Common Ground

by Gregory C. Cohen

   You are giving each other high fives for getting the merchant to sign on the dotted line, your Acquirer has approved the merchant, issued MIDs and TIDs, and you have brought the new terminal to the merchant location. Great work, but not so fast? You have now entered the implementation and service world where you can build long term customer relationships. Most people do not understand the complexities and costs of servicing a merchant. It is quite costly and mandates scale for efficiency and cost effectiveness. However, as the margins in our business have decreased due to competition, maturity and the commoditization of the processing business, many Acquirers are trying to squeeze out as much money as possible from their businesses. The first area where Acquirers often look to reduce costs is in their service areas. Over the past few years service levels for help desk, customer service and terminal management have decreased in our industry. Have we squeezed out too much? One large Acquirer put it to me by saying that, "there is a level of mediocrity that is acceptable in the Merchant Acquiring business that would be acceptable in no other service business." I believe the best course of action is to find an appropriate balance.
   The payments business is hyper-competitive. The "spread" or gross profitability of merchant accounts has decreased at all levels of business. The Processors, Acquirers and ISOs are all making less per merchant than they did years ago. As these players look to meet profit and growth goals dictated by investors, shareholders and other stakeholders, they are forced to cut costs. Cost centers are examined and often overhead reduced resulting in lowered service levels. When an Acquirer is making 100 BP per merchant, he can afford to have an average speed of answer (ASA) of 20 seconds, but as the spread decreases to 50 BP, he has to increase hold times to keep net profit in-line. It is true that automation, skill-based telephony and smarter systems can help make these service desks more efficient, but in the end, it comes down to people. One executive at an Acquirer asked, "How little service can we provide without experiencing significant churn (merchant attrition)?"
   Jack Chevalier of Paynet Systems believes that the merchants and even the industry sales channels themselves may be their own worst enemies. "Merchants are always looking for the lowest price. Service is a secondary thought only after they experience their first problem. Many companies and salespeople say they sell on service and service alone, price means nothing. However, if this is the case why is service going downhill? People want price. Read the advertisements for agents in industry publications. How many Acquirers advertise to the agents that they are more expensive but have "great service?" As a matter of fact they go the opposite route and claim to be selling under interchange! This should be a hint as to what is more important. Customer service has deteriorated because you cannot have the best price and the best service and make a profit. People demand the best price. Therefore, in order to survive so do I!"
   Is it worth $20,000 a month to add 5 new people to the help desk when the average ISO is netting $30 after commission? The easy math says if you will not save 667 merchants or more per month do not invest in the staff. Those five help desk employees may be the difference between a 20 second hold time and a 60 second hold time, but if it does not pay for itself, the investment is not worth the return. But is that really the case, what about the intangibles? One leading ISO said, "When I shop for relationships, one of the top items on my list is how long will I be on the phone when I need help." If the service is poor does the sales channel disappear? In this ISO's mind the answer is yes. In addition, merchants talk to each other, smaller merchants even more so than the larger ones. Providing sub-par service to one merchant may cost you three or four new accounts. Those "intangibles" are difficult if not impossible to quantify, but what Acquirer wants the reputation of the Bad Service guy.
   Chris West of CDG Commerce pointed out, "I think it is important to realize that there are two forces at play here: (a) Agents, ISOs and Merchants all want a larger portion of the compensation or lower price so Acquirers are increasingly put in a position of having to pay out higher amounts of compensation. (b) Those same stakeholders all want better customer service and support so Acquirers are in a position where they are pressured to provide better response times, better support and more value-adds. It is easier for some Acquirers to justify cutting back on service levels since it is "less obvious" than if they offer less on compensation or a greater price. I can completely appreciate and understand the desire for both ... it's just important to understand that everything costs money and providing a high level of customer support does not come cheap."
   Service is a no win game. When you do it right you are doing your job, when you do it wrong you are horrid. It will be a constant battle between greater profits and better service and there are no "acceptable norms" in our industry. Based on your target market and support structure, choose a strategy that fits your needs. The low-cost provider will never have the best service and vice-versa. As we all learned in Economics 101 � "There is no such thing as a free lunch." You get what you pay for. You make the choice for your business.