A Dearth of Referrals Should Prompt ISOs to Rethink Merchant Approach, Expert Says

Most businesses thrive on referrals from existing clients, but acquirers and independent sales organizations get a surprisingly paltry number of referrals from the merchants they process for. In fact, fewer than 1% of merchants refer other merchants to their transaction servicer, even in the face of rewards such as cash or free terminals, according to Adil Moussa, a consultant who has studied the issue.

Moussa, principal at AdilConsulting in Omaha, Neb., advises ISOs to create a system that encourages and rewards referrals, sometimes with something as simple as a mere thank you. “I believe there are two main reasons why merchants don’t refer,” he tells Digital Transactions News by email. “It is not something that is automatic for them to do. The other reason is that ISOs and acquirers need to deliberately create a culture that recruits, teaches, and incentivizes merchants to do so.”

The ultra-low referral rate comes at a time when a slow-growth U.S. economy is making it tougher to find and sign up new merchants. In this climate, referred merchants should be valued as highly as those found directly by the processor, Moussa argues. “A new customer is a new customer, and ISOs and acquirers should be willing to pay as much as it costs them to acquire a new customer cold,” he says in a blog post, part of a series of posts on the referral problem.

But even more important is a cultural issue at acquiring entities that leads them to simply wait for referrals rather than actively encourage them, Moussa argues. “Unless ISOs and acquirers realize that it is their responsibility to create a system that stimulates referrals, they will never receive referrals automatically from merchants,” he tells Digital Transactions News.

This system would have to recognize a number of factors, Moussa says. Merchants’ priority is doing business, not generating referrals. Many don’t even think of giving a referral on their own, though they might do so on request. And many simply “are not that much into you,” Moussa says in an installment posted Sunday.

So what can ISOs and acquirers do to change these factors and create a culture that stimulates referrals from merchants? One big step is to understand the power of rewards other than cash and aside from items related to the transaction-processing function, Moussa advises.

“Nonfinancial rewards used intelligently are more likely to influence and induce referral-generating behaviors than cash or statement credits,” he says in his latest post. “Similarly, items unrelated to merchant processing are also much more powerful than a free terminal upgrade, or paper for the terminal.”