in the spring, and clients have responded well, says Gartner. "We're really breaking out our pricing and showing, 'Here's what you're paying the associations, here's what you're paying us and here's what you're paying for a terminal,' he says. noting that that IMS works with roughly 15,000 merchants.
Achieving transparency in an industry that usually lacks that quality presents a challenge, says Gartner. IMS worked closely with First Data to share information about the companies' processing and pricing agreement, which remains confidential, says Gartner. Before viewing the companies' processing information, merchants and agents are required sign nondisclosure agreements, he says.
"While we can't comment on specific ISOs, First Data supports transparency in the payments industry," Stephanie Lusher, a senior vice president for First Data's ISO division, tells ISO&Agent Weekly. "We consider it critical that merchants and other key stakeholders understand the value of the services they use."
A Pavlovian response?
IMS also has encountered some incredulity among its clients in regard to the updated pricing practice. "They have been conditioned to think this industry is hiding something, and no one has done anything to prove differently," Gartner says.
Full pricing disclosure began with large, national retailers, says Mike McCormack, executive vice president for Fort Lauderdale, Fla.-based Noblett & Associates Consulting LLC.
"National retailers have demanded unbundled pricing, and that kind of pricing has moved down-market" to small- and mid-sized merchants, McCormack says.
However, ISOs interpret transparency in numerous ways. "The devil is in the details as to how much information is actually shared," says McCormack.
Most ISOs would argue their pricing is transparent, he says. Some, such as IMS, share every detail, while others bundle some costs and counter that they are providing merchants with pricing information that is simplified yet still transparent, says McCormack.
Still other ISOs are competing on services. "Some ISOs are going transparent, but that will lead to commoditization on the pricing. They're trying to differentiate on price," says McCormack. Others are moving in the opposite direction and competing with premium services that may cost more, he says.
IMS's push for transparency is one among numerous changes the company is making as part of a rebranding effort launched this week that includes an updated company logo, tagline and Web site.
The company also announced this week that it is offering a service that enables merchants to contribute to non-profit organizations by diverting to a charity 20% of the credit and debit processing fees the merchants pay to IMS. Interchange is not included in the percentage.
IMS ensures organizations that receive the donated fees are qualified as 501(c)3 nonprofit charitable organizations by the Internal Revenue Service. Such organizations are eligible to receive tax-deductible contributions.
Cut It Out, a national nonprofit organization of salon professionals that build awareness of domestic abuse, is the first nonprofit organization to participate in the service, called IMS Cares, a company spokesperson says.