The Executive Interview Series provides readers with exclusive insights from movers and shakers in the payments industry. The Payments Industry is under continuous transformation, as such this series provides diverse perspectives on everything from strategy to payments technology and to the future of the industry.
Background: Jeff Fortney has over 28 years of experience in the payments and financial technology world working primarily with ISOs, ISAs, and ISVs. Jeff leverages his knowledge and experience to help identify areas of growth, profitability, and increased sales. Jeff previously served as Senior Vice President at TouchSuite and Vice President Third-Party Management at Clearent.
Jeff has used his expertise to build a Sales Training program distinctively designed to increase sales while maintaining profitability. The program has been well received by the industry and has proven to be successful in today’s environment. The goal of the training is to eliminate the use of cost savings as the reason to sign, but instead help them provide the merchant with steps that can eliminate concern, improve processing, and not pay extra for the process. Jeff also has extensive experience in card network interchange, dues, and assessment structure. His knowledge of network rules has led to the development of compliant merchant programs still being offered by various offices. Finally, using his expertise in processing costs, he has completed in-depth analyzes of ISO Residual reporting, helping them determine accuracy, while also finding holes in profitability. Throughout his career, Jeff has written for numerous trade publications, concentrating on information that will help the ISO grow and protect its portfolio.
Q. Zach Spellman
You have an impressive background in payments, can you tell me more about some of your prior roles and experiences in the industry?
I began my career managing major wholesale ISOs, while also supervising a group of Account Managers who were responsible for their assigned wholesale ISOs. At that time, our industry was simpler and was beginning to enter a period of constant change. Your success (and future) required you accept that and evolve with it.
Early in my career I was assigned the responsibility to direct a back-end platform conversion. The conversion involved every one of my ISO partners’ merchants and I was not fully fluid in either platform’s language at the time. There were over 150,000 merchants in my assignment, and the project ultimately took two years. As a result of this effort, I gained significant knowledge in processing technology, and a constant hunger to gain more. I am not an expert on platforms, but my knowledge has been an advantage to the ISOs and agents I have worked with throughout my career. It also made my philosophy of transparency further ingrained into my professional approach. I recognized how important this was to success.
I have had the opportunity to work with a very large processing company, and as third payments person at a startup company. Both allowed me to develop a complete perspective on the payments industry, which has been an asset I have leveraged throughout my career.
Q. Zach Spellman
The payments industry appears to continuously evolve in terms of growing merchant portfolios and limiting merchant attrition as much as possible. Based on your experience, what strategies have proved to be the most successful for identifying and retaining merchants to an acquirer’s portfolio?
Since beginning in this industry, I have believed that limiting attrition begins with one step, consistent communication. For some time, our industry was seen as a necessary evil. Once a merchant signed, the agent was all but forgotten until there was a problem and they either couldn’t process, had a chargeback issue, or lost a sale due to forces outside of the agent’s control.
At the same time, salespeople or independent agents would be attempting to build a portfolio, and their thoughts were on the next sale not the last one. For example, when something changed (like card brand fees) most relied on a statement message to communicate the change (and truly hoped no merchant would read it).
Early on, I advocated a targeted communication – either by email or in writing – that was consistent and targeted to our industry. Some called it a newsletter, others called it a payments update. In all cases, the purpose was two-fold: (1) remind them that the processor/agent was a partner in their success, and (2) to encourage them to tell others.
In essence, they treated them like they were a partner who the merchant could leverage. A partner in the merchant’s success. It took consistent effort, but those who did this found improvement in retention. And it didn’t take as much effort as they thought. As a result, the referrals they gained were easier sales. Today, this is still just as important.
Q. Zach Spellman
Merchant acquirers go to market in a number of different ways by utilizing various sales channels. What are some of the advantages of using independent agents? Opposingly, are there any disadvantages of this sales channel?
I have always looked at independent agents as the wholesale arm of any sales group. Since the standard compensation was based purely on productivity, the cost of developing this sales arm required a smaller capital investment – both at the beginning and throughout the relationship with the agent. It is also the fastest way (outside of acquisition) to build a portfolio of merchants.
If the agents are vetted well, they will need little hand holding. Train them on your programs, give them applications, and they are essentially good to go.
The downside is that most agreements are non-exclusive, which allows the agent to place their business anywhere. Merchant acquirers need to earn their business. Loyalty is earned, and if the agent (like a merchant) perceives they aren’t a partner in the business, they will submit elsewhere.
