From Payments Gateway To Merchant Services, And Beyond

At its very core, 5^th Dimension Logistics is a payment gateway and transaction hub. But what makes the company unique, says its President and CEO Matanda Doss, is that once a transaction is processed and completed, that sparks an entirely new chain of events that will happen in the supply chain. In a recent interview, Doss gave MPD CEO Karen Webster the inside scoop on how his company is combining its software with new merchant services to rebrand into Sparrow, a name they believe reflects trust, vigilance and productivity in more ways than one.

KW: Let’s set a little context for our conversation about the big broad world of credit card processing, all of the issues associated with that and your role within the ecosystem. So as 5^th Dimension Logistics, you’ve been in the business for awhile, and you recently acquired a merchant account services business, and you have rebranded. You are now Sparrow. Tell us the reason behind the rebrand and what you hope to achieve with the acquisition.

MD: 5^th Dimension Logistics, at its core, is a payments software company. So we are a payment gateway and a transaction hub. The acquisition of Superior for us was really about giving us an opportunity to grow our merchant base and expand our products and services offering to really provide a more seamless service to our customers.

We joke around here that there’s really only one throat to choke when there’s a problem because we’re handling both sides of the transaction – not only the payment transaction services but also the merchant account services for a lot of our clients.

KW: That seems to be a trend in the business. As the merchant needs become more complicated, there are more things for them to consider and more options for them to pursue. What specifically do you do that makes you unique?

MD: What makes us unique is first the payments software. We don’t just do a simple transaction. If you look at our competitors in the payment gateway world, it’s really about processing transactions, collecting whatever amount of money you can for that service and getting out of the way.

We don’t look at it that way at all. For us, a transaction, when processed and complete, is really just the beginning of a whole chain of events that will happen in the supply chain. So on the backend of our payment gateway, we have a transaction hub that’s cloud-based, PCI compliant Level 1, secure – all the good words you’d want to hear when talking about moving data. But that Echo Data Exchange on the backend of our payment gateway is really a differentiator for us, and what clients are finding quite useful. So, what happens in our world is when a transaction is processed, it’s completed but data still needs to be sent to the replenishment system, fulfillment and accounting, and those things need to happen in real-time in a secure fashion.

So with the Echo Data Exchange, we’re going to help businesses synchronize their supply chain, which makes them more efficient from an operational perspective. But also, if we drive down into the cost savings of this type of business model or cloud integration, we’re looking at reducing the number of point-to-point integrations around the IT supply chain at the merchant.

It used to be that big enterprise systems would all be connected together, and any time a change was made in integration between one or two of them, there’d be a ripple effect. With centralization, that ripple effect problem goes away, and solutions can be more easily adopted.

The other good fallout from that is it’s then easier to achieve compliance. When the sensitive data – the personal account numbers and things like that – is centralized and housed in a secure location, tokens can be passed back and forth to represent an SSN or ACH number, and in that way, data doesn’t need to be out there in the hands of everyone in the organization.

KW: So what kinds of merchants do you typically serve? 

MD: Well, that’s evolving. The Department of Defense Armed Forces exchange was our first customer, so we started in the narrow scope of what we can do for the military and their online processing of private label cards. We then expanded into the travel space – we process payments for lots of travel and vacation companies.

We only hired sales people a year ago. For the first eight years we were in business, it was all organic growth and word of mouth. From there, we traversed into softlines retail – we have softline retail customers in Canada, and pizza stores in the West Coast. Now we pretty much go across all verticals, and we’re really finding a lot of sales accelerations in the education space and in medical and orthodontics. That’s because of specific products we have that address their needs within their businesses.

KW: So what kinds of things are you hearing from your merchants with respect to their key priorities? So much of what we talk about now when it comes to merchants’ focus is mobile, customer engagement, security and EMV, Apple Pay, and other types of payment methods. What are the things that are bubbling to the top with respect to the merchants you work with? 

MD: There are two that we hear the most here – the first is payment security. That’s really in the minds of all of our larger Tier 1 and 2 clients, or $100 million and above. For smaller merchants, I’m not sure that they get it yet. There are lots of reasons for that. It might be budgetary constraints, or not thinking breaches will happen to them, or not having the technical staff to address those issues.

The second one is omnichannel. That’s not just opening up more ways to interact with the customer and sell, but also getting in touch with them and being where they are at the time of sale to better perform their job as merchants.

KW: As we get closer to the liability shift data in October 2015, I’ve been following some of the survey data that’s coming out. Many merchants are completely unaware of or not focused on the requirement around EMV. What are you doing for those merchants? Are you trying to help them become compliant, or offering them other services that help them mitigate their risk of security?

