SMEs Need Straightforward Simple Turnkey Solutions

MerchantSelect.Com speaks with Brent Gephart, Director of Marketing and Corporate Strategy with Chase Merchant Services, L.L.C. Mr. Gephart provides compelling commentary and interesting insight into the payment processing and E-commerce market with particular emphasis on the needs of small to medium-sized businesses, the challenges and where this market is headed.

MerchantSelect: Can you give me some background on Chase Merchant Services?

Brent: Chase Merchant Services is the nation’s largest credit card processing company. In just US Visa and Master Card processing for 2001, we did $175 billion plus last year. The number jumps to over $195 billion when you include debit cards. We are a stand-alone organization of J.P. Morgan Chase & Co. We work within two parameters. First, we have banking products and services and use the underwriting capabilities of the bank. What the bank does is allow us to take on the risk of large national relationships. There’s a certain liability in being a credit card processor. You’re liable for charge backs issued and merchant bankruptcies. If a client goes bankrupt, the payment processor is exposed to potential losses. For example, a $5 billion a year business that processes $10 million a day could easily lead to tens of millions of dollars in potential liability, which could put a small regional bank out of business in a minute. Second, we have another company we work very closely with called First Data Corporation. First Data is a provider of processing platform solutions. We use it for our processing platform. Both J.P. Morgan Chase & Co. and First Data each own 50 percent of us.

MerchantSelect: Who are the top payment processing companies?

MerchantSelect: You mentioned earlier that Nova was big in the regional space. What does the regional space include?

Brent: Chase Merchant Services has four lines. We call them traditional verticals. First, there’s your direct - catalogue companies - your Eddie Bauer’s, LL Beans - any environment where the card is not present. The second one is the retail vertical - Wal-Mart, Home Depot, anywhere where you card is present in front of you and you can swipe your card. Next is the travel and entertainment (T&E) area - your Carnival Cruise Lines, Ritz Carleton, Disney, American Airlines and Jet Blue. Fourth is the small business or regional space - companies that do $1 million in credit card processing or less a year - these are the core 3 million SMEs in the world. Middle market clients are direct, retail and T&E companies that do $1 million to $10 million that are growing so fast they are coming out of the regional market place. National clients include direct, retail, and T&E companies in the $10 million plus range to several billion dollars annually.

MerchantSelect: What other payment processing companies also cater to this group?

Brent: Chase Merchant Services now caters to the small business space, as well as PaymenTech, NPC, Nova, Wells Fargo and Global Payments to a certain extent.

MerchantSelect: Based on your experience in the regional market, what are SMEs looking for in E-commerce and payment processing solutions?

Brent: That’s a tough question - they often don’t know what they’re looking for, and I’m not saying that in a bad way. They have a perception of what they think they’re looking for. But the problem is that with so many ways to do it and so many business models, it can really be confusing. You have a gateway here, a merchant provider there, a shopping cart, a web solution, an order management solution, and chat room. The people making the money were the web design shops, who sold you tons of space. They said, ‘We’ll charge you $9000 for six pages of design.’

What the small businesses don’t realize is that they can do a lot more with a lot less these days. There doesn’t have to be a huge cost associated with what they want.

More research needs to be done because they don’t have an understanding of just how important a good platform is for long term success. And what they need to do is choose companies whose core competency is building those platforms.

MerchantSelect: So you’re saying that SMEs have been building solutions with different vendors as opposed to implementing turnkey solutions. How does this affect Chase and other payment processing companies?

Brent: By the time a business gets to us, they’ve been walked down twenty different paths, spent a lot of time and money putting together something that should have been four simple pieces but has turned out to be 20 different segmented pieces that they are trying to fit together and make work. Then for the payment processing, they say, ‘I need a payment processing piece and I need to save money.’ You would think that the most important part of E-commerce, where the most liability is, would be where small businesses invest the most. But yet, it is the piece where they are the most price- sensitive.

However, we feel like the market place is beginning to realize the impact of a good payment processor. But a lot of businesses have gone out there and spent $5000 to $6000 and are discouraged. It’s a very tough sell. The industry is slowly switching; businesses are maturing. They have figured it out. People are actually starting to think about how they can use the Internet to do something effective for their business strategy. Although Chase Merchant Services doesn’t have the largest of all E-commerce portfolios we probably have some of the most successful E-commerce merchants.

MerchantSelect: You mentioned the industry is slowly maturing. Can you talk about this in more detail?

Brent: Businesses are starting to sit back and say, ‘What is my go-to-market strategy? What is my Internet site?’ At its minimum it is brochure ware. It should talk about the products and services you offer. You need to find the tools that can provide you with good functionality at a decent cost that grows when the Internet grows, when the business grows and can transform your site into an E-commerce site.

This is why I was actually a big proponent of the Free Merchant and Big Steps. These vendors were the ‘training wheels’ for the Internet. They taught people how to do an FTP upload, they taught people how to put an image on a web site, they taught people what HTTP stood for, and they taught them how to use a URL to find a site.

