In your experience working with technology solution providers (TSPs), do you see a large percentage who provide solutions that limit their customers’ choice of payments processor?
Terry Zeigler, President/CEO, Datacap Systems, Inc.—Up until the time that card acquirers started buying up software developers, we saw three kinds of TSPs—those that wouldn’t involve themselves with payments at all, those that supported only one payments provider and those that were technically agnostic at the payments level, but from a marketing standpoint attempted to drive their merchants wherever possible to the reseller’s preferred payments partner.
Our experience was that the most successful TSPs were processor agnostic but had a preferred payments partner—someone that provided top-notch service and support to the TSP and their merchants. Limiting yourself to a single payments option might work for a very small merchant that has little bargaining power, but larger merchants have that power and even the smaller merchants may have bank loan covenants that force them to deal with their own bank for card acceptance. To give up a system sale in an attempt to force a merchant down your payments path is pretty shortsighted because the fewer systems you have in the field, the less revenue you have and the less opportunity you have to bolt on additional revenue sources such as gift or loyalty or even gain back that payments business down the road. And if you lock yourself to one payments provider, you are likely to not keep that business down the road.
Although fees can vary, what other reasons do they have for wanting choice?
Zeigler: As the market evolves, payments requirements change—it might be omnichannel functionality or mobile payments or tokenization or validated p2pe, etc. Processors and software developers add this functionality in different timeframes than their competitors. And some never even really support the specific vertical market the merchant operates in. Merchants need to be able to take advantage of evolving payment option demands from their customers and can’t be restricted by either their POS system or the payments provider that they may be forced to use. But a really normal reason is simply about customer service.
Successful merchants change suppliers when they no longer get the customer service that they need. And just like any other supplier, some payments companies simply do not provide good support. Merchants need to be able to make those adjustments as necessary and will rely on their POS provider to enable those adjustments. If the POS provider isn’t able/willing to accommodate the merchant’s move to another processor, they’ll quickly find themselves in a situation where they’re either scrambling for a solution to keep the merchant’s business or being replaced by an alternative solution/provider that can accommodate the merchant’s requirements.
How much of an impact can features of different payment solutions have on merchants’ businesses and, ultimately, a TSP’s?
Zeigler: One size fits all POS/payment solutions rarely scale past a single vertical. The reality is that virtually every vertical market has a feature-set that’s unique to their space. For restaurants, EMV tip adjustments, incremental auth for bar tabs and mobile payments are minimum requirements, whereas grocery merchants require features like line-item detail, FSA and EBT/eWIC from their solution providers. Unattended, retail, fast-casual, parking, healthcare, lodging, etc., all have their own unique requirements. Without the basic features tailored to their vertical, merchants won’t be able to provide the customer experience consumers have come to expect. So, a Point of Sale provider needs to know the vertical in which they’re marketing their solution and partner with a payments provider that can accommodate their needs across multiple processing platforms.
What’s the most practical way for TSPs to give their clients’ this choice?
Zeigler: 74% of the VARs that work with Datacap carry two or more POS systems as part of their standard offering. This allows the VAR to cover multiple verticals by offering at least one dedicated POS system for each market that they serve. Because each processor has their own vertical focus, it becomes that much more important for VARs to remain flexible when it comes to the processing platforms they can offer to their merchant customers.
Of course, VARs need to be certain that all of their supported POS/software developers are agnostic at the payments level, either with comprehensive direct interfaces to all of the major platforms or through a credible third-party payments provider that is also agnostic at the processor level. Ideally, the VAR and software developer would be able to leverage the same third-party payments solutions provider for all POS systems they support in order to standardize sales and support activity on one payments interface.
What advice do you have for TSPs concerning consolidation in the payments space?
Zeigler: One of the primary challenges that VARs face today relates to the ongoing consolidation both in the payments industry generally and through the acquisition of software developers by payment processing companies. For VARs that have locked themselves into a single payment processing relationship, an acquisition can represent a dramatic and sweeping change to their business, usually not for the better. For the most part, industry consolidation has been a negative for the recurring income that VARs receive from the payment processing providers because the acquiring company is looking to cut costs to justify and subsidize the acquisition.
For VARs that relied on payment processing residuals to keep the lights on, these acquisitions and sudden shifts in compensation often carry disastrous consequences. Remaining independent with strong business partnerships, but with the ability to adapt to changing market conditions has always been the hallmark of any successful business. And it still remains true that there are substantial and very capable payments providers that do not provide POS software or create friction by competing directly against their VAR partners, allowing VARs to provide the best solution for their merchant.
Maintaining ownership of the merchant relationship is critical to a VAR’s success, and that means taking on the role of a trusted advisor instead of a merchant services sales agent.