Three Attributes of Every Successful Merchant Services Program-20140604 1602-1

Three Attributes of Every Successful Merchant Services Program-20140604 1602-1 [Start of recorded material] [Starts Mid Sentence] thank everyone that s joined the call today. I know everybody is busy with hectic schedules, so we really appreciate you taking the time out of your calendars to join us. As you know this is the first of three webinars we re putting on over the next couple of months. Hopefully everybody can join in the next couple of ones that we have, one in July and on in August. With that being said, I d like to introduce the speaker and that is Mike Holford. Mike is our senior VP of merchant sales for security card. He s been with us for a long time and he brings a wealth of knowledge across the areas of not only merchant sales, but building organizations within companies to promote sales and retention. Sure thank you. Thanks to everyone who s taken the time to join us today. Hope you will find the discussion beneficial to you. Again my name is Mike Holford and I am the Senior Vice President of Merchant Sales for Security Card Services. My job at SCS is to design, build and manage our [Unintelligible 00:01:12] and agent partnerships across the country. For some of you, the terminologies are different in banks. When we refer to a referral program, we re talking about outsource and an agent program would be inhouse. So let me start by acknowledging that very few of you [Unintelligible 00:01:30] on this call today, got into the banking business, because you wanted to become a sales person. But times have changed. The increased regulations and demands that you face, have made it more difficult to rely solely on loan relationships to draw profits for community banks, so therefore more emphasis have been placed on other non-interesting [Unintelligible 00:01:50] products, to take up slack. And in sales there s an old saying that says Before anybody makes any money, somebody has to sell something. So that s why companies like Security Card Services, do exist today. If you re on the call today, you re likely either reviewing your credit program or you will be in the near future. Or you might just be looking for ideas to help improve what you re currently doing. In either case I think it's important that you work with a provider who would take a consultative approach to your merchant program. From a competitive perspective, there s been a cultural shift in the recent years and the community bank world, from an operationally driven company, to ones that are striving to include more of a sales culture. So regardless of who you decide to partner with, we think it's important that they have the experience to lead you in several aspects of the business of support of sales culture. 1

This partner needs to obviously have a sales mentality. Needs the financial resources and an experienced staff with the expertise to [Unintelligible 00:02:53] and needs to adhere to a strict service mentality that [Unintelligible 00:02:58] to the merchants relationship and support customer retention. But most of all, I think that they really need to take the time to understand what makes your bank stand out from the competition and design a program that supports your culture. So, you ll notice that our first common [trait?] refers to what s more important. The merchant or the money? This question was the product of a conversation that I had not too long ago with one of our new bank partners. The program director of one of our partners. They just walked away from a long term relationship and a large number of merchant accounts, in hopes of improving the customer care piece of their program. And all of you know that [Unintelligible 00:03:41] are made up of several different personalities, all of whom have different opinions about how to get to the same goal. And typically those tables have people that are focusing on customer volume and growth and you have others that are focusing on profit and margin. So you can imagine that the program director at that particular bank was anxious over the whole transition and concerned about the success of their program. So, trying to be a good partner, I asked the program director, In order to be considered successful, what was more important to the bank, the merchant or the money? Now the obvious answer is that both are important and none of this conversation ever means to minimize the importance of revenue, because that s why we re all here. You can t have one without the other. And we think that it's important that you don t get too lost in the price and the margins on the front end of your relationship, because you have to get the opportunity to manage the relationship before you can actually build revenue there. We feel like you should take a consultative approach to your merchants. That will help you to build trust that you can take care of their needs. We feel as though you should have a robust suite of technology products that provide you with the ability to compete effectively in the market place as well. Mike, if the program s managed properly, won t it promote retention? Sure [Eric?]. Proper management, I think is paramount to building the-, consistent information and your messages that you send out to your customers on a regular basis are what fosters retention. I think that most people would be shocked, as to how many of their merchants really don t have any idea who they re processing their card transactions to. They signed an application years ago and they ve just been-, the money s been getting into the account and 2