MerchantSelect: Based on the challenges you’ve faced with SMEs, what do you think SMEs should be looking for in E-commerce solutions?

Brent: What small businesses want is a very straightforward simple turnkey solution. They should look for an all-inclusive solution. I don’t think it prohibits them from choosing a design tool or choosing a designer to work with them. What companies need to do is find a company where their core model is building a universal solution and it’s their core competency.

Their solution should have open code. Small and medium-sized businesses may not know what that means or why it’s important to be able to touch the code but at some point they’re going to. At some point they may decide, ‘Oh, I want to put some Flash in this page.’ So what they have to do is find something that’s easy to work with - something that will allow them to look at where that platform is going in the future. They also need a good dashboard user tool that allows them to make changes without the developer. That’s where a lot of companies make mistakes.

Companies need to think ahead and ask themselves questions. What functionality is that platform going to fill? Where do I see my business going? What kind of beneficial services can I get from my tools? That’s why the all-encompassing platforms are so important - need to think about how you do business now and how you can make your business better by applying the Internet. If this is an information site, then your wasting your money and your wasting your time - the site should have E-commerce functionality built into it.

MerchantSelect: Being the largest payment processing company in the nation, it is obviously important for Chase to protect its brand. Important to protecting a brand is choosing the right partners. How does Chase Merchant Services choose its partners or vendors?

Brent: We feel it’s our responsibility to go out and do the due diligence to find the best solution. It’s not a core competency of a processor to host web sites or build a shopping cart - what a processor can do is strike up the best relationships and try to get those tools in front of the merchants. Small businesses have to rely on a lot of outside people to do business with in order to make their Internet business successful. The minute that we underwrite you to take a credit card payment we’re putting you and your trustworthiness on the line along with ours. When researching your merchant services provider, you need to consider the legitimacy of the company. If the information transmitted is stolen and/or abused it can drastically hurt your company and have long-term ramifications. What we’ve tried to say is, ‘We know these are the best vendors and we are putting our own liability on the line if something goes wrong, we are at fault and we will make it right.’

As a result, when we sign a vendor it takes almost a year to put a contract into place, which is another reason why we have to be careful choosing affiliates and partners. To choose our current vendor we went through an arduous one-year RFP process. It was crazy, but the right player had to be chosen, which ended up being a company called Vista.Com. They provide a complete end-to-end solution. Vista.com can build a site for the merchant or merchants can use their tools to build it themselves. You can have a shopping cart, you can use the site building technology, the store building technology, its got chat rooms build into it, message boards built into it…we wanted a simple solution. If you want to use text you can use text. If you want to use code, a different version allows for greater sophistication. We’ve had merchants who’ve done some simple things with it and others that have done some complex things with it. The platform is very flexible.

MerchantSelect: Can you provide more details on the solution? What are its other advantages?

Brent: With our web building and store building solutions, you can build as many pages as you want. And put as many products in your store as you want for only $49 per month with a 12-month commitment, and you get two months free. It’s a very comprehensive, complete, sophisticated solution. If they want just an ASP shopping cart solution, we can give you the same exact platform without the site-building portion. That’s $39 per month. Of course, you need a merchant account with that. The merchant account is $19.95/month plus a 2.29 percent discount rate. From the market analysis, I believe it is one of the cheapest ones out there and very reasonable.

Another thing is merchants have very little time to build their sites. We’re putting together a value campaign right now for a five-page site design for approximately $140. It will probably take four to five months for us to recoup something like that but it shows the merchant how to get up and running and give some instructions - then they’re part of it and know how to use it. Free Merchant and Big Step offer a quick five-page brochure site where the merchant dumps some information on it and walks away. Merchants are not part of the process nor do they know how to use it. Really, we’re building in a lot of extra benefits in our product that is not in other tools. We’re making our tools more versatile, more useful to the merchant. 45 percent of the way businesses realize their revenue on a day-to-day basis is through credit cards, which is why my team is so focused on Internet operations.

MerchantSelect: Speaking of credit cards, where do you see the online payment market going? Do you think credit cards will remain the most popular method of online payment?

Brent: Yes, I believe that credit cards will continue to be the most accepted payment form on the Internet. One reason is that customers feel more comfortable making purchases using their credit card than they do using P2P, checks and other payment solutions. One reason for this is that customers have more payment controls with their credit cards than with these other payment forms. Customers have the ability to charge back products, easily can make purchases and if their card is stolen there are controls to limit the users liability. Obviously, the circumstances are slightly reversed for the merchant since online transactions are card-not-present transactions and therefore represent more risk for the merchant. However, with new fraud tools such as Negative Databases, CVV2, and Neural Fraud solutions, merchants will soon have more ways to validate their online transactions.

MerchantSelect: So, you see the alternative payment market more as a beginning stage for these businesses, and that they will move to accepting credit cards eventually?

Brent: Absolutely. The driving force for small businesses to accept credit cards is the use of automatic tool systems. Everybody is working on solutions that make credit card acceptance much more secure. We are building that functionality in, including fraud and other protection mechanisms. It is part of the package so that the merchant doesn’t have to worry about it.