The first step in the process is selecting a partner, not a vendor to simply handle part of your business. Experts say price should not be the only determining factor.

By David Lustig

You’ve worked hard to create a product and marketing plan that should, in theory, be a winner. Every attempt has been made to provide the maximum quality product with the least amount of cash siphoned away by unnecessary overhead. It’s your money, and while you don’t mind spending it wisely, having other parties do for you what you should be able to provide for yourself is usually not an option.

At first, payment processing, also known as merchant processing, seems like an avoidable extravagance; one that you should be able to contain in-house. But then you stop and think. Do you really want to get wrapped up in the world of accepting the myriad manners of payment for your goods and/or services? Perhaps this is one very important area you might just want to consider letting the experts grapple with.

But just like any other area of business that you may not be totally familiar, and therefore, comfortable with, you want to determine what is the best path. You don’t want to simply turn over this critical part of your operation by going with just anyone, yet the number of questions and the potential paths to head down seem to multiply at every turn. The very real fear, of course, is that going down a road that seems like an express route to easing a complicated problem just might turn out to be a dead-end with very little chance of turning it around.

In that light, Electronic Retailer magazine asked managers and executives of a number of payment processing firms some of the dos, and don’ts of finding the correct one to serve your business. They were surprisingly candid.

ONE SIZE DOES NOT FIT ALL
“There are several types of payment processors that serve American businesses,” explains John Jensen, president of CambridgEcommerce of Vista, Calif., just north of San Diego.

“Some focus on brick-and-mortar firms, some on retail, some on auction, and some on infomercial (DRTV). Many payment processors can offer services to a DRTV customer but few can do it well. The criteria that a DRTV customer must look for include a payment processor that performs like your partner, instead of a vendor, and is looking out for your best interests by helping you prepare for each new step of growth; a payment processor that has not only worked with large customers but treats small customers like they are as important as large customers, and a payment processor that constantly adds new levels of services, security and reporting.

“A payment processor [that] knows the steps to success and does not actually guide you along the stepping-stones to success is a vendor, not a partner,” Jensen says, adding, “Move on to the next payment processor.”

How will you know if a payment processor functions like a partner instead of just a vendor? Jensen says one way is reputation and references. “If a potential payment processor does not have both, do not be the ‘test case’ for a new firm or sales representative,” he says.

Diane Vogt, president, enterprise customer development at First Data Corp., headquartered near Denver, Colo., in Greenwood Village, emphasizes it is important to use a firm that understands your business.

“A payment provider should be positioned to consult with you for all POS solutions and be able to discuss how to tailor these to your industry and needs. Choose a company that will give your customers choice. If a customer prefers using a debit card or writing checks and you do not accept these payments, then they might begin shopping somewhere else that does.”

Vogt also recommends looking for all-in-one POS solutions.

“These help merchants process a wider variety of transactions-from smartcards and credit cards to debit cards and electronic checks, thus helping reduce clutter and saving valuable counter space for impulse items and other products. When opening a merchant account, consider accepting PIN debit transactions and electronic checks to help limit the amount of cash and paper checks you handle.”

Vogt also says to always remember that less paper is better. The evolution from paper-based to electronic payments, she says, eases business operations and cuts costs by reducing time-consuming and labor-intensive paper handling and collections efforts.

COMMON MISCONCEPTIONS AND MISTAKES
Okay then, going beyond looking for a company that is a “good fit,” what are common misconceptions that marketers have about payment processing companies, and just as importantly, what are some of the common mistakes they can make?

“Merchants who may have had a difficult experience with a processor often feel that it represents the industry itself,” says Rick Olson, chief operating officer of AmeriNet Inc. in Clearwater Fla. “There are very good vendors and, frankly, very bad ones.” It is a misconception, he adds, that a company with a large industry presence or highly recognized name is, by nature, the better vendor.

“In fact,” Olson says, “technology and the industry as a whole are changing so rapidly, large companies are often slower to adapt. However, a small company that has the nimbleness may not have the financial strength to service a substantial client.”

One common mistake many people make, he says, is comparing processors by transaction fees alone.

“Like many things, you usually get what you pay for. If one vendor has a significantly different price than another, there is usually a reason. Sometimes the reason is simply that the vendor is more expensive, but there may be significant differences in the services.”

First Data’s Vogt says that a common misconception is that marketers believe that payment processing companies’ solutions are geared towards larger merchants. But, she says, they offer payment solutions tailored to businesses of all sizes. As far as a typical common mistake, Vogt says, many companies use price as one of their biggest criteria in choosing a payment processor.

“Choosing on price alone may not be the best long-term option,” she warns. “Service and evolving products are important as small businesses grow and consolidate functions.”

Rollie Froehlig, president and CEO of National Fulfillment in Lebanon, Tenn., says to always check the monthly statements with the quoted charges. “The amount quoted is for qualified sales,” he says, “and rarely, if ever, does it include the pricing for non-qualified sales.”

