ISOs can differentiate themselves–or at least keep up with the competition–by offering merchants value-added business-to-business services that track payroll, inventory and marketing. B2B services sometimes earn ISOs a profit, but often they serve as loss leaders.

Either way, they attract and help retain clients in what is increasingly a commodity market for credit and debit card processing with increasingly thin margins, observers say.

“That’s becoming the modern way of doing business,” Hiram Hernandez Sr., president of First Capital Payments, says of B2B service offerings.

The Rochester, N.Y.-based ISO, which has offered such services for about three years and considers them a profit center, begins by consulting with merchants on strategy and then finds third-party software to fit the retailer’s needs, Hernandez says.

Taking the time to learn the B2B services that would benefit merchants can make the sales call a valuable experience for the merchant instead of a bothersome intrusion, observers say.

An ISO that offers an irrelevant, redundant or outdated service strikes merchants as just another salesperson. But those that offer labor-saving, profitable services can transform themselves into valued consultative partners, observers say.

“You have to be able to add on products and services that the market actually needs,” says Antonio Smith, who operates International
Merchant Services Inc., an Atlanta-based ISO. “Find products that hit the hot button for that client.” Smith also wrote “The Sellionaire,” a book on sales and marketing.


 ‘Hot Button’ Advice

Hernandez takes the “hot button” advice to heart when determining the B2B services that fit a merchant’s retailing category.

Hair salons, for example, could benefit from software that tracks customers’ purchasing habits, Hernandez notes. When a customer has not been in for a while, the system could signal an appropriate time to send a postcard offering a discounted haircut. It also could track customers’ birthdays and other special events, enabling the salon to send e-mails offering timely birthday or gift cards, he says, noting knowing customers also helps with mass mailings announcing promotions.

Related loyalty campaigns could award points to regular customers no matter what payment method they use–cash, card or check–and notify patrons when enough points have accrued for a free haircut, Hernandez adds.

When a salon gets down to the last two bottles of a particular hair gel, inventory software could tell the salon owner that it took a year to sell 24 bottles, so she might order just 12 this time,
Hernandez continues. Or if she ordered 12 last time and sold them all in a month, the system would alert her of the need to order more.

Inventory-control software and marketing
intelligence similarly can prove vital to liquor stores, Hernandez says, noting First Capital offers such software.

Liquor stores carry huge inventories and have only a dim understanding of what they have on their shelves and in the back room, he says. With tracking, a store owner would know when only a few bottles of a certain brand of liquor sell each month, so he could buy one case instead of five next time.

A grasp of what is on hand also helps owners make rational choices when distributors offer specials, such as “buy 10 cases and get one free,” says Hernandez. “That’s a big help in that area,” he says of the inventory-control feature in liquor stores.

And just as hair salons can benefit from customer information, liquor stores can refine their marketing when they scan driver’s licenses and find that wine customers are mostly between 25 and 45 years old or that vodka buyers are concentrated in one ZIP code, Hernandez says.

B2B services also may provide restaurant owners a respite from the long hours and seven-day weeks typical in the food-service industry, Hernandez says. In a remote location, the owner could open a laptop and monitor the point-of-sale terminal with cameras and software, and T-bone steaks and lobsters become less susceptible to “borrowing” when an inventory-tracking system is monitoring the restaurant kitchen, he says.

“If you bought a box of 12 steaks and sold five, you should have seven left,” Hernandez notes. “The merchants love that.”

The system also could suggest ordering inventory, and the owner or manager simply would agree or
disagree with the recommendation, he says.

Meanwhile, the system assigns workers to shifts, based on the number of hours they are supposed to work weekly, and provides the employees a place to check their upcoming work schedules, Hernandez says.

For small businesses, automating payroll duties may reduce the owner’s burden from a weekly three-hour affair to a 15-minute task, observers say.

First Capital Payments bases B2B services on software developed by other companies, but the ISO sells, installs and maintains the systems, providing merchants with a single-supplier experience, Hernandez says.


Customer Retention

World Bankcard Services has gone a step farther by creating its own inventory and payroll software, says Sonny Im, the company’s president. The Fairfax, Va.-based ISO began offering the system in May after two years of development, and more than 300 retailers now use it, Im says.

At about $2,000 per installation, the software undercuts competing offerings that can cost $3,500 to $10,000, but the ISO loses some money on each one it sells, says Im, who claims the same or better functionality of the higher-priced competitors. “We don’t want to make a big profit out of the software,” he says. “We just want to retain customers.”

The software comes with a one-year warranty. Thereafter, users may pay a per-hour charge for maintenance or sign a service contract that requires a monthly fee but covers any eventuality, says Im.

The software comes in three variations, one each for restaurants, dry cleaners and other retailers, Im says. All provide functions tailored to their
respective market segments.

The version for cleaners, for example, tracks the numbers used to identify clothing transported around the shop on overhead conveyors and uses them to scan items out when picked up. It performs those tasks plus the typical handling of inventory and payroll duties, Im says. A fourth iteration, for hair and nail salons, is in the works, he adds.

Sales agents that place a software package with a client receive an upfront payment of $500 plus the 50% residual they earn for life for the payments processing, Im says.


  Processors’ Role

Processors are taking up the cause of B2B services, too. And sometimes they furnish software ISOs can present to merchants.

