A data breach against a well-known payments processor assuredly triggers concern about what processors are or aren’t doing to protect stored data.

Advisors then stress to merchants that they more closely analyze their processors, and security vendors begin to target processors with their latest software to bolster fraud defenses (see story).

But there’s even more than security concerns to consider when it comes time to negotiate a contract with a processor, especially for credit unions and smaller financial institutions trying to stay competitive, a new report from The Members Group suggests.

Security remains a vital aspect of operating a financial institution, but many card managers most often rely on their fraud-security vendors or in-house experts to stay abreast of which fraud protections a processor offers, Lesley Hastings, The Members Group director of New Client Partnerships, tells PaymentsSource.

The Members Group, a Des Moines, Iowa-based subsidiary of the Affiliates Management Co., develops processing and payment services for credit unions and banks.

After years of listening to card managers regarding their business relationships with processors, Hastings compiled a report released May 30 outlining the types of questions financial institutions should ask their payments processor when renewing contracts.

The Members Group sent “When the Grass Really is Greener: Evaluating Your Processing Partner at Renewal Time” to hundreds of credit unions last week, providing managers with a guide that encourages stronger communication with processors before contracts are signed, Hastings says.

“Security questions come up a lot, but not as part of day-to-day operations,” Hastings says. “This report addresses those areas in which credit unions must rely on processors to operate on a day-to-day basis.”

Renewing a contract with a processor should become far more important than a “nonevent” that goes unnoticed because of automatic renewals or just a time to “put another signature on another document,” according to the free report (see report).

“Payments have the potential to be a true differentiator for community financial institutions,” the report states. “Yet that potential can be easily bottlenecked by the wrong processing partnership.”

The report advises card managers to spend at least a year re-evaluating their processor, then explore the potential benefits of selecting a new provider.

In the increasingly competitive payments environment, being able to add new services or upgrade current services becomes vital, Hastings notes.

Credit unions should talk to processors up front about costs and marketing support, Hastings says. But getting answers from processors about their ability to make changes or provide new services as needed should be a high priority, she adds.

In putting together her report, Hastings found that credit-union executives often found out too late that the processor either couldn’t make the needed changes to accommodate a new program, or it couldn’t do it quickly enough.

“You can’t change processors easily, so knowing upfront what the processor is able to deliver can be a lot less painful,” Hastings contends.

The advice for credit union card managers easily could carry over to acquirers and independent sales organizations because they also should be aware of what processors are able, or even willing, to do, Maria Arminio, president of Avenue B Consulting Inc., a Redondo Beach, Calif.-based payments management consulting firm, tells PaymentsSource.

Processors deal with two significant tasks that have increased in intensity over the past few years–payments security and ever-changing specifications for new payments options, Arminio says.

If a credit union were to introduce a new prepaid card for its customers, the card managers may find out the processor has not fully modified specifications to handle the card’s various functions, which would result in denied transactions, Arminio suggests.

“When prepaid cards first came out, processors were handling them like signature-debit cards, but there are many functions, such as reloading funds, that are unique to a prepaid card,” she explains.

With mobile payments and various new card offerings, processors will be handling “a plethora of new modes of supporting authorization,” Arminio contends.

“These processors have development [limits] in that they need a significant number of transactions to come through to justify a change,” she adds. “This could be a classic case of a processor not being able to handle just any kind of new development that comes along from any credit union.”

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