Magazine Article | June 16, 2014

Are You Leaving Money On The Table When It Comes To Payment Processing?

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By Brian Albright, Business Solutions magazine

Add-on services and tiered pricing can help VARs generate higher recurring revenues.

Many ISVs and VARs have approached payment processing from a largely payment-agnostic standpoint, serving as much as a referral service as a partner with their vendors. Agent processing companies are now crossing into the VAR space with low-priced, simple-to-implement solutions. VARs can take action now to protect their client base and boost payment processing revenues.

By establishing more equitable partnerships with their payment processing vendors and providing more value-added services, resellers can boost their payments revenues and position themselves as a trusted source for their retail clients. “It’s important to spend the time identifying payment companies that have the resources and partnering mindset that allow ISVs and VARs to cross over from referral partner to selling agent,” says Steve Rizzuto, president, commercial services division, TransFirst. “This will allow the ISV/VAR to garner the revenue growth necessary to replace some core hardware and software revenue being lost while the industry moves to an ‘as-a-Service’ model. The traditional retail systems ISV/VAR organizations need to move into payments. They can not only survive but also can thrive with the help of the right payment processing partner.”

That may mean taking a closer look at existing payment agreements and shopping around for more receptive partners. “Experience shows that making the right vendor choices for the current times is key to VARs sustaining and growing their businesses,” says Jay Yoon, CEO of UP Solution/ UMSI. “VARs need to reevaluate vendor partners for the near- and longer-term future of their business.”

Create Some Recurring Revenue
According to Rizzuto, payment processing will be especially important for VARs that are moving to the as-a-Service model of solution delivery. “Any VAR not actively partnered with and promoting payment processing to their end users is certainly missing out on key revenue and profit opportunities,” Rizzuto says. “As a participant in the payment processing transaction, VARs benefit from the opportunity to create a significant recurring revenue stream. The opportunity to bring some knowledge about payments into their organizations will eventually lead VARs to consummate sales [pricing and boarding], earning far more revenue in the process, while providing more control over their customer base.”

VARs should leverage their position as trusted advisors to merchants where payment processing is concerned. “Some integrators and VARs are still hesitant to actively sell credit card services or get involved in the rate negotiation,” says Shelley Plomske, vice president of product, total merchant services. “It can be a very profitable revenue stream, and they should take advantage of it.”

Merchants are looking for a complete set of tools to help run their businesses better. “In order to retain and add merchants, VARs need to offer the right combination of tools and capabilities along with credit card processing to help merchants expand their businesses and better meet customers’ needs,” Yoon says. “VARs/integrators often make the mistake of not thoroughly vetting the systems they represent and sell to ensure that these systems and tools are well suited to their own businesses as well as to their merchants.”

According to Jon Brandon, vice president of channel sales at Harbortouch, many VARs have made the mistake of competing on price, which can hurt margins and reduce profitability. “Further, many resellers use interchangeplus pricing because it is a simple option, but tiered pricing provides a much more profitable option in most cases,” Brandon says. “Other revenue opportunities are available through valueadded services such as gift card processing and check services such as check conversion and check guarantee. These services can help add value to your merchants while offering additional revenue opportunities. By focusing on your services and expertise, you can take the focus off rates and fees in order to maintain margins and take advantage of [those] greater revenue opportunities.”Subscribe to Business Solutions magazine

Partner For Maximum Revenue Potential
According to the vendors interviewed for this story, there are a number of ways to expand payment- related revenues. Finding a payments partner with a maximized revenue-sharing program is a key first step.

“Many processors may claim to offer 60 percent, 70 percent, or higher residual splits but will only include certain revenue sources in that amount or will have higher costs than other processors,” Brandon says. “Make sure you do your homework before partnering with a payment processing company to ensure that you are receiving the maximum revenue potential. You should request a Schedule A from the processor in order to review your costs and the revenue you are sharing with the processor.”

Taking a more active role in the payments structure is another way to boost revenues as well. “VARs can earn more money by carefully selecting a payment processing partner committed to allowing the VAR to earn higher revenue shares by handling some of the necessary tasks in the process, including selling and boarding customers,” Rizzuto says.

VARs can also create additional revenue streams by adding gift, loyalty, and marketing services that are complementary to payment processing. “Additionally, VARs should consider being more involved with the credit card processing rate and fee negotiation,” Plomske adds.

“Many resellers use interchange-plus pricing because it is a simple option, but tiered pricing provides a much more profitable option in most cases.”

Jon Brandon, vice president of channel sales, Harbortouch

Whatever services you offer, make sure you are pricing them in a way that retains your margins. As mentioned before, tiered pricing schemes can increase profitability; ask your payment processing partner for help in analyzing each merchant’s past statements to help set the best price for them. And don’t rely on rate reductions to win new business.

“If you are offering personal service or other add-ons that differentiate you from the competition, you don’t necessarily need to lower the rate,” Brandon says. “A rate match will usually seal the deal if you are offering the merchant something they value.”

Differentiate Your Payment Offerings
Providing additional services like loyalty card services, check conversion, and check guarantee doesn’t just provide new revenue; it also helps differentiate VARs in an increasingly crowded market. Some payment companies also offer programs that bring payment and POS together in an integrated fashion.

“This type of offering enables you to provide a much more tightly integrated solution that delivers unique add-on services,” Brandon says. “For example, online ordering, tableside ordering, and cloud-based reporting can all be introduced thanks to these types of programs. These programs also make it possible to offer a ‘POS as-a-Service’ model thanks to the residual income offered by payment processing combined with revenue available by offering a service agreement on the equipment.”

By selecting a payment processing partner that is committed to breaking the revenue-sharing conventions in the market, Rizzuto says VARs can establish a stronger position for controlling and retaining their customer base with a broad suite of services.

“Payment processors willing to cede to VARs the responsibilities for selling and boarding the merchant allow the VAR to exercise greater customer service/support over their base while also earning the majority of the revenue share,” Rizzuto says. “Additionally, VARs can more strongly position themselves as trusted advisors and earn incremental income by representing a payment processing partner that offers a full array of products as part of their payment solution, including items like breach insurance coverage, EMV readiness, loyalty, and PCI assistance. Usually VARs defer to their payment processor for these services and with that, the potential to earn incremental revenue.”

VARs should also work closely with their payment processing partners to develop expertise in security and PCI compliance topics. Before a VAR can educate clients, it has to be educated itself. Partner with a payment processing company that offers ample training opportunities so that you can stay informed about trends in the industry that should be shared with merchants.

“The VAR needs to be educated about payments, costs, and security first,” Plomske says. “The more they understand, the better they can explain it to their merchants. It can be complex, but the right payment processing partner will help bridge the gaps.”

The training relationship also plays an important role in developing new payment-related revenue streams. “Ultimately, the VAR has to make a conscious effort to assume some of the payment knowledge transfer that historically occurs between a payment professional and a merchant,” Rizzuto says. “[It’s] not a difficult task if active support is provided by the payment partner.”

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