In your experience working with technology solution providers (TSPs), do you see a large percentage providing solutions that limit their customers’ choice of payment processors?
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 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 who provided top-notch service and support to the TSP and their merchants. Limiting yourself to a single payments option might work for a small merchant with little bargaining power. Still, more prominent merchants have that power, and even the smaller merchants may have bank loan covenants that force them to deal with their bank for card acceptance. To give up a system sale to force a merchant down your payments path is pretty shortsighted. The fewer systems you have in the field, the less revenue you have. Plus, you have less opportunity 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 aren’t likely to keep that business down the road.
Although fees can vary, what other reasons do they have for wanting choices?
Zeigler: As the market evolves, payments requirements change – it might be omnichannel functionality, mobile payments, tokenization or validated p2pe. 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 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 typical reason is simply about customer service.
Successful merchants change suppliers when they no longer receive the customer service they need. And just like any other supplier, some payments companies 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. Suppose the POS provider isn’t able/willing to accommodate the merchant’s move to another processor. In that case, 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 its space. For restaurants, minimum requirements are EMV tip adjustments, incremental authorization for bar tabs, and mobile payments. In contrast, 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 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. Additionally, because each processor has its own vertical focus, it becomes more critical for VARs to remain flexible regarding the processing platforms they can offer their merchant customers.
Of course, VARs need to be sure 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 could leverage the same third-party payments solutions provider for all POS systems they support 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 is the ongoing consolidation in the payments industry generally and through acquiring 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 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. However, remaining independent with solid business partnerships and the ability to adapt to changing market conditions has always been the hallmark of any successful business. And it remains true that there are substantial and competent 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, which means taking on the role of a trusted advisor instead of a merchant services sales agent.