Nearly two-thirds of small businesses create a formal plan for growth. But ISOs aren't always privy to the details.
Because ISOs are understandably locked in a mindset of selling payments products, they generally know when to speak to startups about their point of sale, processing and data security needs. But they can't always pinpoint the proper time to talk about upgrades or reprogramming because every merchant is different.
"The ISOs simply have to do something to expand their services," said Richard Oglesby, senior analyst at Double Diamond Payments Research. "But it is a real struggle. The reality of it is that every product has a sales cycle component to it, and every product is different."
Increasingly, small business owners are confident they can access the money they need to allow their business to keep up with the latest payments technology and other needs. Part of the reason for that confidence rests in the growing number of options available for securing loans, cash advances and other business services.
Sometimes those services come from acquirers and independent sales organizations, but increasingly small merchants look to specialized financing companies or the likes of Intuit, Square, PayPal and others.
These companies provide various versions of small business funding models, placing acquirers and ISOs right in the crosshairs of competition for small-business clients.
Because of margin compression, more competition and high attrition rates, ISOs are "always on the lookout for an interesting value-add product," said Marc Beauchamp, president of PayProGrow, an ISO operation based in Warsaw, Ind.
Capital funding falls into that category, Beauchamp said, but other services are catching the attention of ISOs. Some of these services have been around for some time, but are getting simply closer looks, while others represent new territories to help ISOs land merchant contracts.
"The trending ones I see include data analytics, because the ISOs are not just the payments guys then," Beauchamp said. "They are bringing actionable data to the table and the merchant can see where customers are coming from and what they are spending."
ISOs are also showing interest in payroll services, human resources management and consumer financing, Beauchamp said. "Some of them may not necessarily be new, but they are good fits," he added. "An ISO can go to an auto repair shop or dental care facility and offering financing for the merchant's customers."
In looking for unique ways to catch a merchant's attention, ISOs can now bundle a service like offering security cameras at the point of sale, Beauchamp said. "ISOs have had to completely change their models, so security cameras fit in nicely when bundling it with your POS sales or online ordering packages or customer loyalty apps."
However, things get tricky for ISOs and acquirers when they start stepping outside of their comfort zone.
"So things like capital, or the need to raise capital, what time in a merchant lifecycle do they need to do that?" Oglesby asked. "Is it at the same time as when they want to switch payment processing? Probably not."
Intuit Quickbooks has come up with an innovative approach to merchant funding. Intuit recently partnered with OnDeck to establish a $100 million fund to give small businesses better access to loans. The fund, called Quickbooks Financing Line of Credit, combines Intuit's customer data and OnDeck's technology for providing funds to companies with good credit.
The line of credit is becoming even more important, considering small businesses are often the last to receive money from clients after sales.
"We definitely are seeing small businesses squeezed by private banks, but also in terms of their payment terms by larger companies, so they are getting squeezed on working capital and taking longer to get paid by people they are doing business with," said Jeff Kaufman, group leader for Quickbooks Financing at Intuit. "On the bank side, small businesses just see a lot of pain."
In a previous role with Dun and Bradstreet, Kaufman saw firsthand that larger companies exert pressure on smaller businesses by taking a longer time to pay them for service.
"The biggest pain point for small business was getting working capital," Kaufman said. "A No. 1 priority was sales, but when sales came in, they needed financing to pay for inventory, or to get equipment they needed, or get employees they needed."
Often, a short term loan was needed need because they would sell a product and get paid, but that payments cycle is longer and causing pain," Kaufman said. "There definitely is this working capital cycle that is really hitting them."
Before the launch of the Quickbooks-branded line of credit, Intuit created the Quickbooks Financing Marketplace, a service established for longtime customers. The marketplace featured 10 lenders providing short- and long-term loans.
Small businesses understand how to book sales, but making sure they have financing in place is more difficult, Kaufman said.
"The way this technology is set up, if they agree to share their data for the decision process, we can provide a decision in real time [for funding approval]," Kaufman added. "With funding within one business day, we are really trying to help small business owners get needed funds fast and easy."
By the Numbers
According to American Express OPEN Small Business Growth Pulse survey this year of 1,000 small businesses earning more than $250,000 annually, "access to capital is certainly one of the most pressing needs for small-businesses," said Janey Whiteside, senior vice president and general manager of OPEN customer marketing and engagement for Amex.
American Express has offered its OPEN program to provide a variety of payment cards more attractive to small business owners, while including short-term, unsecured loans to purchase inventory and access capital to help finance expected and unexpected growth opportunities, Whiteside said.
Results from the OPEN growth pulse survey showed small-business owners are focused on growing their businesses, but also looking for more ways to fund that growth. Ninety-three percent of respondents said they feel they can get money when they need it.
Capital One's Spark Business Barometer, an ongoing survey that measures economic perceptions and financial conditions of small businesses, concluded this year that business owners need to invest more time in learning about the new technologies that affect them.
One of the major concerns with payments providers is that their merchant clients rarely have time to read up on technology while also operating their business.
"Today's highly innovative banking and mobile solutions are designed to help business owners manage and grow their business," Capital One reported. The 2015 barometer survey interviewed 400 small businesses earning total annual revenues of less than $10 million.
An Opening for ISOs
"There is money out there, it's not 2008 any more," Oglesby said. "There are quite a few options to get money or secured loans that are paid back off a percentage of sales. Credit-worthy merchants have access to capital."
For the past 18 years, part of CAN Capital's distribution system has come through ISOs. The company continues to use ISOs as it builds on what has been, to this point, providing more than $5.5 billion in financing through more than 160,000 small-business transactions. Many of those transactions target equipment needs, a strong point for ISOs in the payments industry.
The proliferation of alternative payments providers offering those types of services or helping find sources has taken shape since the toughest recession years of 2009 and 2010 marked a decrease in banks stepping forward to shell out loans or cash advances for struggling small businesses.
"You look at the portfolio of products that Square has, and it is as broad as anything you will find in the industry, with like 20 different products," Oglesby said. "An ISO is pretty good at selling encryption and tokenization and other things surrounding payments, but they would struggle at trying to get a merchant to see them about those other types of products."
Having a source of funds to point merchant clients toward is not enough, Oglesby said. "You need trust, timing and relationships," he added. "You need good pricing, you need terms that meet the borrower's needs … and building all of that up is not easy."
ISOs and acquirers face a difficult reality with small merchants. "If you are a merchant, your payments salesperson is someone you only met once or twice," Oglesby said. "Is that the guy you are going to call for a loan?"
However, even in an ever-changing payments industry, things will generally stay the same among merchants and ISOs that share a mindset. Those that think alike have a way of "finding each other," said merchant acquirer consultant and industry researcher Paul Martaus of Martaus & Associates.
"You have guys that just go in and sell a terminal and get out of the merchant's way at one end of the spectrum, and at the other you have the full-service ISO who sells every service under the sun," Martaus said.
Likewise, there are merchants who only want a terminal and don't care to see a sales person again, and others who "need hand-holding" and want every service available and thus seek help to better understand those services, Martaus said.
"ISOs are not always interested in providing more services," Martaus added. "They could easily offer more services, but they choose not to, and I don't really know why."
Most likely, Martaus said, those ISOs figure they will find merchants who are ideal targets for their particular service and once the sale is closed, they can direct those merchants to other ISOs they may partner with for customer service or other products.