that s all they really know. And the vast majority of those really don t know that the bank even offers the service. So, you know, communication to your merchant base from the bank about the availability of the service and the banks commitment to make sure that it's run properly with integrity, I think is important. When you say, you know, a lot of bank customers don t know that the bank offers merchant services, can you speak a little bit to that? Speaking to [DDA?] penetration frame for merchant services and what we see across the country? Sure, so for years merchant services has, until the last two/three years, I would say, merchant services was somewhat of an afterthought because it was a product that banks had access to, but it also came with some baggage. It's a difficult product. Things happen in merchant services and it was just always easier just not to offer it, at least not proactively, because the potential for having a negative effect on a loan relationship or deposit account was there. So people shied away from it. But today, that s how people get paid. That s how they get their money in the bank and we find that banks typically have a penetration of four to eight percent. Eight being on the high side of penetration in terms of DDA commercial accounts. And I think we found across the country, that a merchant services portfolio will tend to provide roughly one percent of the revenue of the whole budget of the bank. So, it's been an afterthought but we think that you can take advantage of merchant to retain existing customers and expand your relationship to other products. Typically merchant services can effectively be used to deepen your relationship and use it as a springboard to other products and services that the bank sells. And it's also a great first end product, isn t it? It's easy to sell. Well, it's easy to sell. I think that it's something that your customers are going to need but I think that it's one that needs to be supported by your partner consultatively so that you can go on joint calls and present merchants along with not just a checking account, but merchant services as a way to [Unintelligible 00:08:35] other services that are available to the business. And when you speak about you know, post sale-, you re talking about customer service and that regional bank partner that literally walked away from a lot of merchants. It was all about customer care. And you know, when you talk about growth, we talk about net [Unintelligible 00:08:54] growth. Can you talk about the average life span of a merchant from ISO partners out there, versus that of community and regional banks? 3

Sure. I think that-, you know, one of the competitive advantages that community banks have today is that they do-, the relationship is more important, I guess you would say. They understand that the community bank customer requires more handholding. If it wasn t for the increased customer service that community banks give to their customers, they likely wouldn t even exist today. Your larger financial institutions out there, are more transactional and it is harder for them to customize their programs to take care of a particular culture and individual market. So, you know, merchant allows you the ability to do those things as well. Mike, moving on to commitment from the entire organization, you know, really at the bank level, can you talk about how these programs are successful and what really is needed from a senior management perspective, down to the person that runs the merchant program to the bank, down to the branch level, down to even the teller level? Sure, so as everyone knows, senior management makes the final decision to partner with whoever you re going to partner with. And it's usually a product of information that s been pushed up from the folks that are going to be running the program. And the fact is that once senior management makes that decision, they typically move on to other issues within the bank. They don t focus on one particular segment of business every day within the bank. So they ve made the decision and they put the responsibility for success on someone on the next level down, someone in middle management that is being judged by the success and the performance of the program. So, yes, someone in the bank, whether it be agent or referral, there is always someone in the bank that s running point for the program. But you know, we acknowledge that, that one person cannot by themselves make that program a success. You ve got to have commitment throughout your organization in order to drive it forward. So, you need to make sure that your provider is committed to that person, that s running that program, as well as to their own company. You know, our jobs as merchants services provider, we like to say we want to make a star out of the person that s running the organizations merchant program, so that we get opportunity at least extend our relationships. Again, that person that s in charge of that program needs to take the responsibility to communicate the commitment of senior management throughout the organization. Everyone needs to understand that the product is something that s important to the bank. That you re taking the message and trying to grow the product for many different reasons, but you cannot do it alone and you have to make sure that you push that from senior management all the way down, through to branch level and into your forward facing 4

employees. Because that is what s going to create referral volume that s going to be required for you to succeed. So when these programs really take off, for community and regional banks across the country, I ve heard you mention the word accountability. Obviously, I know you hold accountability in a very high regard with your team, but how does that translate into what banks and do and how accountability within those organizations, how that works. How it filters down. Well, I think, you know, accountability is the result of several things. One, accountability comes once you have communicated your desire to succeed in this particular product. You have to create, what I like to refer to, as dual ownership of the program. And in order to do that we suggest that you involve other people outside of your department to give input about what they think is helpful to them. Understand what their customers and each individual market is looking for. Once people-, people are-, we felt people are more willing to accept the challenges that they help defined, if that makes sense to you. So, you set an expectation of accountability because everybody has decided this is the way we feel our program should operate. And you communicate that, make sure they understand that. But once we get to the accountability stage I m a firm believer that no one can truly be accountable to their job, until they understand the effects it has on other people. If you know that what you do or don t do, and the effects-, the positive or negative effects it has on others, you re more likely to work in a way that doesn t create those problems. And I think everybody, typically, wants to do a good job. They want the job that they do to be a compliment to others. But you have to understand the effects. And so what we typically try to do, is to-, we said we want to put everyone in a glass house. Everybody likes to talk about transparency and that s kind of a cliché. But I think that the glass house mentality is that we feel like the bank and your provider, your sales team and your merchant all need to be in this glass house where everyone can see what the other person is doing. It's not intended to point fingers or to create controversy, but it's meant to give everyone access to see what s going on, on a daily basis so that you can adjust or ask questions to help improve the overall effectiveness of the program from a global perspective. So really all you re talking about is having that thorough understanding of the program. You know, speaking back on the merchant services partner that community and regional bank might be partnered with, is making sure that, whether they re referral or an agent bank, that they have the technology at 5

