We have a love-hate relationships with the payments industry:
- Love: Massive salesforce
- Hate: Inability to sell on value
- Love: Bringing consolidation to fractured POS industry
- Hate: Made POS dealers lazy with payments residuals
- Love: Executing benefits of economies of scale to drive improvements into merchants faster
- Hate: Too-ften criminal fee structures that gouge merchants
Suffice it to there’s some very good, and very bad, that comes with payments industry encroachment into POS. Yet while the payments industry is doing well in penetrating the long tail of the market, they’re struggling to sell to larger merchants.
And that’s a problem.
Square, a payments company, has been the first to identify and formulate some action for these issues. Square realized that yes, POS reduces churn of their processing services (we have these numbers pegged at a 60% churn reduction by the way), but if the merchant goes out of business on its own then it’s back to the sales game, which can be rather expensive.
So how do you find merchants that are less likely to go under?
You move upmarket.
Larger merchants are often larger because they’re better operators. They manage their labor, supplies, and marketing in a more objective fashion. They’re more likely to question the value of a Groupon, or run the numbers on third party ordering and delivery platforms before jumping in wth both feet.
Frankly, they’re smarter.
But successfully selling POS to these larger merchants is proving problematic for the payments ecosystem.
Banks are finding that the lightweight POS solutions they’ve been putting on their branch counter tops are not working for bigger customers. And bigger customers take out larger loans, which is where banks earn more of their money.
Acquirers are finding that their sales reps cannot sell to larger merchants. The reasons are four-fold.
First, the time when larger merchants could be convinced that a suitable POS solution was Clover + some combination of apps is running out. When Clover was fairly new merchants would believe the Clover pitch absent data proving the contrary. Now that there’s market history, that lie is tougher to sell – just like merchants have learned their lessons on Groupon’s economics. (Clover is just a placeholder for any lightweight POS solution pushed by an acquirer).
Second, payments agents cannot sell on value. They’ve been trained to sell the same product on price for years. It’s so bad the industry uses a comical phrase of “meet or beat”: show me your processing statement and I’ll meet or beat the rates. Is there anything more commoditized than this positioning that’s all about price?
Third, payments companies make way more money in their processing arrangements than today’s POS will pay them. The average merchant acquirer is pulling in 0.5% of a merchant’s sales and it’s pretty much all profit (many do this by “meeting or beating” rates then slowly ratcheting them up monthly while the merchant is busy running their business). For a $1M/year merchant that’s $5,000 a year into the processor’s coffers. Point of sale runs a mere ~$100/mo per location and comes with the headache of answering service calls. Which brings us to our final point.
Fourth, the payments industry does not know how to properly support merchants and their POS needs. For smaller merchants this might not be much of a concern since it’s a bit of the you-get-what-you-pay-for expectations, but for larger merchants this is a glaring hole in the payments strategy.
So if the payments industry needs to move upmarket, and they don’t have the culture or appetite to grow these skills themselves, how do they find success?
Perhaps the payments industry will casually dismiss these issues. We think that might go down as one of the dumbest moves ever made considering all the opportunity swimming into the hands of the POS owner over the next 5-10 years.
So for everyone who doesn’t want to be bankrupt the answer is clear:
A federation of dealers.
A federation just means there’s a group of entities with a central body or thesis. It’s our belief that the POS dealer channel becomes a federation, with consolidation that brings scale and sophistication to an otherwise fragmented market. The long tail merchants are already lost to payments providers and direct (ie online) purchasing – see what Aldelo appears to be doing with its channel, and how Shopkeep, Square, Talech, Toast, and others are growing their direct/payments-referral business models.
Larger merchants (> $1M annual revenues per location) are finding themselves abandoned. Federated dealerships will be able to properly serve and support these merchants because it’s their sole focus. Further, the only dealers that survive and reach this scale will sell consultatively and be more business advisor than support tech. Their approach, tools, and methods will be totally different than what today’s dealers do and they will redefine VAR (value added reseller) for the better.
Want an example? Let’s look at what Aloha VAR Advanced POS is doing. Andrew Faulkner, their CEO, just acquired a 200-person sales organization in Staley Technologies that drastically expanded his geographical coverage.
I have personally known the Staley family for over 20 years. In a former life I was actually corporate/family attorney for Staley, Inc. for close to five years. I had always been impressed with the culture and quality of employees/management at the company. After owning/running Business Machines Systems d/b/a Advanced POS Solutions for 5 ½ years, we had been growing quite a bit and I was looking for an opportunity to continue to grow outside of the region we’re in. I had visions of being able to provide our solutions nationwide. That’s when I reached out to the Staley family and told them about my vision…
Why did Andrew approach Staley? “Staley has been in the technology deployment industry for 40 years. They have 7 offices throughout the U.S. and over 200 employees.” Staley’s customers include Fortune 500 companies in the retail, hospitality, and healthcare industries, giving Andrew serious name recognition as he expands the deployment, installation, and support capabilities that Staley has built up. “These two companies combined provide a nationwide, turnkey solution to every type of customer out there, from deployment, to software, to managed services.” That’s a huge deal.
We asked Andrew what he thought about the POS channel in general. Why did he see the need/opportunity to expand?
I think we’re at a crossroads industry-wide, where dealers are going to need to make the decision to invest in growth and invest in additional services they can provide to customers beyond just the POS, or take the risk of complacency. Obviously we’ve taken the former approach.
Merging with Staley gives Andrew the ability to hone and roll out new value to his customers. It also lets Andrew grow with his customers. “Some of our customers expanded beyond our reach. Staley supports all 50 states, including Puerto Rico. With their network of over 200 W-2 employees, we feel confident they will be able to provide that white-glove service to our customers wherever they grow.”
Bravo to Andrew for finding conviction in betting heavy on the redefinition VAR. This is what the future market for POS resellers looks like. Make no mistake about it.
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