With every new value-added product or service, an ISO has to determine an appropriate sales tacticwhen to give it away for free, when to bundle it, when to charge upfront or when to levy a monthly or yearly service fee.
When deciding on a strategy, ISOs take a variety of approaches. Some believe value should always come with a price tag, while others appear more apt to give things away for free under the right circumstances.
Whats valuable to one merchant may not be as important to another, so an ISOs strategy often differs customer-to-customer. Some merchants, for instance, like to feel they are getting things for free, even if certain costs are imbedded in the overall price. On the other hand, merchants dont always recognize the value of a product if you give it away for free.
Its not one-size-fits-all, for sure, says Michael A. Gross, president and chief executive of FlashBanc LLC, an ISO in Boca Raton, Fla.
FlashBanc, for instance, has been working with a particular hospital for about five yearsa fairly long run based on acquiring industry standards. FlashBanc provides monthly customized reports that it designed specifically for that hospital. The ISOs fee for providing the reporting services is bundled into the cost of the overall processing relationship. While another processor could theoretically come in with a lower price, it cant necessarily replicate the time and the energy FlashBanc spent on developing and implementing the customized reports for the hospital, says Gross.
With certain other merchants, FlashBanc is taking a different approach to value-added services by giving away a free Tablet in the hopes of earning greater business down the road through a loyalty program called SpringBig. While the initial hardware is free, Merchants pay between $95 and $129 a month to use the program, Gross says.
Gross says its worth it for FlashBanc to give away the Tablets for free, even though it costs the ISO money, because of the possibility of increasing merchant stickiness. Were looking at this as a long-term solution for our merchants, he says, adding that if it serves to reduce attrition, the expense of the Tablet becomes negligible over time.
Acquiring industry executives say its important for ISOs to understand that working with the lowest-cost provider isnt always the primary motivator for merchants and that price wars alone wont keep attrition rates down and win an ISO new business over the long haul. Instead, some industry executives believe ISOs should focus less on price and more on how to help merchants solve their problems and drive additional revenue for them. If you do this well, merchants will stick with you and will even be willing to pay a little more for your services, or so the thinking goes.
If youve built a tight relationship with your customer, you can charge for things, says Michael Cottrell, senior vice president and chief business development officer at TriSource Solutions LLC, an ISO in Bettendorf, Iowa.
Jeff Broudy, vice president of sales and marketing for Total Merchant Services in Woodland Hills, Calif., doesnt believe ISOs and agents should give away value for free. If youre providing a value, you should get paid for it, he says.
For instance, Total has a new POS marketing and payment solutiondubbed Groovvdesigned to help merchants integrate payments with tools to manage and grow their business. Merchants get an Android based Tablet with the Groovv application on it. The upfront placement is free, but Total charges a monthly service charge for using the software. Total charges a base rate and sales partners can tack on additional fees up to a specified cap.
ISOs and agents dont have to bump up the rate, but Broudy doesnt see anything wrong with doing so because theres an inherent value in Groovv. Nonetheless, sales partners are prohibited from charging above what Total determines reasonable because it would be bad for the company if agents were grossly overcharging. Total determines a fair price based on market research and feedback from its sales partners. You need the right offering with the right value proposition at the right price, and that gives you some legs, Broudy says.
Scott Tivey, president of CNP Solutions, a payments consulting firm in Weston, Conn., also believes ISOs can charge merchants for value-added services that fill a real need. For instance, he frequently gets calls from merchants who are dealing with chargeback problems. A number of companies protect merchants from those problems, and ISOs could choose to white label those services and charge extra for them. So if a chargeback company charges an ISO $30, an ISO can charge a merchant $35 to $40.
Most ISOs see the opportunity to have a triple winto save their own financial liability, help the merchant and have incremental revenue as a part of the opportunity, Tivey says.
An expanded version of this article is scheduled to appear in the May-June print edition of ISO&Agent.