Eye on ISOs: Wooing Merchants Harder, Plus an ECR Giveaway

Acquirers and independent sales organizations have plenty of opportunity to build transaction volume with merchants despite the economic downturn. They just need to work harder at incentives for merchants to accept cards instead of cash or checks and on satisfying merchant needs, according to a new research report released Wednesday by Aite Group LLC, which surveyed 160 merchants in four categories, including restaurants, retail stores, health care, and e-commerce. As if on cue, United Bank Card announced at the same time a new terminal giveaway program to help ISOs penetrate more restaurants and stores. The company pioneered free terminals five years ago, following the example of the wireless network operators, which heavily subsidize handsets to win usage contracts. Only this time the Hampton, N.J.-based merchant processor is offering free electronic cash registers and supporting the campaign with a sales contest featuring a $1 million cash prize. Acquirers and ISOs have a chance to win sales that now go to cash and checks, but only if they can combat merchants' tendency to steer customers to less expensive payment methods and to set minimum purchase thresholds for small-ticket items, according to the Aite report. The firm's survey found 28% of merchants steer customers away from cards and to cash and checks, while another 5% say they are likely to start doing so. Meanwhile, 11% of merchants refuse card transactions below a pre-set minimum, and 8% more say they are likely to. Both steering and minimum-purchase levels are barred by card-network rules, but some merchants flout the rules when they see too much profit eroded by card fees, Aite says. To get those transactions back, acquirers and ISOs must work out discount pricing that takes less of a bite out of merchant profits, the report says. This will require cooperation form the card networks, says Adil Moussa, an analyst at Aite and author of the report. “Networks and acquirers alike should realize that a flat nominal fee or a small percentage on these transactions…are better than no income at all,” he says in the report, giving as an example a fee of 10 cents. “The capture of the small-ticket item is going to elude the card networks as long as they don't resolve the pricing issue.” Meanwhile, ISOs and acquirers will have an easier time retaining merchants if they put their efforts into pricing, product selection, and relationship-building, according to the report. The strongest factor among these is price. Even among merchants that were dissatisfied with their processors, nearly two-thirds stayed with those processors because they were satisfied with pricing, the research revealed. As if acting on Aite's advice to exploit existing merchant opportunities, United Bank Card unveiled what it calls in a release on Wednesday “the industry's first free electronic cash register program.” Aimed at restaurants and the general retail business, the machines come from Casio and feature a cash drawer, backlit display, and integrated payment capability for credit, debit, and gift cards. “The days of the standalone credit card terminal are quickly coming to an end,” said Jared Isaacman, chief executive at United Bank Card, in a statement. “I am confident that this program will revolutionize the industry in much the same way that our free terminal program did in 2004.” Certainly there's potential to capture transaction volume. Some 60% of transactions at brick-and-mortar retailers are on cash and checks, with credit and debit cards accounting for 38% and gift cards and certificates 2%, according to the Aite study. At restaurants, the shares are 53%, 43%, and 4%. At the same time, among all merchants, ECRs or other PC-based point-of-sale machines claim a 30% share of market, with standalone card terminals accounting for 70%, according to the Aite study. That may not indicate the days of the standalone device are coming to an end soon, but it does bode well for ECRs. “Getting to 30% is quite remarkable,” Moussa tells Digital Transactions News. “You have an industry that mushroomed.” Moussa likes the United Bank Card program. “They're going to be able to capture a lot of market share,” he says. He figures the machines may cost the processor between $300 and $400 each, well below standard retail pricing. “In a good restaurant, you can make that back in a month,” he notes. To support the free-ECR program, United Bank Card is running a contest in which it will award $1 million after one year to an ISO or other reseller. Each contract constitutes an entry, the company says.