Advice for Avoiding the “Hit and Run” Merchant Processor

Dan Brames
FIS | Head of Retail and Corporate Payments
Posted on November 8, 2016

Merchant Processing Partner

What merchant processing model best serves your bank’s go-to-market strategy?

Merchant processing is an integral part of serving your small-business customers. Unlike large banks that may handle processing themselves, most community banks must turn to a third-party processor. While that partner can operate on your behalf and allow you to maintain complete, efficient support of your customers, not all merchant processors are the same.

Since so much of your value proposition is based on your personalized support of customers, it’s important that community banks choose the right merchant processing partner to help you best connect with your business customers.

Why Community Banks Need Better Options

Community bankers are deeply engaged with their commercial customers and often have extensive loan commitments on the business side. On the personal side, their kids play on the same teams, their families shop at the same stores and they participate in the same community activities. Unfortunately, too many players in the merchant processing industry don’t have time to care much about such close relationships. Beware the good deal if it doesn’t come with good support.

Another consideration when evaluating a “traditional” merchant processor is whether they have additional offerings to bring to the table. It’s okay to have a partner that only focuses on a terminal placed on your customers’ counter, if that’s what your customers want. However, monoline businesses won’t be able to fulfill needs such as mobile tablet checkout capability, loyalty programs, gift cards, social media management and other such services geared toward merchants that your customers may demand in the future.

One common alternative to the standard referral model is the servicing model, where the partner remains behind the scenes doing the processing. Customer contact, service and underwriting reside with the financial institution. This gives a community bank the opportunity to showcase its customer support, although it also increases your risk – such as a merchant who cannot cover the cost of a breach.

If you choose a flexible partner, however, it doesn’t have to be an “all or nothing” proposition. FIS and a few others have created an agent model to enable banks to maintain customer-facing control, including sales, while avoiding the liability risk.

For many community banks, such a style is the best of both worlds: you can handle customers in the manner they’re used to and on which you built your reputation, yet you don’t have to face all of the risk should a customer suffer a data breach.

Three Pieces of Advice

Finding the right partner to support your merchant processing needs is less daunting if you remain mindful of these criteria when making assessments. Find a partner that:

  • Offers all of the choices of models – referral, servicing and agent – because that gives you the flexibility to move from one model to another. For example, banks using a servicing model at some point may conclude that this model places too much risk on the organization. They may want to remain client-facing and adopt the agent model, or hand over total responsibility to their partner under the referral model.
  • Has the ability to help your merchants grow their businesses, especially with younger consumers, and compete more effectively. This means being able to provide innovative, best-in-breed ancillary offerings for small businesses such as POS options (e.g., tablet), proven loyalty and gift card programs and social media management tools.
  • Views your institution holistically because they have relationships with you beyond merchant processing and are truly motivated to serve all of your customers.


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Dan Brames
FIS | Head of Retail and Corporate Payments

Dan brings over 20 years of financial and payments industry experience to FIS through senior marketing and management roles. Most recently, he was a management team member at Valutec which was acquired by Metavante in 2007 and FIS in 2009.