Cashing In on Payment Processing

By Khali Henderson

It may seem counterintuitive for telecom agents to add payment processing during a credit crunch and a retailing slump, but the opportunity goes beyond credit cards and store fronts to include multiple payment options for nearly every business in the country.

And it’s a “natural fit” for telecom agents to offer payment processing, said Vinny Breault, vice president of strategic partnerships, for First Data Corp., a merchant service provider that processes payments for merchant acquirers (financial institution that accepts deposits generated by bank card transactions). Telecom agents often install WAN connections over which transactions are processed, so bringing in a payment processor to set up a merchant account is a logical follow on, he explained.

“Typically when companies are having their communication lines installed, they are either a new business or changing carriers,” said Breault. “All the [partner] has to do is see is if they are already accepting payments.”

First Data makes this as simple as a referral, so there’s not much heavy lifting involved. For the handoff, referral partners receive 5 to 20 percent of net revenue. Partners can move the needle toward the higher amount based on the number, size and characteristics of the prospects. That means the more multilocation businesses with high payment processing needs, the better.

First Data offers a range of payment options, such as check and Automated Clearinghouse (ACH) solutions, prepaid cards, gift cards, payroll cards, debit cards, etc. “If you are just offering credit cards as a form of payment, you’re limiting the way customers pay you,” said Breault. “Giving your customers multiple options for payment is a good sales and retention tool.”

In turn, Breault said First Data’s referral partners can engender loyalty by helping their customers to attract customers, especially during the downturn.

While credit card use is declining at unprecedented rates, other payment types are increasing. The number of ACH network payments, for example, is growing significantly, reaching nearly 15 billion in 2008, which is 7.1 percent more than 2007, according to data released in April from NACHA – The Electronic Payments Association. The dollar value of these payments was $29.96 trillion, an increase of 4 percent over 2007.

The value of branded and private label prepaid card transactions also is expected to grow to $178 billion by 2010, up from $113 billion in 2007, according to research from Aite Group.

With all the opportunity, more ambitious partners can move beyond the referral relationship with a payment solutions provider to become a merchant level salesperson (MLS) or independent sales organization (ISO).

In the same way a telecom agent can work directly with a carrier or through a master agent, an MLS can work directly with a merchant service provider or through an ISO. MLSs are compensated through various models, but commonly are given a buy rate for markup or a split of the revenue when working with an ISO, according to The Green Sheet.

An ISO typically has more skin in the game, performing operational functions, such as customer service and underwriting the merchants. An ISO has a buy rate and sets its own sell rate.

With First Data, however, ISOs have the option to outsource underwriting risk. They also can use First Data’s customer service and point-of-sale help desk services in whole or in part. Either way, Breault said, “We leave the business decisions about merchant pricing up to the ISO. For standard ISO deals, First Data provides the ISOs with a schedule of fees for services including transaction processing. The ISO can keep anything they charge beyond those fees.”

In the case of credit and debit cards, the sell rate must also include interchange fees to issuing banks. According to The Green Sheet, interchange rates are set by Visa and MasterCard and typically are between 1.75 and 2 percent per transaction. The rates are influenced by card type, signature, merchant type and more, the publication noted.

To become an ISO, a company must complete a registration process wherein it submits financial information and a business plan for review by the payment solution provider and sponsor bank, as well as the card brands (Visa, MasterCard, Discover and American Express). According to industry consultant Mark Dunn, president of Field Guide Enterprises LLC, the cost to get an ISO up and running is about $150,000 to $250,000.