Even The Best Credit Card Processing Companies Face Pricing Challenges

As a merchant services provider, you know that at times, it can be difficult to price new merchant accounts, especially with the addition of new association fees. After discussing referral programs with many bankers, a lack of flexibility seemed to be creating the majority of the frustration when it came to pricing these new accounts.

In such a competitive market, flexibility is key when it comes to pricing. It’s necessary to offer many different options. Some of the best credit card processing companies will work diligently toward being able to offer unique pricing based on each individual merchant and their needs. In doing so, they focus on certain characteristics, such as the average ticket size, the size of the merchant and their expected card mix (credit, debit, rewards cards, etc.).

Here are a few areas payment processing agents should be cautious of when pricing new accounts.

Small Ticket Size

Merchants with a ticket size less than $15 are hard to price due in part to the large impact of the transaction fee and the minimal impact of the discount rate – whereas normal ticket sizes have the opposite effect. Also, the range of ticket sizes can affect the percentage of transactions that actually qualify for small ticket interchange rates.

Because of this, it’s much harder to use discount pricing for merchants with small tickets, but unfortunately some providers don’t make pass through pricing an option for their banks. 

Pricing Methods

Due to limitations of some provider’s fee structures, some merchant services programs still only offer one of the two major pricing options. Typically, pricing methods in our industry include discount (tiered) pricing, and interchange plus (pass through) pricing. When deciding which pricing method to choose, many small business owners are looking for payment processing agents that will work with them as a partner and help them find or create the best pricing structure to enhance the success of their business.

The best credit card processing companies will work to find the best option possible for your program – which could include either the discount or interchange pricing method. When only offered one option that might not meet all of their needs, there’s a good chance banks have turn business away. Plus the profitability on certain accounts will take a serious hit.

Looking to the future, I bet we will see more hybrids of discount and interchange plus pricing, like a discount pricing with pass through fees.

Support

Because merchant statements can become confusing, it has become increasingly difficult to offer the right price to merchants. It’s best if a bank can be given the opportunity to call their processing company for advice, although some aren’t given such option. With a good support system, banks will be able to take advantage of more opportunities.

About The Author

 

As a Relationship Manager, Nick Karcher supports both current bank partners as well as those institutions that want to know what makes Clearent a different kind of payment processor. Nick began his career in debit and credit card processing with Electronic Merchant Systems (EMS) as an Account Executive and later started his own Independent Sales Office. Clearent is always working toward being one of the best credit card processing companies thanks to its dedicated staff and many services. Talk to one of Clearent’s payment processing agents about how you can improve your sales.

 

How Your Bank Can Benefit from Using Twitter

While Jack Dorsey and the whole Twitter team continue to celebrate their successful 5th anniversary, I would like to take a minute or two to contribute a few ways that Twitter will help you stay in touch with your customers and current financial services industry and payments industry news.

Before you dismiss Twitter and cross it off as just another social media fad, you’ll agree with me that the following statistics are impressive:

• 3 years, 2 months and 1 day: This is the time it took from the first Tweet to the billionth Tweet.
• 1 week: This is the current amount of time it takes users to add another billion Tweets.
• 460,000: The average number of new accounts opened per day in February 2011.

I’ll admit I was once a person who thought of Twitter as primarily a way to share thoughts on a new restaurant, interesting articles you came across, or to comment on your favorite sports team’s game. However, now Twitter is about more than just entertainment. When properly leveraged, it can be a very useful business tool for quickly sharing information, gathering information about your competitors and building relationships with current customers, as well as potential new ones.

If you are a new Twitter user, you may not be sure where or how to get started. One way to get started with Twitter is to use it as a tool to stay current on payments industry news. Below I have listed a handful of informative publications and organizations I follow that use Twitter to assist in promoting their latest news and analysis:

• Clearent - @GoClearent
• American Banker – @AmerBanker
• Bank Technology News – @BankTechNews
• Independent Community Bankers Association – @icbanews
• ABA Banking Journal – @ABABankingJourn
• Electronic Transactions Association (ETA) – @ElecTranAssoc
• NetBanker – @netbanker
• BAI – @BAI_Info

You should also follow your payment processing company and other service providers (if they are on Twitter). Login to Twitter and start a search for them by name or by their official Twitter handle (starts with @) then click the “Follow” button. Next, visit your Twitter home page where you’ll see the most recent stream of tweets from the companies and people you follow. Then when you come across an interesting headline, simply click on the link to read the full article.

Twitter also easily provides access to the latest payments industry news when you’re on the move with their mobile apps for iPhone, Android, BlackBerry and Windows 7 phones. That way you can quickly check Tweets when you have a few seconds and keep up with the latest news and more.

Are you still skeptical about Twitter? I suggest taking 15-30 minutes to give it a try. I’m sure you’ll be surprised at what you find.

Find a niche as a merchant services provider

If your approach is still broad when it comes to finding new merchants, you may find that you are losing business to competitors who have tactically focused on a particular niche in the industry. It’s my recommendation that you reevaluate your strategy and brainstorm ways to differentiate your service from your competitors.

I spoke to many ISOs in early March 2011 at the Southeast Acquirers' Association (SEAA) 2011 Annual Conference in Weston, FL. I was enamored by the fact that a large percentage of the ISOs in attendance no longer thought of themselves as a general merchant services provider. They have moved their focus to a niche segment of the market and offer a unique and more tailored solution to successfully target specific merchants.

So what is a niche exactly? Well, Merriam-Webster defines a niche as “a place, employment, status, or activity for which a person or thing is best fitted” as well as “a specialized market.” I like to consider it as focusing on something you do very well – better than your competition – instead of trying to provide everything for everyone.

If you are wondering what some example niches for an ISO might be, let me start with a few examples that were brought to my attention at the SEAA 2011 Annual Conference. One gentleman is in the process of starting a new ISO focused on point-of-sale solutions. He is planning to help merchants find the right software/hardware to meet their needs, and the merchant account is what comes along with it. Another ISO had the idea to create a loyalty program to use as a lead for new merchant acquisition and to help with customer retention. A third ISO focuses on businesses that create POS and other related software used by merchants to help integrate his merchant services into their software.

While each approach is different, they all have something in common: they make sure to focus on a niche rather than a shotgun approach in addressing the merchant services market. Given the highly competitive nature of our business, their approach makes sense.

• How will you find your own niche as a merchant services provider? Here are additional examples to consider:
• Specific merchants (e.g., medical offices, contractors, auto dealers, e-commerce)
• Products (e.g., gift cards, mobile payment devices, plug-in for QuickBooks)
• Geographic (e.g., new communities, small towns with less competition)
• Cultural (e.g., Spanish-speaking merchants, your local ethnic hotspots like a “China town”)

To help identify your niche try asking yourself the following questions:

• Which merchants are providing the most referrals?
• What am I receiving the most compliments on?
• What do I feel is my strength?
• Which merchants and products excite me the most?

Really take some time to think of potential niches that fit you well. Chances are you will find it will make you more efficient in finding leads, closing them, and retaining your merchants. If you like the content of this post, please be sure to visit and subscribe to our payment processing blog for ISOs.