Agent bank programs are one of the primary ways that ISOs build their businesses. These programs complement ISO, sub-ISO, direct sales, ISO-association endorsements and direct service programs. Some ISOs have good success with agent bank programs, while others see this as a difficult way to build new business.
Many banks, particularly community banks, don't have the technical expertise to provide merchant payment services, including credit and debit card processing, and related services.
Though the banks want to provide processing, etc., in order to be full-service financial institutions, it may be difficult for some to use an agent bank strategy.
"Five to seven years ago, it was a wonderful strategy for small ISO to have an agent bank relationship with local community banks," says Michael Kopp, Chief Operating Officer for Electronic Data Resources, West Palm Beach, Fla. "But a lot of the larger processors figured that out. So they acquired a lot of the business; and a lot of the larger banks acquired a lot of the smaller community banks. The little ISO, for the most part, is left out in the cold. Agent banks today are more difficult to acquire and to keep. It's a long sales cycle. The question is: Am I going to get my money back before the bank is acquired."
Indeed, much of that financial industry consolidation is still occurring. Therefore, EDR doesn't have an established merchant bank program. Yet some ISOs with established agent bank programs (EDR started three years ago) say they are doing quite well. Processors like First Data Merchant Services, Englewood, Colo., also have agent bank programs, enabling banks to work directly with them, rather than working with an ISO. Some of the largest commercial banks, like Cleveland, Ohio-based KeyBank, Bank of America, San Francisco, and Citibank, New York, also have agent bank programs.
ISOs with and without agent bank programs, along with processors, agree that the only way these programs work is through local representation via a sales staff.
"You need to get in front of bankers," Kopp says. "You need to pay people to be agent banker managers. It's more expensive to get started and it takes longer to see a return than it used to."
ISOs with agent bank programs certainly need to invest in the sales process, agrees Teresa Higginbotham, Regional Sales Manager for TermNet Merchant Services, an ISO based in Atlanta, Ga.
Those who do invest the time and the effort can find the agent bank program to be quite rewarding for the ISO and for the bank, Higginbotham adds.
Though some banks will go directly to a processor, TermNet maintains its agent bank base by providing outstanding local customer service, Higginbotham says.
"Most of these bankers and their customers [merchants] don't want to call an 800 number if they have a problem or a question, they want to deal with someone locally," Higginbotham says. "The most important thing I can do for our agent banks is to make sure that their customers are happy.
Smaller ISOs enable the community banks to offer these services with the same personal touch that they offer deposits, checking accounts, and other financial products and services, according to Higginbotham.
Though agent bank programs can be established in a variety of ways, they can be broken down into two basic programs: Banks with straight referral programs and those banks that take a more active role in developing merchant accounts, with the ISO acting primarily as the conduit for processing services.
Most community banks don't have the staff or financial resources necessary to develop and maintain the merchant accounts, so they opt for the referral option. Higginbotham says. There are exceptions, however.
"They like it when you take control of their program," Higginbotham adds. "We assume the liability for all of the accounts. We do all the sales for them. We handle all of the customer service issues. A lot of the time, the banks don't want to hire other [merchant support] people."
TermNet and many other ISOs also offer banks an agent banking program in which the financial institution receives a buy rate and plays a more substantial role in merchant services, actually assuming all risks and liabilities. But financial institutions, particularly community banks, have been very risk averse since all of the failures of the late 1980s and early 1990s. So most don't want the extra burden, even if there's additional potential reward.
That's not to say that the referral banks have little to do with the merchant. TermNet, for example, will go on sales calls with the bank, as well as train bankers on products and service basics so they can answer a business customer's basic questions. With the proper training, bankers will see sales opportunities that they might miss otherwise, meaning additional profit for the financial institution and the ISO.
"We try to present our program along with their program (the bank's business products and services) to the merchant," Higginbotham explains.
Higginbotham adds that being smaller enables the ISO to respond more quickly and directly to the agent bank (and customer) needs than the larger ISO and processor. However, the processors say that their additional size enables them to provide products and services more directly to the agent bank and his customer.
It is a very competitive industry. Many ISOs absorb some or all of the cost of converting an agent bank from a competitor's program to their own. Additionally, processors are becoming more aggressive with their own agent bank programs.
For example, First Data had concentrated on agent bank retention for several years before hiring a person to head the agent bank program last year. Thomas Sheridan, Vice President of Bank Processing (i.e., agent banking) has in turn hired a sales staff to build new agent bank relationships.
That staff has worked closely with state banking associations to learn where there are opportunities in the market. Certegy, another major processor, is the preferred provider of the Independent Bankers Association of America and America's Community Bankers, two major community banking organizations.
The main difference in the First Data and Certegy programs, according to Sheridan, is that First Data assumes the program liabilities for its agent bank customers.
"A lot of banks like dealing directly with the processor, rather than a representative [ISO] for the processor. The more you can streamline it, the more they like it," Sheridan says.
Potential agent banks should seek a merchant processing program that provides a POS help desk and a technical help desk, chargeback monitoring and resolution, settlement and clearing, risk management, statement generation, equipment deployment, account entry/setup and merchant training.
"There's a lot of growth in this market and there's still room for more," Sheridan says.
Many agent bank programs have similar features, though there are a few differences. Even if pricing is the same, service may be drastically different, according to Higginbotham.
Below are a few of the features of some agent bank programs. Contact agent bank program providers for a more comprehensive list of features, expenses, risks, liabilities and potential revenues.
Certegy enables agent banks to have agent banks themselves or to be agent banks of other financial institutions. The program also offers group pricing for members of two national community banking organizations: America's Community Bankers and the Independent Community Bankers Association.
First Data offers agent banks fast authorization and electronic data capture via the First Data transaction delivery system; check guarantee and verification services; electronics benefits transfer capabilities; a proprietary chargeback system that uses "expert systems" to resolve 60 percent of all incoming chargebacks without debiting merchant accounts.
Banks can also choose an a la carte program, selecting the products and services that best meet their business customers' needs.
Concord/EFS features full support from an experienced telemarketing team; training for merchant employees and monthly activity reports.
MCCS offers an agent bank program that establishes a guaranteed lead program from the bank's commercial account customers as well as personalized, comprehensive sales and marketing brochures and comprehensive proposals and presentations.
Moneris Solutions provides new business development seminars; application risk review; monthly management reports and market planning goal setting.
Retriever Systems offers business development and marketing strategies to expand the bank's merchant base; monthly diagnostic reports and support of the bank's existing merchant service program.
TermNet Merchant Services offers a dial pay capture system; fraud control tools, joint calls of merchant prospects with the bank; "Eye on the Shop" online Internet reporting program and a gift and loyalty card program.
TransFirst features three separate plans, each with different features, bank responsibilities and revenue and expense potential.