Heartland Payment Systems Inc., for example, has created a payroll division to create products that ISOs sell, says Adil Moussa, an analyst for the Boston-based Aite Group LLC. Princeton, N.J.-based Heartland declined to comment for this article.

In another example, Atlanta-based Elavon Global Payments Solutions offers a suite of B2B products to its ISOs, says Mike Passilla, president and CEO. (See related article, page 48.)

Intuit Inc., a Mountain View, Calif.-based software company known to consumers for
bookkeeping income-tax aids, also functions as an ISO that offers B2B services, Moussa says.  “Intuit has had these services for a long time, and they have been very successful at cross selling them,” Moussa says. “Their model is built on creating [services] that are very helpful and simplify the life of the business owner.”

Intuit offers substantial discounts to merchants that sign up with the company, Moussa says. Intuit software interlinks so merchants may transfer data from one program to another, such as QuickBooks and the Intuit payroll software. “It just makes the life of the merchant so much easier,” Moussa says.

Intuit sells the products through a dedicated sales staff, online and in stores that include Best Buy, an Intuit spokesperson says. Other ISOs also may sell the products, she says.


  Gain A Relationship

Some ISOs are committed to all or most of the particulars of B2B services, but others say they can function almost like a one-stop shop simply by referring clients to third-party providers of the services.

A couple of times each year, Prairie State Payment Systems Inc. passes along a referral for payroll services, says Al Bender, the ISO’s president. The Glenview, Ill.-based company receives no payment for referrals but benefits by enhancing its consultative relationship with merchants, he says.

The desire to offer complete services also motivates Florida Bankcard Solutions to make B2B services referrals, says Jon Stolp, a vice president at the ISO. The Tallahassee, Fla.-based company operates as a subsidiary of the for-profit Florida Retail Federation Services, an entity separate from the nonprofit Florida Retail Federation.

“We make so little out of that, it’s almost inconsequential,” Stolp says of the referral fees. “It’s more about gaining that full relationship.”

Stolp’s experience as a banker taught him to sell as many products as possible per household or business. Once customers sign up for checking
accounts, banks typically also offer a credit card, debit card, savings account, and a home equity and car loan, Stolp notes.

“The more things that they have with you, the more likely they are to be a long-term customer of yours, and the less likely they are to go find someone else to provide those services,” Stolp says. The same is true for ISOs, he says.

Because of the relationship Florida Bankcard
Solutions has with the statewide retailers association, the ISO also can refer clients to another B2B service, the Florida Retail Federation Self-Insurers Fund, a member-owned worker’s compensation plan.

Under state law, the fund charges the same premiums as other carriers but pays dividends to the owner-members in years with only a small number of claims, Stolp says. The ISO can make the referral, but only licensed insurance agents can make the sale. That means the ISO does not share in the profits, but it gets a boost from the differentiation the service creates, Stolp says.

The association connection also helps Florida Bankcard Solutions to offer discounted shipping, which is another unusual B2B service, he says. The group qualifies for lower shipping fees based on the economies of scale achieved through collective
negotiation, Stolp says.

As with some other referrals, the ISO makes a small residual, he says, noting the amount remains “very, very small.”

Unusual B2B services also crop up among Intuit offerings, which include helping small businesses create and maintain websites, complete with shopping carts and an online community for entrepreneurs to exchange tips, the company spokesperson says.

Services that remain unusual now but could become more widespread include software to help ISOs comply with upcoming federal regulations, observers say.

Atlanta-based TermNet Merchant Services Inc., for example, is considering offering payroll services that also would help handle new rules requiring ISOs to report merchants’ transaction volumes to the Internal Revenue Service, says Tim Rogers, the ISO’s director of strategic development.

Unusual value-added services also are occupying the thoughts of Hernandez at First Capital
Payments. “We have a merchant who wants to sell rechargeable cell-phone minutes,” he says. “It came up in the morning meeting five or six months ago. So we’re going to find a [service] for him.”

The ISO tried about eight years ago to find a way to help merchants sell phone minutes but rejected the idea as impractical at the time, Hernandez says. Today’s circumstances make the effort seem more worthwhile, he adds.

Competition among ISOs is continuing to increase as the nation’s retailers suffer from the lingering effects of the economic downturn, observers say. More businesses have closed their doors than usual, while fewer entrepreneurs have launched businesses because of increased risk of failure and financial institutions’ reluctance to lend funds, they say.

Just the same, some ISOs resist the notion of
offering B2B services, often because they do not see themselves in that role, according to multiple sources, including Aite Group’s Moussa.

“Each ISO has a different strategy, and some choose to focus on payments because they don’t want to go into something else,” he says.

Some ISOs fear they will make a nuisance of themselves by repeatedly contacting merchants, thus giving the clients a reason to defect to another merchant acquirer, Moussa says. “My idea is if you are bringing a [service] that really helps the merchant, then you are not bothering the merchant.”

Approach the client with the idea of developing a strategy instead of selling a product, suggests International Merchant Services’ Smith. “Bundle up something that will give them a wow factor,” he

By offering that striking and relevant value-added business-to-business service, ISOs can set themselves apart from the competition and retain clients in a commodity-oriented marketplace.  


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