What's Your Merchant Services IQ?

Many in the financial services industry don't understand the hyper complex merchant processing industry & honestly, that's not surprising. Frankly, much of this is probably by design because the industry has a well-documented history of lack of transparency. As a result, merchants and FI's don't know what they're buying half the time when it comes to merchant services partnerships. This leads to many negative experiences for FI's and their business customers, underperforming merchant income portfolios for FI's, and an overall bad taste in many mouths involved in issuing & accepting credit/debit cards for payment. The impacts of COVID-19 have only accelerated card payments which has driven many small businesses and their FI's to begin participating in merchant programs that never did before which only further illuminates the need for knowledge & education.

I wanted to highlight a term people throw around a lot, but rarely actually understand from a strategic "WIIFM" (What's In It For Me?) standpoint so I thought I'd do a high level snapshot of "What is an ISO?" and "Why should I care?" if I'm a merchant or financial institution?

What is an ISO?

ISO is a fancy acronym that stands for "Independent Selling Organization" that the merchant industry uses to describe the same exact thing those in the manufacturing industry call a "distributor" or "re-seller." They do not usually make anything (although some have some in-house tech they bolt onto other systems, but it's rare) they are simply a go-between, additional channel in which a manufacturer (or processor in the case of merchant services) uses to gain additional market share & penetration.

Traditionally, many community FI's opted to partner with a local re-seller ISO vs one of the payment processors because most, like FirstData for example, didn't have a community-based service & support channel to meet the needs of customers and members expecting a local feel they get with their community FI when needing merchant services. However, that challenge was solved when FirstData (now Fiserv) acquired Security Card Services & Clover, a legacy community FI-focused ISO so that they could fulfill that need PLUS provide wholesale, direct processing rates AND best-in-class Clover POS hardware to compete head-to-head with the likes of Square.

What's In It For Me ? Why Should I care?

By partnering indirectly with a re-seller, a merchant and/or FI are unnecessarily adding complexity, increasing merchant rates for their customers, & diluting their revenue share income to their bottom line.

Since there are now only a handful of merchant processors in the world due to acquisition & hyper industry consolidation, FI's and merchants HAVE to buy merchant processing from them anyways, so why not partner direct, get the best rates, & best income share if they don't have to sacrifice local service & support while removing 2-3 additional links in the procurement chain via an ISO?

Imagine you're a commercial cake maker & only 3 companies make flour. You can either:

• Buy your flour from one of the 3 flour manufacturers at the least expensive rate possible because no middle men entities (This represents a direct partnership with FirstData/Fiserv)
• Buy your flour from a B2B Flour supplier like Sysco at a B2B wholesale rate that is higher than from a manufacturer, but lower than a retail store (1 step procurement chain ISO)
• Buy your flour off the shelf from a grocery store (2 step procurement chain ISO)

Why do most commercial bakeries buy from the manufacturer or Sysco?

• Buying power, operational efficiencies & cost, right?

Same concept in merchant for FI's. Commercial cake makers looking to maximize profit, leverage buying power volume, and scale wouldn't buy flour off a shelf, right? So why would an FI or a merchant? Common reasons:

a.) They don't know how to or understand the industry model so they inadvertently overpay & leave serious income potential on the table

b.) They don't think they can buy direct because they don't believe they have the volumes

C.) Don't feel comfortable dealing with the "Big" flour manufacturer because they're community-based & prefer to buy from the Piggly Wiggly-- down home, down the street. They know the cashier and feel comfortable with them.

As I've outlined above, the challenge around feeling you have to sacrifice local relationships when partnering with the "big manufacturer processor" was solved when FirstData (now Fiserv) acquired Security Card Services & Clover, a legacy community FI-focused ISO so that they could fulfill that need PLUS provide wholesale, direct processing rates AND best-in-class Clover POS hardware to compete head-to-head with the likes of Square.

Don't forego best-in-class technology, data analytics, and pricing--you can receive all of that AND a local rep when working with the CFI group at Fiserv Merchant Partnerships!

I hope this was helpful in understanding more about the advantages for both merchants AND financial institutions of direct processing partnerships with Fiserv!

-Meaghan Wood                                                                                

Fiserv, Revenue Share Partnerships

Community FI Merchant Services

[email protected]