MD: We’re offering them services and consultation. The hard part is walking into someone’s business and saying, “Hey, you’re doing this wrong.” It’s a delicate line for us to cross. So it really comes down to fear, uncertainty and doubt. Fear of having our customers and our systems exposed gives us a point from which we can tell the customer they’re doing things in a non-compliant fashion, putting us all at risk. That’s a delicate way to go in and make sure they’re doing it right, so we’re doing it right.

On the uncertainty side, a lot of them just don’t know what to do and where to start. Security, for a lot of merchants, is such a big ominous thing. Sometimes they don’t know that their issue isn’t as big as Target’s was.

Then the doubt for a lot of them is that they doubt that it’s going to happen to them. We then have to tell them that nobody’s immune, and show them statistics that fraud is growing and growing. With that, we then try to convey to them that there’s two ways to spend their money. One is playing offense, and one is defense. If they get on the offensive side of this, they have a better chance of winning. If they’re on the defensive side trying to glue their company back together after they’ve lost data, customers and trust, then they’re digging themselves out of a hole.

KW: It’s tough, especially when talking to a small- or medium-sized merchant that’s very busy and time and resource-constrained. I was shocked about a statistic I read – in the average case of a breach, the perpetrator has actually been in the system for over 200 days. That’s staggering to me, to think that they go undetected for such a long period of time.

MD: For a lot of merchants, they’re focused on their business. But we’re focused on security because if we give that up, we might as well just close the doors. We have layer after layer of security that includes intrusion detection systems and exterior and interior Web applications firewalls – what it all amounts to is nine or 10 layers of security. For merchants, they think one or two levels should be enough because all of the products that are out there in the market — that’s what they claim. The problem is intrusion detection systems only cover one aspect of the business – so they’re getting a false sense of security by adopting one or two security measures.

KW: We talked at the beginning about how the space has changed over the last decade, and is evolving and will continue to evolve over the next several years. What are the biggest changes you’ve observed over the last decade of being in the merchant services business, and how do you believe you’re positioned to continue to innovate and stay a step ahead?

MD: The pace of business is increasing. As information flows and we’ve enabled more and more people to transact on PCs, tablets and phones, the pace of sales and business in general is in constant acceleration. That’s a huge shift from 20 years ago. Now, everything is real-time – “just in time” isn’t even good enough anymore. To be able to handle that, we have to be there every time, on time, ahead of time. The way we do that is through software applications that aren’t just on a PC – we’re all cloud-based, and have mobile applications for iPhone and Android. Even in client-facing situations, we have applications that are being carried around in major department stores today, selling vacation packages.

The second thing is, this whole credit card thing is really messy. For a long time it’s been the elephant in the room that nobody understood or wanted to bother with. So for us, transparency is huge. When we talk to our merchants or prospects, it’s all about peeling back the layers and exposing the truth about what they’re paying. Even better than that, we explain how we can change payments and data to optimize cash flow for that merchant. If they’re delayed in doing settlement, that will cost them, so we help them correct that behavior. We have a whole list to go through with merchants to help them learn more about their business and mitigate costs, increasing cash flow so they can stay on top of being the best merchant they can be.

KW: What other things can we expect to see on Sparrow’s roadmap over the next several months?

MD: The amalgamation of the two companies – our software company now with its merchant services entity – we are rebranding into Sparrow. Sparrow is representative of what we are and what we tend to be going forward – productive, trustworthy and ever vigilant. We’re trying to be trustworthy through transparency, ever vigilant in terms of security, and staying proactive on top of that.

Going forward, we intend to expand more in the omnichannel world and in global payments. We continue to adopt additional processing and acquiring relationships outside of the U.S. to enable that multi-currency and cross-border selling for merchants. At the same time, we’re growing our software to address the ongoing needs of our merchants. We’ve updated our fraud prevention system, and have built an entire customer scoring system that allows them to evaluate customers at the time of transaction.

Matanda Doss
CEO and President, Sparrow

Matanda is partner and director of operations at 5th Dimension Logistics, now Sparrow. Prior to founding 5th Dimension Logistics, Matanda spent 10 years designing, building and implementing retail software systems including inventory optimization, replenishment and merchandise management systems. He was also part of the team who developed and released the first Internet-based POS in 1999.  Matanda led a team of brilliant designers and developers who developed the first ever Web-based back-office system for Target stores and won the 2003 RAD award from Microsoft. Matanda has sat on several standards boards including ActiveStore, which designed and developed common transaction interfaces for Web services and XML interactions, back when it was new. Today he is a board member of Future Stars International, a non-profit organization that teaches youth life skills and benefits of competition and hard work.

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