Reputation, Products, Free Terminals Rank High in ISO Selection

Not all merchants choose independent sales organizations and acquirers the same way, and when they do, they do so for widely disparate reasons, says a research report released this week by Aite Group LLC, Boston. Yet “ISOs and acquirers are not differentiating among merchants” with respect to direct marketing and other sales approaches, says Adil Moussa, an analyst at Aite and author of the report, in an e-mail message to Digital Transactions News. Acquirers that track how merchants respond to their marketing efforts can not only channel more resources to those efforts that work best, but they can also avoid efforts that don't work as well for particular types of merchant. “Plenty of processors continue to focus great effort in areas that may not benefit them,” says the report. The marketing resources at stake are substantial. ISOs and other acquirers devote about 17% of their net revenue to sales and marketing, a number that will come to a projected $1.13 billion in 2009, according to the report. To find out how merchants find their processors and what criteria rank highest with them in choosing a processor, Aite surveyed 160 merchants this spring and summer across four industries: e-commerce, restaurants, health care, and physical stores. The research, which explicitly focused on non-financial factors, revealed a number of key differences among the industry groups and shed light on where acquirers hoping to recruit merchants in each group should concentrate their resources. Across all four categories, referrals from trade associations account for the highest volume of matches between processors and merchants, at 24%. This is followed by bank relationships (18%), where merchants use processors already contracted by the banks where they keep their accounts. Some 15% are recruited via sales calls, and 9% come to acquirers after researching the topic online. Overall, the survey reveals that fully 40% of merchants found their processors through referrals of one kind or another, whether from trade groups, friends, accountants, or vendors. The reputation of the processor plays a big role in selecting acquirers, the research shows. This criterion ranked highest, at 85%, followed by the fact that the processor offered the products the merchant needed (83%) and free terminals or no setup charges (73%). Though no questions were asked about pricing and other financial terms, 18% of merchants cited price as a reason they selected their processors. The high percentage of business resulting from referrals places a premium on reputation, the report says. The fact that nearly one in 10 placements come through Internet research, meanwhile, indicates acquirers would do well to exploit advertising on search engines. This may be particularly true for bank acquirers. While ISOs figure among search results and sponsored links under “merchant processing” on Google, banks are sparse. “Banks should invest more in online advertising and have a more prominent place in order to take advantage of this channel,” Moussa says in the report. This channel could prove especially effective in recruiting e-commerce merchants. Some 27% of these businesses found their processors this way, more than twice the overall number. By contrast, only 10% signed up through their banks and just 4% signed up because of sales calls. Reputation, meanwhile, is paramount here, with 95% citing this criterion for choosing an acquirer. “We suspect this sensitivity to be due to the complexity of setting up Web sites that are totally integrated with the gateway and the shopping cart, making the shopping experience a seamless one,” Moussa says in the report. Restaurateurs also value reputation (83%) but rank free terminals and no setup fees a close second (78%), while doctors' offices and brick-and-mortar stores rank “processor offered products I needed” first, at 85% and 88%, respectively.