their fingertips to be able to view into their merchant services program. Would you say that s right Mike? Yes, I think that access to information is paramount as well. We find in a lot of instances, banks don t have a lot of knowledge about what goes on within their program outside of the residual report that they get once a month, that says these are who your merchants saw and this is how much they processed. There s so much more to that. And as I said at the beginning of the call, merchant comes with some baggage some times. There are issues that come with that and if-, those that don t provide information typically, don t let you know when there are issues. And we think that you need to know when there are issues, so that you can reach out to your customers and let them know we understand that you had a terminal go down on a Saturday night, for example, and we just want to check and make sure that we got that taken care of. Even though you, the bank, was not the person that was actually taking care of it, the merchant thinks that the bank is. Therefore we think you need to have access to everything that goes on with the new program, both good and bad. And I think that the technology out there today, there are systems that are customizable, that you can use to set this up, where everyone on your team can have access to what s going on. It also creates a lot of reporting that is available to you to be able to provide to senior management, others in leadership roles in the bank, to help you foster that accountability that we re talking about. We don t typically want to say that the reports are used to beat people over the head with poor performance, but we do feel like that nobody wants to be at the bottom of the list. Everybody wants to be participating and seen as on the same page with everyone else in the bank that thinks the program is important. We re at our time at eleven twenty. I d like to open it up for questions. And it looks like we have our first question from Sarah. Mike, what are some of the reasonable goals to set for the first year of a new merchant services program? I think first of all, you trying to drive referral volume and I would say that if you can get a commitment from your branch leadership to provide at least one referral per month, that s a good start, with a goal to close half of those. It sounds a lot easier than it is. Typically, if you would ask any bank they would say yes, we can give you three to four referrals per month, per branch. But that typically never happens. That doesn t really come about until they take the time to design an effective DDA campaign to reach out to those merchants. Then we suggest that, that should be set by the end of the second quarter of a new relationship. 6

And when you say referral, it s rather agent or referral bank, referrals would go to either the sales rep that supports that bank in referral nature, but or inhouse the referrals go to the sales rep that works for the bank that s selling merchant services. Right. In setting up these merchant programs, I know you mentioned this a few minutes ago, but culture and sub culture, how important do you think it is when you set it up. Either with your current partner, if you re changing things or if you re picking a new merchant service partner. How important is it to fit within the culture and/or sub culture of these banks, in order to drive this referral volume and build the confidence in your merchant services provider? I think it's paramount to success. At the end of the day, you have to understand that every bank is different. Each program is different and it's a result of culture that was decided years ago in some instances. But as time goes on, you have sub cultures that are within the bank, at different branch levels. Understanding that, you know, different leaders and different branches, they have different ways of doing things. So understanding what is important at those levels, as you create your program and design your program will help you create synergy between the bank and the banks merchant partner. It's very important that the bank and the merchant provider can go shoulder to shoulder out to the market place with the same values and the same goals. Whether you re an agent program or a full program you re going to have someone who is selling this product and that person needs to understand the goals, all the way down to the branch levels, because if they want to drive referrals from a particular branch, they need to understand how that particular branch operates. Interviewer: Respondent: Got it. In those first two quarters as you say, in the first year of a new merchant services program, can you talk about, I know you ve built a number of what we call, emergent services action plan, either again for referral and agent, what needs to go into that action plan and how those timelines are followed and to, I don t mean to throw a lot on you, but talk a little but also about training and how important that is in any relationship? I think an action plan is something that obviously it's a good starting point. We like to say it's our playbook. So you should have a playbook on what you re going to do when. The program as you set one up, whether it's transitioning to a new provider or you re starting one from scratch, you need to understand what is going to happen and when it's going to happen. It's very systematic. If it's not organized it becomes-, it has the potential to become a huge mess for you. 7

