Peter Drucker, the management guru, wrote long ago: “Strategy is a commodity, execution is an art.”
As David O’Brien, CEO of Agreement Express, told PYMNTS, independent sales organizations (ISOs) need to crystallize their strategies on merchant abandonment and tackle the problem with clear-eyed execution.
The impact of the great digital shift on ISOs has been seismic. But as O’Brien noted, as many as 70 percent of merchants abandon the ISO onboarding process due to friction and long wait times to get up and running with payment processing ability.
O’Brien told PYMNTS that merchant acquisition strategies can be improved with automated underwriting and that assigning risk scores in underwriting approval or rejection can help reduce the time it takes for merchants to get onboard. At the same time, automated underwriting can help ISOs maintain top-line momentum.
But there’s a gap, he noted, as a surprising number of ISOs are not making the leap toward automation. Part of the problem is that “abandonment rates have been pretty much accepted, up to a point,” he said — but they don’t have to be.
“People have just accepted a norm, but it’s not the norm anymore,” said O’Brien. At least some smaller ISOs, he said, have been “laser-focused” on getting abandonment rates down to zero — which, even for relatively smaller merchants that do low six figures in credit card sales volume, can add thousands of dollars to ISOs’ own top lines. One less merchant abandonment can make an immediate difference to the provider.
The entrances of Square and Stripe have proven to be game-changers, getting merchants to market and accepting online payments with a few mouse clicks. Square and Stripe have introduced competition for the ISOs, which now need greater visibility into their own operations, as O’Brien maintained can come only through advanced technologies.
To use a quote from the late secretary of defense Donald Rumsfeld, ISOs need no longer grapple with the “unknown unknowns” of doing business. There is enough free-flowing data that ISOs can capture approval rates and gain granularity into their merchant applicants’ percentages of returns — even the number of merchant apps that are being examined — to create a risk score card.
As to those data points, said O’Brien, “the canary [in the coal mine]” for the ISOs as they onboard merchants is the monthly revenue by basis points’ impact of abandonment — and how quickly they must pivot toward new approaches.
Hours And Not Days
As O’Brien put it, automated underwriting can help ISOs achieve their end goal (and satisfy merchants’ expectations) so that businesses can begin processing payments within hours — not days.
As O’Brien explained, automating the underwriting process lets service organizations fine-tune their underwriting rules so that a vast majority of merchants are (safely) approved, and the ones that need further manual review are flagged and routed accordingly. In that way, for example, the ISO that has pre-determined that they don’t want to deal with CBD firms simply won’t see them in the mix.
“The best part is, we’ve had firms where 70 percent of the merchants coming through are auto-decisioned,” said O’ Brien. And for the ISOs, he added, “you can put in your own ‘secret sauce’ … the model is configurable.”
The automation — and the balance between risk and speed — do much to counteract merchants’ dissatisfaction with current processes. As O’Brien noted, 1 out of 5 merchants tend to leave their processors because of those frictions. There is not a lot of loyalty out there, he said, so ISOs must be able to deliver.
As O’Brien told PYMNTS, “If your abandonment rate is high or trending higher, you’ve got to look at your systems and processes, because your salespeople are on the front line, doing what they’re doing to get [merchants] in the door. You’ve got to do what you need to do to get merchants on board faster.”
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