From The Trenches
Milking the Internet COW!

by Steven Pavent

   Everyday we hear about the demise of the high tech industry and the Internet. Stocks are down, companies are dropping like leaves off a tree in the fall! The Internet business model of a few big companies dominating the market has failed. That's good news for us, unless you owned some of those stocks! I don't know about you, but we don't have a chance to write Yahoo, Amazon or Dell!
   The good news is the model that's taking it's place is the smaller to midsize merchant using the Internet to supplement their existing business. The Internet has also opened up a whole new means of commerce between people. Like in the physical world most business is conducted by small to mid sized merchants. The good news is that you and I can write lots of those accounts every month! There are some hurdles to growing your internet portfolio. However, we've found the benefits far outweigh the investment.
   Think about it, how many times do you think your local restaurant processing 100K a month gets a call or a visit from a merchant account representative? Now ask yourself how many times an internet retailer processing 100K a month working out of a warehouse gets a call or a visit? Finally ask yourself how many basis points of profit you will earn on the restaurant vs. the Internet retailer? If I don't have your attention yet think of how much more profit and less hassle you'll get from an Internet account with a $25 minimum that processes nothing, opposed to your small start up retailer that processes 1 or 2K per month? Guess what? That Internet person will hang in there for a year or two while loosing money because they have little or no overhead. The small retailer that you set up will be out of business in 3-6 months and you probably didn't write them with a minimum.
   I've found the best way to explain e-commerce is to relate it to the retail merchant that we already understand. First, all web sites must have a host, which is equal to a landlord in the physical world. The host is who the merchant "rents" space on the web from to open their store. Hosts can be a great source of referral relationships. You can pay them for merchant account referrals or they can pay you for hosting referrals. We've partnered with a hosting company that will pay you, and automatically give you an override on what your reps sell.
   The next step is web site design! As in the physical world there are two ways to accomplish this. The merchant can hire a Webmaster, which is equal to a contractor. The Webmaster would design and build the merchants web site. Webmasters can also be an excellent source of referrals. As with any physical world business the merchant can also build it on their own. On the internet the merchant can purchase software or use a web based design package. We like the web based systems, because they are easier and can present a residual revenue producing opportunity or a value added product. Once again our hosting company allows our customers access to a complete design tool for free! They will even set up a 5 page trial site for new merchants at no charge. This is a great way to bring on new Internet merchant accounts or retail business by offering free value added services.
   Next, if the merchant is going to sell products on their site they will need a shopping cart. The Shopping Cart is equal to the cash register in a retail store. It adds up the purchases, calculates tax, shipping and gives the customer a total. Shopping carts also present a revenue opportunity for the sales office as the customer has to get a shopping cart from someone. We chose to leave the shopping carts to the webmasters and the online design program we use has a shopping cart built right in!
   Next to last is the gateway or secure socket layer (SSL). The gateway is equal to the credit card terminal in the physical world. These are programs like, Plug and Pay, and Verisign. We like to stick with brand name gateways, just as in the real world we sell Nurit, Verifone, and Thales. The major brands offer more flexibility and support to the sales office and the merchants. Once again we've struck a deal with our processor to obtain the major gateways for free. Just one more revenue or value added opportunity.
   Last but certainly not least is the merchant account. There are still nice margins of 20-40 basis points. I don't know about where you are but in Florida you're lucky to get 10-15 basis points on qualified retail. In the past it was hard to write this type of business because of site survey and original application requirements. For many processors those days are long gone. For example, our processor allows us an Internet only application, no originals or signature is ever required and they will accept the web site as the site survey. At the very least most processors will now take a faxed application with original to follow.
   Now remember, just like with terminals, not all gateways will work with all processors. So make sure the gateway you choose is certified with your processor. Also, not all shopping carts will work with or easily integrate with all gateways. That's another reason why we stick to major gateway players like or Verisign because they can integrate with many more shopping carts and processing platforms. Also, most of your web designers are more familiar with them, which makes your program an easier sale! Especially when we can get them for the best price of all, free!
   Now that you understand the basics there are a couple of ways to go. You can specialize and just go after the merchant account. If you choose this option let the customer know they need to find their own host, gateway, shopping cart and webmaster. This is obviously the easiest, but you will loose business because some people won't get the rest figured out. You can do everything by becoming your own hosting company, hiring designers or purchasing your own online design tool and sell the shopping cart. Even though you'll reap greater profits this will require greater capital, and technical expertise to start and maintain. Last is what we've chosen which is to provide the merchant account and gateway and have partners handle the hosting, shopping cart and design. This way you're not stepping on any toes or dipping into anyone else's wallet. Remember, many of these hosting companies and web masters have faced many of the same challenges finding a processing relationship that you have, wi th broken promises, terrible service and non-payment. If you set up win deals and uphold your end of the bargain, you can establish lasting and mutually beneficial relationships that can fill your fridge with milk, cr�me, butter and money from "milking the Internet cow".