From the September/October issue of ISO&Agent.

Like most companies, merchants are experiencing the negative effects of the turbulent economy. From decreased transaction volumes to compressed margins, today's merchants are a financially stressed group largely focused on finding additional revenue and diversifying their payment products, observers generally agree.

The "vast majority" of merchants are experiencing decreased transaction volumes, says Dennis Hamilton, vice president of business development with TransFirst Holdings Inc., a Hauppauge, N.Y.-based processor. "Any time we talk to [merchants], there aren't many that have said their volume has increased."

Payment processor Heartland Payment Systems Inc. earlier this year reported a 9.7% decline in second-quarter same-store sales compared with a year earlier, the largest such decline in Princeton, N.J.-based Heartland's 12-year history, according to the company. Small and midsize merchant transaction-processing volume declined 0.6% during the quarter, to $15.2 billion from roughly $15.3 billion, according to Heartland.

"Economic weakness is continuing to pressure small and midsized merchants," Robert Carr, Heartland chairman and CEO, said in a statement.



The economic stress on merchants has changed the way they regard payment services and the ISOs that provide them, observers say.

ISO merchant-service sales pitches that worked with merchants before the economic downslide are less effective now, agree industry professionals. Instead of focusing solely on which provider can deliver the most cost savings for card-acceptance rates, many merchants are seeking a company that can help them generate revenue through additional products, such as loyalty and prepaid programs.

"It's not the same old sales message," says Donna Embry, senior vice president of Payment Alliance International, a Louisville, Ky.-based ISO. "It's no longer a matter of 'show me your statement, and I'll save you money.'" Effective sales pitches now acknowledge merchants' desire to improve their cash flow and add revenue-generating products that supplement their basic card services, she says.

The economic situation in the United States has created an opportunity for ISOs to introduce new discussions with merchants, says TransFirst's Hamilton. The economy "allows an easy entrance" to discuss the revenue possibilities around additional payment products and services that merchants may not have, he says.

Before the economic downturn, merchant focus was "strictly" on price for card-acceptance services, says Rhoda Steward, director of sales at First American Payment Systems LP, a Fort Worth, Texas-based processor.

Though price remains important, merchants are looking for "products that will help them expand in the future," and they want to work with companies that offer multiple products, she says.

Hamilton agrees. "Some people say, 'I don't sell on price. I sell on service or relationship.' Then the first thing out of their mouths is, 'Let me show you how to save money,'" he says. "Now it's about building an expanded relationship" between the ISO and merchant.

The shift from price as merchants' main concern began in mid-2008, estimates Steward. Merchants began to evaluate their businesses when same-store sales began declining and decided they needed more value and options from their ISOs, she says.

Since then, merchants also have become more informed about payment-service providers, says Steward.

The economic downturn, the industry focus on data security and recent high-profile data breaches, such as at Heartland Payment Systems, have made merchants "more cognizant of who they are partnering with, not only their service provider but their venders," she says.

Many merchants had been seeking the lowest rates and not performing due diligence on the companies offering the low prices, says Steward. "Now they are asking what you will offer in terms of security. They're asking about products and services and if the provider is financially stable," she says.



Though pricing remains a factor ISOs should discuss with merchants, "it is more of a sideline" item, says Chandra Spary, president of Card Systems Inc., a Cape Coral, Fla.-based ISO.

Value has not yet eclipsed price overall, but it is growing and "becoming more evident and used as a discussion point," agrees Hamilton.

The focus of many ISO sales pitches has transitioned to products that merchants can use to grow their businesses, Spary says. "Value-added products are where our industry is going," she says. "Merchants want to know how to bring more customers in the door."

Card Systems' strategy includes adding products that save merchants time and funds, such as inventory-control or invoicing products, says Spary. "There are so many products out there that save merchants time and money. It's good to offer them," she says. The tactic of approaching merchants with value-added products "has really helped" Card Systems' business, Spary adds.

Likewise, Payment Alliance International saw opportunity in aggregating payments products for retailers that could drive traffic to their businesses, such as prepaid products, says Embry. "We're trying to walk in [to merchant meetings] with more and more" to offer them, she says.

To garner merchant interest, however, the products must not require high up-front capital from merchants, says Embry. "If they have to think about a capital investment, it's tough for them now. There really has to be a good value proposition," she says.

Products such as check services can help improve cash flow to merchants without requiring high up-front costs, she says.



Despite economic concerns about their businesses, merchants are open to adding ancillary payment products or to changing service providers-as long as the ISO is willing to become a partner in growing the merchant's business, note observers.

"The vast majority [of merchants] are open to looking at making a move based on growing their business," says Hamilton.

However, to build a relationship with merchants and to help them grow, ISOs should understand their businesses and suggest revenue-building products and services. TransFirst takes a "consultative approach" to selling, says Hamilton.

Straight sales pitches tend to provide an overview of products and services, while consultative selling focuses on developing long-term relationships between ISOs and merchants.

Agents who want to build lasting merchant relationships can consult with clients and suggest products based on their individual needs, agrees Embry. "In many cases, the traditional bankcard becomes the last thing we talk about," she says. A sales agent instead may begin discussing the types of customers a merchant has and whether they are good candidates for prepaid products.

Customer service also is "very important" in building client relationships, says Spary. Many merchants have come to expect increased customer service, and "I don't think ISOs without that relationship will have" the same client-retention rates as ISOs with quality customer service, she says.

Customer service is even more important in a difficult economy, note observers.

Financial stress weighs heavily on many merchants, and it can lead to difficult customer-service interactions between an ISO and the merchant, notes Debbie Bowles, a partner in Advanced Payment Solutions LLC, a Nashville, Tenn.-based ISO. "Their business is not as good as it has been in the past. They are stressed," she says.

When merchants are stressed, their interactions with service providers "may be more volatile," says Bowles. "We all have to be sensitive to how they are reacting" to their financial situations, she says. When a merchant is upset, it is important to let them express their concerns and to not make them defensive, recommends Bowles.

The economy has had an adverse effect on many merchants, and their focus has turned from strictly saving funds to finding products that can help their businesses grow and generate additional revenue, note observers. Understanding the change in merchants and adapting sales pitches to reflect it can help ISOs more effectively serve their clients.

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