Technology Case Study
Integrated Web-based Merchant Acquiring
System Speeds Processes,
Increases Customer Satisfaction

by Safwan Shah

   Profitable management of a merchant portfolio requires banks and other acquirers to manage multiple systems and relationships on an up-to-the minute basis. Acquirers face the challenge of increasing their business in a cost-effective manner while handling complex interactions among their sales channels, ISO relationships, the processing companies, the settlement companies and card issuers. In fact, timely communication and coordination with these entities can literally mean the difference between profit and loss.
   As acquirers examine how changes in the technology landscape can potentially improve their operations, two factors come to the fore. First, the Internet is now pervasive, and the associated communications and security standards are mature. Second, POS terminals and other transaction devices and systems offer significantly increased power and flexibility.
   Yet technology providers in this space who have tried to address the needs of acquirers and capitalize on recent technology advances have only done so by overlaying multiple systems. In effect, this results in a patchwork of interfaced systems, built up in layers over many years. This approach is attractive over the short run, but introduces two problems. First, the ability of these patchwork systems to fully utilize Web-based applications is constrained by their pre-Internet design origins. Even worse, their capability to integrate all of the different aspects of an acquirer's operation is severely hampered by the patchwork approach of tying multiple systems together.
   Consider the typical options presented to acquirers seeking to enhance their total systems environment. There are several solutions on the market that do address specific needs, but each is a separate application and system. The POS management system is probably different from the transaction processing system. The tools and solutions that report on accounts, process sales and manage commissions is another system. Others address the risk monitoring side.
   Faced with this picture, the typical acquirer has two choices, neither ideal. The normal course is to patch several tools together to manage the complex array of tasks, and accept sub-optimization. Some elect to build in-house systems that address their specific needs, and accept the significant, on-going burdens of high costs and management distractions that cause acquirers to lose focus on their core competencies.
   Cornerstone Payment Systems, an Atlanta-based merchant acquirer, wanted to find a better way. Cornerstone wanted a solution that would help them with rapidly growing their business and providing superior service to their agents, ISOs and merchants. At the same time, they wanted to keep their focus on their business goals, not on a technology implementation.
   They set four important criteria to guide their selection:

  • Rapid time to market
  • A single system solution for all of their business
  • Affordable investment
  • Extensive use of the Internet

   Cornerstone partnered with Infonox to use the Infonox solution tailored for acquirers. A new generation system developed entirely in the post-Internet era, the "off-the-shelf" solution met all of Cornerstone's guidelines.
   One of the most compelling advantages Cornerstone desired was an all-in-one approach that eliminated the need for multiple systems. They wanted to handle sales, merchant signup, underwriting, boarding, risk monitoring/mitigation, reporting, support, profitability and commissions all online and in a single system. In addition, Cornerstone wanted new payment solutions to offer for PC-based merchants and mobile payment transactions, and provide management and payment gateways for those systems.
   The results have been impressive across the board, and particularly in sales and new accounts. Cornerstone was able to make the entire application process paperless, Web-based and seamlessly integrated with the back-end platforms.
   Cornerstone has processed over 20,000 applications since December 2001, all done completely online. The system allows Cornerstone to process merchant applications from more than 200 ISO offices across the country, with more than 400 individual login Ids for agents and other independent sales representatives in those offices.
   Cornerstone's agents submit merchant applications using an easy-to-use, Web-based, online application form. The progress of applications is tracked directly by agents and sales representatives throughout the application approval process for status updates. The agents find the application forms easy to fill out and the entire process very efficient, which motivated them to submit more merchant applications and do more business with Cornerstone. Extensive validations and checks during application entry, which integrate the front-end with back-end systems, led to a reduction in costs and time. The boarding of merchant accounts is reduced and manual intervention minimized, because the editing of all data elements entering the system is done at the source as applications are entered.
   Once submitted, an automated rules-based underwriting module offers powerful tools that help Cornerstone make faster and better decisions on merchants. The system aggregates the key information needed for underwriting merchants, such as credit reports, Terminated Merchant Files and additional risk parameters including background checks on addresses and bank account numbers. To further speed up the process and reduce risk, application information is pre-validated and the system provides automated interfaces to the processing platforms of various credit agencies. The entire application package is then processed automatically or presented to an underwriter for a decision, depending on the parameters set by Cornerstone.
   Approved merchants are then "built" and setup on the back-end and host systems immediately so that merchants can start processing transactions almost instantly on various platforms such as AMEX, Discover and FDMS. With the entire process online, progress is communicated to agents and sales representatives as decisions are made at every step.
   The time required to underwrite applications has been reduced from what used to be several days down to several minutes. This is because integration and Web-based tools work together to enable the rapid exchange of information between parties, as well as the aggregation of required data, pre-validation, data correction and other time-savers throughout the process. Some other positive results in sales and account setup are:

  • The communication costs for new application processing have been reduced to zero, eliminating need for phone calls and faxes
  • ISOs and Agents get the information they need quickly
  • Account setups on systems such as AMEX, DISCOVER, and FDMS have been fully automated, eliminating data entry errors and delays
  • Online sales lead management and communications led to an overall higher level of collaboration and loyalty
  • Resources throughout the process are optimized, lowering costs.

   Another area of importance to Cornerstone was the addition of new value-added payment products to offer their clients. One of the most important was e-commerce. Cornerstone forged relationships with large e-commerce providers and online storefront builders, which made it easy for both parties to keep merchants satisfied. Cornerstone is able to quickly set up merchants that need a virtual terminal and to interface their Internet shopping carts to the payment gateway.
   Cornerstone is also able to address the opportunities presented by the increasing use of PCs by merchant operations with an application called MerchantPC. This integrated PC-based POS software solution for food service retailers connects counter service, home delivery and table service into one powerful and comprehensive system. Capitalizing on the latest in wireless, PDA and Internet technologies, the POS system integrates orders, transactions, payments, customer reporting, inventory control and financial management activities for food service operations. Optional modules include PalmPay for mobile credit card payment at the customer doorstep and ActiveTables for tableside ordering and payment.
   Cornerstone management and staff use the customizable Web-based reporting features to stay current with information on key performance indicators and the analysis of trends. The system provides reports and graphs both historically and as they happen with hourly, daily, weekly, monthly and yearly views. Agents and ISOs are provided with reports that help them track and manage their own merchants, and merchants can see reports on their transaction activity and marketing data.
   A full-featured risk module provides extensive risk monitoring tools to monitor and analyze risk on a daily basis. The risk module processes tens of thousands of transactions every day and flags potentially risky transactions for corrective action. A built-in risk operator workflow system that optimizes resources lets Cornerstone manage risk with lower manpower costs.
   As can be seen from the results, implementing a new online generation, single system across all of the diverse activities of an acquirer is not only feasible, it is extremely attractive. Faster account setup, integration of the front-end and back-end systems and online Web-based user interfaces all work together to increase sales and improve customer satisfaction. Other benefits are reducing development expenses and decreasing the time to market.
   In a business as competitive as merchant acquiring, these advantages present a new and strongly compelling option with clear advantages to the traditional approach of implementing acquiring systems from multiple suppliers.