CambridgeEcommerce’s Jensen says that most marketers are misled into thinking that payment processing services are as simple as an application and a swipe machine. Nothing, he says, could be further from the truth.

“The most common misconception in the DRTV industry is that all payment processors are the same,” he says, explaining that different payment processors have different business models, as well as performance advantages and disadvantages.

“A marketer must be selective with the pricing, attributes, skills, IT staff, reporting and personal service of a payment processor,” says Jensen. “This will give you the advantage you need when sales are exploding and customers keep calling.”

As far as common mistakes, Jensen shares his list of the top 10 a marketer might make, including that the marketer…

10. Does not confirm that the payment processor is fully integrated into the fulfillment center using batch processing;
9. Thinks a merchant account can be set up in one hour;
8. Doesn’t discuss with the payment processor and the fulfillment house how chargebacks will be administered;
7. Doesn’t coordinate security and fraud checks into the script;
6. Forgets to create a timing flow chart to ensure cards are not charged if the inventory is not available;
5. Doesn’t find out if rates automatically dip as volume increases;
4. Doesn’t find out if the payment processor responds to questions quickly;
3. Forgets to study how data is reported to the marketer in advance;
2. Doesn’t find out if the payment processor offers all forms of credit cards, debit cards and e-checks;
and…the number one common mistake a marketer can make…
1. Doesn’t pick a payment processor that thinks and acts like a partner.

AND NOW FOR THE GOOD NEWS
Getting a little worried at this point? After all, we’ve just had experts beat you up and tell you all the common misconceptions and mistakes that can be made in picking a payment processor. But now, let’s turn the tables and ask these same people what important advice they would give marketers looking to find the right payment processor. It turns out, as good as they can dish it out, these same people also have some excellent suggestions.

First Data’s Vogt suggests, “It’s very important to have a payment processing company that can adapt to your business over time. This means delivering meaningful innovation and making it available quickly. As payment options evolve, you want a company that can provide scalable solutions that are tailored for your company’s specific needs.

“You should also consider the company’s experience in the business, experience with similar merchants and value-added products that enhance their ability to bring more sales in the door, such as loyalty and gift cards.”

Olson of Amerinet believes, “Choosing a vendor is, in essence, making an investment. You could compare it to buying a car. Sure, the sticker price, style and color are what initially draw your attention, but it is always a good idea to take it to your mechanic because you also want to know how well it works and how long it will last, and if there are any hidden surprises that might cost more in the long run.

“When you choose a vendor, always look past the glossy marketing and attractive rates. Not all vendors are the same, especially ‘under the hood.’

“Base your selection on what you need, not just what they offer. Look at your own business needs and limitations, particularly your technical limitations. Then, look for the vendor that offers the solutions that fit best into your business. If they want you to fit into their business, you may end up doing more work, at your expense, than you need to.

“Have technical discussions with your IT people on the call. Ask pointed questions to get a comfort level that the vendor has the systems, security, stability, and expertise to handle your business.

“Your business depends on the vendor’s system stability and availability. Redundancy, failover, capacity, all these things are standard practice. Compliance with Data Security standards is crucial. Make sure your vendor is up to speed with the industry standards.

He also suggests that marketers ask for sample reports and make sure they make sense and that they cover all the reporting requirements you have. Lack of clarity can make life very difficult and even result in losses.

“Understand things like processing cutoff times and any other non-negotiable deadlines or time intervals you will have to operate within,” says Olson. “And, ask for references and then follow up on them!”

National Fulfillment’s Froehlig, says, “Look for dependability and easy access to someone for answers. Have the ability to connect to different networks for data transfer. And, select a company that has the ability to process in many different ways, so they can respond and take care of all your processing needs as your business grows and changes as the market dictates.”

Jensen of CambridgEcommerce contends, “When you select a retail store to do business with, you need to know about their customer service level, pricing strategy and philosophy. When you select a payment processor, these criteria should be the same.

“Customer Service relates to a payment processor’s [proactive ability] in guiding you through the steps to DRTV success and their service level. Pricing has to do with giving you a value price, with all the payment forms. Philosophy relates to the long-term business model of a payment processor.” He says that payment processor business models usually break down into one of two forms: sign them up and forget them, and partnership philosophy.

“How do you know which business model a payment processor really uses? According to Olson, ask the fulfillment center and the payment processor that they should call in the future for questions.

“Then call that person or department in advance and see how long it takes them to respond. After these two tests, you will have your answer,” he suggests.

Furthermore, picking a payment processor is like anything else in business; read all you can on the subject, ask intelligent questions, look for results, find out, if possible, what companies other people are using, and if appropriate, find out what they think of the service they are getting. And finally, ask for references and then actually call those references and ask hard questions. The success of your business may very well depend on the homework you do.

David Lustig is a contributing writer to Electronic Retailer magazine. We would appreciate your feedback. To submit comments, point your browser to paymentjune.marketing-era.com.