So, I think putting together a plan that is a draft through conversations with everyone in the bank, that s going to be involved with the program. Setting timelines and expectations. Putting people in charge of some of these timelines that are important. You use that on the front end, and you just adjust it as you go along. You recognize that things happen and things change, and when they do change it's important that you react and kind of retool the playbook. But in respect to training, I think it's something that needs to be ongoing. It's not something you can come in and do on day and walk away, because employee turnover and new hires and so forth constantly require training. So you should find a partner that has a robust program, whether it be online or willing to come into your branches and into the bank and do presentations for you. Your salespeople should have the ability to go into your branches and be invited into your branches to make product presentations to drive referral volume, because that creates confidence that the person that they re going to refer to is going to do a really good job of taking care of their customer relationship. Probably the biggest road block to referral volume, is that the bankers, those relationship managers, sometimes don t have confidence in the person that s going to take care of them. Whether it's from a sales perspective of from the service after the sale, you have to work really hard on the frontend of the relationship to put those things in place and you have to be consistent in that approach. And training, it's just as important in our referral program, as it is in the agent program, when you say down to the branch level, teller level? Oh yes, I think so. And I wouldn t say that one program requires more training than another. I think both of them are the same. If you re an agent program, you re basically saying that you are going to provide the same function that an outsourced program would do, and you re just going to do it yourself. Those people that are operating that program are going to be faced with the same challenges as a third party vendor would be. Got you. Next question from Tom. When selling a new program is it better to start with a particular type of merchant or are some merchants a better fit than others? I think that goes back to the first topic was What s more important, the merchant or the money? You know, I think that every customer is a customer. Whether they are a great merchant customer, they may have a large deposits, they may have a need for other products, and even the new business, even large businesses started as a small business at some point. So, you never know what s going to happen. Everybody is important and as they grow you never 8

know what other kind of products they re going to need, so I would say sign as many as you can and take advantage of the opportunity to manage this relationship. I ve got another question. What is the branches role in supporting a merchant services program? Well I would say the branch level is really the front lines for the referral volume. Referral volume is the life line of the program. If you don t have any referral volume, you re not going to achieve growth. You re not going to realize your revenue goals. So, that s why I think it's extremely important for you to stay active at the branch level. If you ve got sales employees or partners that are out there representing your program for you, they need to start your day in one of your branches. They need to start there, making calls out to customers so that those people in that branch can see that they re professional, that they handle their customers in a way that they think is appropriate and that they see that they can do the job. If they don t have that confidence they re just not going to refer to. And speaking from a referral bank, outsource bank perspective, they have a sales rep, or sales reps that support a referral bank. I hear you say shoulder to shoulder a lot. Talk about that and how important it is, shoulder to shoulder, in the sales process? I just think that your merchant provider should be working as an extension of your bank. I think that the bank employees-, your goal should be that your bank employees all think that your merchant providers employees just work for the bank. They don t know the difference, even though they re getting their paycheck from someone else. Once you achieve that, you really achieved acceptance at the bank and then you can really drive the program. I don t think that, that happens overnight. That takes a lot of work and commitment and it takes some time to get that traction. But that should be your ultimate goal and again you can t get there unless the people that you re taking care of get to know you. Got it, got it. I ve got another question from Julie. I think you kind of answered this, but in your experience, what do the most successful merchant services programs do really well? I think the most successful ones, raise the profile of the program. They re not looking for spikes and valleys in their program. You want to raise the profile of it so it's always thought about. So when someone opens up a new DDA account they re asked about their need for merchant. And I also think that a successful program will track what s going on. They ll track participation in a program, they ll track referral volume, where it's coming from. They will track closure rates, make sure that they re getting good quality referrals and 9

then they will track margin and their retention rates as well. Retention is so important and you drive that through consistent communication. But it s obviously a lot easier to hang on to customers than it is to go out and find new ones. And definitely in this business, when the residual that you just pay it month over month, the [Unintelligible 00:27:21] is very important and retention. Right, right. As far as, you know, the retention part of that, I think, is proper communication to your merchants. Whether it be newsletters or emails to your customers, statements, [stuffers?], anything that lets them know that you offer the product, that they re currently a customer of yours. Assigning relationship managers the responsibility to call some of your merchants just to make sure that things are going properly. Doing annual reviews with them, from time to time, especially your larger customers, is particularly valuable as well. Ok, we ve got time for one more question from Jacob. What are the most common mistakes you see in the first year of a new merchant services program? Yes, poor communication, after you start the program up. So you ve got-, you go in and you decide to work with a particular vendor or particular person. And they come into your organization from the agent perspective, and you introduce that person or organization and there is a little bit of excitement about it on the frontend and then after those initial introductions are made, if you don t follow up and make sure that you continue to inform people of your abilities, that drops off. And then secondly, I think lack of internal leadership, if the person who is in charge of the program does not embrace the needs of the provider or your other sales people, it won t perform as well. And then I think that typically if they don t do their job, all of a sudden you don t have access at the branch level. And if you don t get access to promote your product at the branch level, nobody is going to know about it and nobody is going to refer. Great. Thanks Mike. We re thirty minutes, right on the nose and we want to be respectful of everybody s time. Thanks again to everybody that joined in on the webinar today. Again, we re having another in July and August on different topics within merchant services. I apologize if we didn t get to your questions. We are taking note of all the questions that we received and if you guys-, if anybody else wants more information, please don t hesitate to reach out. Thanks everyone and have a great day. Thank you. [End of recorded material] 10