The most common concern I hear is that the margin is not as high as other channels. Some find that the volume produced may be large, but with the return, any potential risk in that volume may amplify the negativity of the lower return.
The last disadvantage lies in the freedom an independent agent has in this form of relationship. The merchant relationship is largely between the agent and the merchant. That is where the loyalty should lie; however all too often, the agent is too busy chasing the next sale than they are retaining their portfolio.
Q. Zach Spellman
As software becomes more predominant in managing and running day-to-day business operations, how has the emergence of ISV’s restructuring their business model to serve as ISOs and/or payment facilitators changed the market? Are there any downsides of this model for ISV’s?
When ISOs and acquirers first ventured into ISV relationships, the belief was that the ISV could be leveraged to improve margins and garner new merchants, while at a lower operating cost than the agent channel. The vast majority found this to be very difficult and ultimately stopped trying.
Yet many ISVs recognized they could gain added revenue by becoming an ISO and providing processing as part of the relationship. In turn, providers found the margins were better with these agents – or so they thought. Unless the processor set minimums, the ISV would give away the processing to get the POS sale. The benefit of the processing and the longer-term processing revenue was not seen as a value by the ISV. Those that will be successful in the future will be those who recognize that all revenue streams are important and if they are supporting their day-to-day business, they need to charge accordingly.
From my observation, those offering payment facilitator support have reversed this approach. They provide the software as a part of the overall payment facilitator offering. This different approach opens the market to more potential merchant customers, mostly smaller in size due to the payment facilitator rules and restrictions.
Not to predict the future, but I believe that payment facilitators have developed a place in the processing universe; however, I still consider them the gateway to full processing. Even if the volumes are increased, the costs of processing will ultimately be a challenge.
With this said, the constant change in our industry rarely precludes new opportunities nor does it eliminate completely the opportunities that have existed before the changes. I feel that its like a toolbox, and if we add usable tools, it betters all of us.
Q. Zach Spellman
Through partnerships with processors and acquirers, traditional banks can be direct resellers of merchant services. What are some of the advantages for banks for offering payment services to their existing customers?
Simply put, it’s all about the “stickiness” of the relationship. Back in the 1990s and again in the 2000s, a survey was done about client retention. The key factor in both was bank product usage. 95% of those bank customers with only one bank product (like a checking or savings account) left within the first three years. If the bank added one product, that exit percentage dropped to 30%. Payment services is a product they don’t have to sell (they rely on the partner to sell) but statistically it works like all of their products, and they tend to stay longer.
As such, a bank also knows that happy customers want to do more business with them. Having all the tools (including processing) is important to make their business customers more loyal.
Banks may also want payment processing in their product mix, but don’t want to invest in training their staff on payment processing. As such, they need the partnerships to sell payment services. Those choosing the right partner can find both a benefit to retention, as well as a revenue stream.
Q. Zach Spellman
What are some of the more unique and successful sales strategies you’ve utilized or witnessed throughout your experience in the industry?
Over the past 15 years our industry has sold cost savings, over and over. Several years back I realized that the savings money approach was unsustainable and that there had to be a better way.
After researching how people sell, and how people buy, I had an epiphany. People buy for personal and compelling reasons. They buy subjectively but justify it objectively.
I built sales training around this philosophy specifically for the payments industry and have trained agents using this approach. The goal was first to recognize the emotions and pains they have with their current relationship.
Of course, as salespeople adapted my philosophy, they adopted many (if not all) approaches to differentiate themselves from their competition. For example, one approach is something that at first they resist – if your competition is doing something, you stop doing it.
I still support this approach, and I continue to adjust as the marketplace changes. Rather than going too deep, I will share one more approach that may be the most important – don’t spill your candy. In other words, nothing is free.
Q. Zach Spellman
In your opinion, how will the emergence of newer fintech solutions affect the payments industry, and what area do you suspect will have the most disruption?
I am not sure that the newer fintech solutions will have as much disruption as some may perceive. In my opinion, the changes that have resulted from the pandemic have had the most disruption. Any solution that helps a business address these areas of change will have the most impact, but the uncertainty of the future due to the continued COVID issues will continue to disrupt. Those that succeed in the future will be those who adapt to these disruptions and address them.
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