While community banks might not look at merchant services as a front-line offering, providing credit card terminals, processing and similar services can help financial institutions cross-sell their more traditional products and services, according to Russell Wittmeier, Vice President and Marketing Director of Butte Community Bank, a $260 million dollar financial institution based in Paradise, Calif.
The 11-year-old bank started aggressively pursuing the merchant services market about three years ago, when e-commerce provided the opportunity for the bank to profit from a variety of merchant payment acceptance needs. The merchants needed ways to accept online payments and offline credit payments as well as more traditional checks and cash.
"It's more challenging for the ISO to address this market; we do it quite well," Wittmeier said. "But we don't work with any high-risk [as determined by the card associations] merchants."
Additionally, merchants like the idea that the bank tends to have low turnover, compared to the traditional high turnover of the ISO industry.
Therefore, if a merchant works with a Butte Community Bank employee today, he's likely to be there in a few months or years as the merchant looks to change and upgrade his services.
Part of the way the bank builds the relationship with the merchant is in advising them on the benefits and options of different front-end POS systems.
"If we didn't [provide various solutions], we could miss the boat on what's the most appropriate for them," Wittmeier said.
The bank also sells the equipment to merchants, though it profits from retail markups of sales and leases, rather than from any ongoing residual income from transactions. The market is too competitive to get additional residual income from an interchange fee markup, according to Wittmeier.
Additionally, the bank's main motivation in providing the merchant services isn't so much to profit from them per se, but to acquire merchant deposits. Payments for products and services are deposited into Butte Community Bank merchant accounts.
"We're 80 percent loaned out," Wittmeier explained. "We need deposits to fund the loans."
In addition to the deposits, the bank is also an active SBA lender and commercial lender, while also providing payroll, tax, development and other business services. Whereas other community banks might outsource many of these merchant services, keeping them in house helps Butte Community Bank have better control and provide better service.
"It is our CEO's vision that we should do whatever a large commercial bank can do, but to keep those services in-house," Wittmeier said.
Though the bank's branches are all located in Northern California, the variety of merchant services has brought the bank retail accounts from across the country, the number of which continues to grow, Wittmeier said. "There's only so much business you can get in your local area."