The involvement of TBC International, an Open Systems and SAP reseller, in the credit card business is not spectacular. The company has written a utility that enables TBC to add processing through Payment Processing Inc. to the Open Systems software package.
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"It's just another feature that goes with the software," says TBC president Richard Paul Thomas. But with many clients doing significant volume in credit card sales, it's a useful service to provide. And Salado, Texas-based TBC doesn't need to do a lot of complicated work.
"PPI has taken an active role in making this come together. They market it and do all the heavy lifting. We do the utilities and the client fills out paper work," says Thomas.
Similarly, Jeanne Tarazevits, a sole practitioner based in Costa Mesa, Calif., isn't getting rich off her relationship with Innovative Merchant Services, whose products are marketed as QuickBooks Merchant Services. Tarazevits, a QuickBooks consultant, is participating in a program under which ProAdvisors, who refer merchants to Intuit's service, get a break on fees and can get paid for the referral. But like many CPAs, Tarazevits won't take the cash. She rebates the amount to clients.
"I am a CPA in the state of California. To accept referral fees, I have to disclose those to clients. I want clients believing what I am doing for them is in their best interest," she says. Besides, she says, it's not a lot of money.
However, she also uses Intuit's payment processing and believes that it is a great service for QuickBooks users who accept credit card payments.
"If you are using QuickBooks and accepting credit cards, the easiest way to do so is through Intuit's merchant services," she says. "If you have any kind of volume, that lack of pain to enter your credit card manually, it makes all the difference."
Similarly, Tarazevits says having one vendor handling the invoicing, processing and banking deposits, makes the accepting credit cards a lot easier than if she had to use different vendors to provide those services.
"If you are using a different merchant service, you are going to get deposit off a download from your bank or off the paper statement and manually enter them," she says. And if there are many different monthly charges, "especially if there are a lot charges for the same dollar amount, it could be pretty painful."
So, a lot of resellers and accounting firms aren't making a ton of money from payment processing. But these services are viewed by vendors that serve the tax and accounting marketing as a significant growth area, and one that has the promise of significant financial rewards for participants.
Go back to the fact that Sage Software paid 5.1 times revenue for Verus two years ago and it just doesn't pay that kind of multiple for software companies. Intuit also paid a premium for the acquisition that got the company into the business a few years ago.
In fact, Sage followed that up with an even steeper multiple paid for a much smaller British processor ProTx. Intuit made an attempt to quickly enlarge its business with the purchase of Electronic Clearing House, which had $75 million revenue for 2006. But that deal collapsed when a newly adopted law banning Internet gambling went into effect.
Payment processing is hot and is likely to stay hot as competitors argue that having a one-stop-shop for POS, accounting, and credit card services is a good deal for the merchant.
"It's one of the fastest-growing divisions," says Dan Wernikoff, director of product management Intuit Merchant Services. Although Intuit did not break out revenue, it reported that in the year ended July 31, 2006, its merchant services revenue was 47 percent higher than in the prior fiscal year and that the increase represent just less than half of the roughly $48 million increase in revenue for its payroll and payment processing unit.
That's why Intuit waives most monthly fees for accounting firms that sign up to process their own credit card collections through IMS. And the firms thousands of ProAdvisors can get a cut from every transaction made by a customer that signs up, based on the ProAdvisors' referral, although as Tarazevits' example shows, not everyone sees that as the road to riches.
In theory, that kind of revenue model means that both the independent sales organizations, who sign up businesses to use a particular processor's service-a process known as boarding-and the agents who refer businesses to processing vendors can build revenue as more and more of their customers sign up for services. Generally, ISOs and agents get a cut of each credit card transaction as long as the user remains the customer.
Not everyone sees a pot of gold at the end of the credit card rainbow. Cougar Mountain Software had offered its resellers the opportunity to get money for referrals. But it dropped the program because it found no interest, a spokesman said.
And while CEO Ron Verni believes that Sage resellers are well suited to become ISOs and can build a revenue stream that will make their operations more valuable when it comes time to sell, the part of the Sage Software channel that has been heard from doesn't see signing up merchants for processing service as their core business.
Right now, the nearly unanimously vote is for referring, not selling. Only one Sage reseller has expressed interest in becoming an Independent Sales Agent. However, this could reflect a wait-and-see attitude.
"We are in a fairly aggressive educational process that started about 13 months ago. It's a rather comprehensive program designed to let the reseller channel participate in the payment processing business as actively as they choose to, whether they participate as a referral agent or as an ISO," says Craig Shapiro, SVP sales for Sage's Payment Solutions Division, which is largely the acquired Verus operations. But for right now "about 19 out 20 people respond that's it's not where they want their core focus.
Like Intuit, Sage does not break out revenue for payment processing. But for the half ended March 31, the English parent said that Verus' revenue had risen 15 percent over the prior first half. That was faster growth than experience by the accounting software side. When acquired early in 2006, Sage said Verus had 100,000 customers and that it had grown by 24 percent from the time of the acquisition until the 2006 annual report was written.
Sage Software is surveying the top 200 resellers to see what interest exists. However, the division has 50 direct sales people, who can close the business for resellers, says Bob Bennett, COO of the Sage Payments Division. So it's likely many resellers will choose to be agents and creative a passive revenue stream.
But whatever the channel does, having the newly formed division does give Sage the chance to make processing available through its large stable of applications. In June, the company announced that integration with Sage Payment Solutions was available in version 7.6 of Millennium, its fundraising applications for large nonprofit organizations.
Peachtree already offered integrated processing, but that involved an exclusive agreement with Chase Bank. The agreement expires this month and Sage will be making the Payment Solutions services available through Peachtree.
While the market is getting some newcomers from the tax and accounting arena, there are plenty of veterans in the credit card.
One of them, Payment Processing Inc., a Newark, Calif.-based company, started offering integrated versions of its PPI Move Gateway for Dynamics GP and SL (then called Great Plains and Solomon) two years ago, and in March began offering a version for the Dynamics RMS retail software.
PPI pitches its ability to integrate a wide various of services as a major advantage it has over competitors, many of whom it says are competing primarily by offering lower interest rates on credit card purchases.
"That advantage that PPI has it that we are a combination of payments technology support and a merchant bank wrapped into one entity," says Tim Murphy, VP for partnerships east of the Mississippi River.
"Customers are running most of their businesses successfully except ecommerce and payment processing. It's painful to reconcile payments between two different systems," says Murphy, who says the company serves more than 20,000 merchants in a wide variety of business sectors.
Murphy believes complexity of the credit card business will deter accounting and consulting firms from becoming more heavily involved.
"Unless a business signs up with somebody, like PPI, who handles all elements, things can and usually do go wrong, leaving the merchant navigating through a trail of finger pointing," he says. Murphy continues that businesses often find themselves in the situation in which they are thinking that when things go wrong, "It's not my fault. It's the bank's fault. It's Great Plains' fault. Now it's not working. What do I do?"
"As soon as it is, we will switch over," she says.