My Two Predictions for 2018 – Part 1

I’m going to give you my two predictions for 2018 in the merchant services industry.  One prediction is great for you, and one is potentially bad if not dealt with correctly.  This can be THE YEAR of big income increase in our industry.  Make sure you look at both sides of the coin though.  Don’t be caught in the trap of single option.

Prediction #1:  Cash discounting will produce a significant percentage of the up-front income made in the industry this year by sales representatives.  Selling it is great – jump on board!  But you also need to keep selling traditional merchant accounts.  Read on and learn how to benefit most from both selling options this year.

One of my three predictions for 2017 was that passing the cost of processing on to the consumer would become main stream during the year.  I didn’t advise my followers to necessarily start selling it but, rather, to keep an eye on it.  In our industry when a few small ISO’s start something new, that indicates time to “keep an eye on it.”  Do your homework and start learning more about it.  Several years ago, free terminal placement was one of those things.  Of course, it caught on and was big for a long time.  Last year was the year to “keep an eye on” cash discounting.  Some of the small companies were not doing it correctly; it wasn’t compliant.  By the end of 2017, a lot of the mega ISO’s were adopting it already.  Now cash discounting is main stream.

This is the year you definitely want to go all in on cash discounting.  However, there is still a huge market for regular processing out there.  Keep your options open while taking advantage of the cash discounting opportunity.  I don’t believe in 2018 a huge percentage of small businesses in America are going to be doing cash discounting.  I would be surprised if 10% or even 5% of all “mom and pop shops” in America will be doing something similar to cash discounting.  But a lot of deals are going to get boarded this year.  A certain percentage of merchants are going to switch every year.  Probably 15% to 20% of merchants change their merchant processor every year.  Many of those are going to be cash discounting.  Cash discounting deals are going to pay more in up-front bonus money because of terminal leases.  And a lot of residual will be made because the accounts are so much more profitable.

There are two key reasons you should take cash discounting seriously. 

• If you don’t, somebody else in your market this year WILL. If your accounts are taken by someone offering cash discounting, there is no way for you to get them back.  If cash discounting is being done correctly, the merchant statement will only show the fees for cash discounting monthly fees and terminal lease or rental.  This is the case when the processor is holding the money in escrow and then paying the interchange on behalf of the merchant.  Recently I heard of a merchant processing $20,000 a month in volume whose total fees for the month on the statement were $88.  Your merchants will save 80%+ on their merchant services costs by switching.  No amount of hand holding will save your attrition rates from going through the roof if a cash discounting rep starts working your market.  This is definitely a big deal!  Studies from DTI have confirmed consumers are not reacting negatively to cash discounting.  This will relieve the fears of the mom and pop shops who are afraid of losing customers by doing cash discounting.

• Cash Discounting brings larger profit margins and the ability to sell the terminals. These two dynamics will work together to allow merchant services reps to make significantly more commission up front on every deal while also increasing the average residual per account.  I don’t know how long this opportunity will exist.  So, I believe 2018 is the year to cash in on this shift in the payments space!

Here is one other prediction which goes along with this.  Leasing terminals is going to make a huge come back!  I honestly think the total number of leases sold by reps in the merchant services industry could double over the next two years.  This is great news for sales reps who are not making much money right now.  And it is great news for merchants who will own their terminals and legitimately save money on their processing due to cash discounting.  Most of the top reps in the industry are already realizing, “Wow!  With cash discounting I can make 200 basis points of mark-up plus $1,500 up front on leasing a terminal.  This is a huge opportunity to make money.”  The terminals offered by most processors are high end such as PAX and Dejavoo.  These will provide a much better merchant experience.

Taking advantage of the opportunity to make money will not be taking advantage of merchants.  You are still saving them tons of money.  There is no reason not to do a $59 a month lease and get 200 basis points of mark up on a cash discount deal.  Selling cash discounting is very profitable but also challenging!  It is a bit harder than you might think.  You must get in the field, beat the pavement.  It’s very different and needs a totally different pitch.  You’ll need time to get used to it.

I’m discovering there’s great variation between markets.  In my market, pizza shops and auto repair shops are doing cash discounting quite a bit.  Other restaurants are not.  In other markets, reps have said the nail and hair salons are doing it.  It is in its infancy and isn’t easy.  Get familiarized with your market.

You don’t want to make 20% of the sales you were previously making and still make the same profit per sale.  The way to profit is to have a good basis points of mark-up and do a lease on the terminal.  You should be making $1,000 to $2,000 up front on each deal.  And you are still probably going to save the average merchant about $7,000 a year.

I also predict many reps who were top reps are going to drop with cash discounting.  Keep in mind it’s a huge opportunity for SOME business types and in SOME markets.  Cash discounting is an option you want to have in place.  For most businesses, though, you can’t go all in cash discounting.  Talk to them about it but be well versed in traditional processing, also.  I’m seeing a huge mistake in smaller ISO’s who are doing only cash discounting.  Their attrition will be through the roof.  Some merchants, perhaps 10% or 15%, will start cash discounting but decide they don’t like it.  You must present the option of switching them back to regular processing if desired.  And you must be ready to do that with ease.

If you are doing ten to fifteen deals a month on standard processing, keep doing that.  Then try to add three of four deals a month on cash discounting.  Those three or four deals are probably going to be as profitable as your other ten or fifteen.  You’ll very quickly realize which business types in your market are right for cash discounting.

The next episode will reveal my second prediction for 2018.  Don’t miss it!

Read the previous article here:  http://bit.ly/2mZEVHv  Collaboration and Accountability – the Secret to Success

Read the next article here:  http://bit.ly/2DAr8l4  Square is Becoming a Serious Threat