Q&A: Payment Processing Vendors

1. What are some payment processing trends that would interest VARs?

Brent Gephar (Chase Merchant Services): There are a growing number of points during a sale where retailers need payment processing features. One particular area is the gift and loyalty card space. VARs are working with retailers on how to get repeat business through customer loyalty programs, and since VARs have such close relationships with their customers, they can build these loyalty programs to meet the exact needs of each customer.

Chris Brundage (Global eTelecom): Electronic check conversion enables merchants to process checks like credit card transactions at the POS (point of sale). With improved technology and NACHA (National Automated Clearing House Association) rules now in place, electronic check conversion is gaining acceptance with national and regional retail chains. Merchants prefer dealing with VARs for their payment processing needs because they already have an established VAR relationship. VARs can also guard against payment processing agents who might overcharge for services, and they provide vast knowledge about integration into electronic cash registers and other POS systems.

Sanford C. Brown (Heartland Payment Systems): Local and regional restaurants, hotels, and retailers are becoming technologically adept and looking for VARs to provide more sophisticated POS equipment. In today's environment, at least 5 out of 10 restaurants are using more sophisticated POS systems offered by VARs as opposed to older terminal-based solutions. Consequently, common operational services must be tied into POS units, such as payroll processing, time and attendance, gift and loyalty card applications, and payment processing. A VAR can participate in any or all of the revenue streams generated from such services.

2. What does payment processing require of a VAR?

Brent Gephar (Chase Merchant Services): VARs can get involved as an ISO (independent sales organization) or through our channel relationship program. ISOs sell the payment processing directly. Through a channel relationship, we work with VARs and their merchants. Instead of the VAR underwriting the risk, we own the merchant account ourselves and pay the VAR a percentage of the transaction for acquiring the merchant for us. Very little is required of the VAR in the channel program. Some might have 10 or 20 merchant accounts a month while others may have hundreds or thousands. We teach the VAR how POS systems integrate with the payment processing and we can even provide joint marketing and tech support services as well.

Chris Brundage (Global eTelecom): There are few barriers of entry for VARs to offer electronic check conversion processing in their service offerings because there are no registration, setup, or training fees involved. The learning curve for the VAR is very small. Merchants can be active with our service in 24 hours after a simple merchant application is completed. VARs are contracted independently, no quotas are set, and no exclusivity is required. VARs can even defer to processors who already offer tech support for the merchants.

Sanford C. Brown (Heartland Payment Systems): While I would not discourage any VAR from becoming their own processor or ISO, I would suggest they fully evaluate the costs of operating the business. Payment processing is extremely competitive andtraditionally is a volume-based business. Overhead can be extremely high while margins can be low. To make a profit, a VAR needs to know its costs and the volume required. VARs will find that establishing a referral and revenue sharing agreement with a processor instead, will allow them to focus on their core markets while still earning revenue.

3. How can a VAR benefit from offering payment processing to its customers?

Brent Gephar (Chase Merchant Services): Through our channel program, we develop relationships with VARs and compensate them for bringing merchants to us. The compensation is based upon their close relationships with merchants. This allows Chase Merchant Services to work on our core competencies while VARs concentrate on maintaining customer relationships and selling their variety of products. If a VAR is interested in becoming an ISO, its core focus would be selling payment processing. If a company is interested in becoming aggressive in the space as an ISO, we work with them so they have complete access to our platforms to sell payment processing.

Chris Brundage (Global eTelecom): There is opportunity for VARs to earn additional hardware sales and recurring income from processing. VARs will earn an ongoing residual income from all the check processing revenue for the life of the account. VARs will add value to their product lines and differentiate themselves from the competition. Electronic check conversion is new and offers benefits to attract merchants that otherwise may not have considered a VAR's products.

Sanford C. Brown (Heartland Payment Systems): In many cases, VARs that refer accounts to a processor will generate revenue from those merchants each month. This is called residual income and lasts for as long as the customer remains with the service provider. In other cases, the merchant may receive an up-front referral fee or one-time payment. There is also a specific benefit in dealing with a single service provider that can streamline information and setup requirements. For those that seek to go into the business on their own, a significant income can be earned. The VAR can become a processor or ISO for credit card transactions and earn the balance between what the VAR would charge and what they would need to pay in dues, fees, and assessments.