insights

Q&A: Stephanie Ferris on Merchant Services

Stephanie Ferris is SVP and general manager of Vantiv’s Merchant Services and Relationship Management organization serving financial institutions. In that role, she has direct responsibility for net income, new sales, channel management, and relationship management. With nearly 20 years of industry experience in payments, financial planning, and banking, she helps financial institutions grow their value proposition to small and medium-size business customers and consumers. In this interview, Ferris discusses a financial institution’s overall commercial value proposition, the quality of processor relationships, and reasons to change processors.

success with business customers

Going with Vantiv could move the percentage of small and medium enterprise (SME) DDAs with mer-chant services from 8.3 percent to 13 percent in six months.

33%

Pre-Vantiv

7 monthspost-Vantiv

Best-in-classtarget

8.3%

13%

60%

% of some SME DDAs with merchant servicesPENETRATION

Without merchant

services

With merchant

services

100%

150%-200%

50%-100%

(Indexed)ANNUAL PROFIT PER SME

Without merchant

services

With merchant

services

9%

5.5%

40%

(Annual)SME DDA ATTRITION RATE

Source: Vantiv client experience, Oliver Wyman Survey of Small Business Finances, 2013

Q: what has happened in the past few years to drive financial institu-tions to refocus their energies on small and medium-sized customers?

stephanie Ferris: Financial institutions have faced a lot of change since the economic crisis of 2008. They’ve had to deal with new regulations, from Dodd-Frank to new Basel rules to Durbin adjustments. Because regulations have eliminated some of their profitable rev-enue streams, they have had to shore up their capital structure as well as to look at sources for new revenue.

Small and medium-sized custom-ers represent tremendous untapped potential for financial institutions. Ten or 15 years ago, many financial institu-tions sold their merchant portfolios to merchant acquirers. It was a good opportunity to sell an asset, take the capital, and redeploy it elsewhere. Since small and medium-sized businesses are driving a lot of economic growth and interest rates are at all-time lows, mer-chant processing is becoming a bigger fee opportunity.

Q: Given that change, what services are financial institutions offering these customers?

Ferris: One of the most promising is offering merchant services. At the most basic level, merchant services involve accepting electronic payments on behalf of a merchant. Typically those payments would be from credit cards, debit cards, and gift cards. They’re now beginning to move into mobile transac-

tions. Often those are still credit card or debit card transactions. But going forward they could involve Bitcoin or other virtual currencies.

Q: has the value proposition of mer-chant services also changed?

Ferris: Merchant services are defi-nitely a must-have product for financial institutions to offer their small-busi-ness customers. When small busi-nesses—especially new ones—come to a financial institution today, some are looking specifically for the ability to accept credit and debit cards, in which case merchant services can be seen as a leading product. Introducing this opens the door for the deposi-tory and receivables discussion. Topics can include saving money, increasing security, and accepting payments in a mobile environment.

In other cases, merchants are looking for things like loans, credit cards, de-posits, online banking, and automated clearinghouse (ACH) processing. In those cases, some financial institutions are using merchant services as a “door-opener” product to begin a relationship with that small or medium-sized cus-tomer. Even if the business already has a relationship with another financial in-stitution, it may respond to a lower rate on merchant services combined with stronger service. It’s one of the easiest banking products for them to move.

Q: how do merchant services impact the way financial institutions target small and medium-sized businesses?

Mobile payments will be common

30%36%

9%18% 7%

■ 1-2 years ■ 2-5 years ■ 5+ years

■ No idea

■ Never

I will use mobile payments

21%

18%

33%

20%

9%

A briGht Future

Despite today’s low usage levels, many consumers

think mobile payments will become common in the

next few years.

Source: Vantiv/Mercator Research 2013

3

Ferris: Merchant services need to be part of an industry-specific go-to-market strategy. The financial institution needs to ask, “What’s our value proposi-tion, and how can we place merchant services in that value proposition to add to our existing business or prospect new business?” This is especially impor-tant when targeting small and medium-sized customers.

For example, pricing for merchant ser-vices has often been complicated. Per-haps a financial institution has decided to offer simpler pricing to its business clients. Or the business wants stronger service levels. Simplified reporting and help can be a big value-add. Then the business will want to open a demand deposit account (DDA) and a credit card, so the financial institution can link that pricing. There are many creative ways to bundle merchant services to encourage adoption and stickiness.

Q: how are new technologies chang-ing the way financial institutions should approach small and medium-sized businesses?

Ferris: Cloud computing, Web-based tools, social media, and mobile tech-nologies are all giving small businesses access to new capabilities and ways of doing business. In the past, only larger businesses were able to implement strategies such as loyalty programs. Now, even the smallest businesses can offer couponing and rewards programs.

The same is happening at the point of sale. Instead of using a traditional cash

register or payment terminal, small businesses can buy a tablet, download an app, and start accepting payments.

Financial institutions of all sizes need to be aware of the emergence of Mil-lennials in the business world. This generation is larger than the Boomers and grew up with ubiquitous technol-ogy. They want to do business through multiple channels, and they expect their financial institutions to support that. If financial institutions don’t have the capabilities, or if they’re not partnering with a payment processor with those capabilities, they risk losing these tech-savvy customers.

Another trend we’re watching closely is EMV chip cards. EMV is the Europay, MasterCard, and Visa global standard for payment cards with an integrated computer chip. EMV will shift liability for counterfeit fraud loss from the card-issuing financial institutions to any business that doesn’t upgrade its POS terminals to be EMV-compliant.

That’s a significant issue for financial institutions, because in the event of counterfeit fraud losses, there will be a lot of business customers that come back to the financial institution and say, “I’m a valued customer, and you should have told me that I faced the risk of these fraud losses.” A financial institu-tion needs to be working with a pay-ment processor that has insights into this rapidly changing landscape.

A payment processor should be part-nering with the financial institution to

executive Views In recent Vantiv/Mercator Advisory Group research interviews, banking executives expressed these viewpoints.

“A new processor would have to sell itself on its ability to ex-ceed customer expectations, particularly in mobile environ-ments, and offer a wider range of services.”

—VP of Retail Banking and VP of Operations, small Southeast bank

“We’re just starting to re-sell mobile POS terminals like Square. It will be easier for small businesses to sell if we had iPad dongles as a cash register. Those types of products help us greatly with merchant acceptance.”

—AVP, Card Production and Retail Deposits,

at large mid-Atlantic and Southeast regional bank

“Our current value proposition is to make small businesses more electronic and self-suffi-cient with more ways to make electronic payments, wire transfer online, etc.”

—VP of Retail Banking and VP of Operations, small Southeast bank

4

Vantiv corporate headquarters

8500 Governors Hill Drive, Cincinnati, OH 45249866-622-2880 | www.vantiv.com

VMSTLQAWP001 1.14

grow its business-banking portfolio, whether that means acquiring new customers by offering merchant ser-vices, cross-selling merchant services to existing customers, or retaining customers by offering a stronger range of services.

Q: why would a financial institution switch payment processors?

Ferris: There are two reasons. One is that they’re dissatisfied with their cur-rent processor’s commitment to help-ing them grow. The other is that they want to realize financial potential that they aren’t achieving with their current processor. According to research from the consulting firm Oliver Wyman, even best-in-class financial institu-tions have achieved only 45 percent penetration for merchant services into their business customers. And many financial institutions have only a 10 percent to 25 percent penetra-tion rate. That means someone else is providing merchant services to most of a financial institution’s business customers. So there’s a tremendous opportunity for financial institutions to sell merchant services.

Q: who are the competitors in the merchant services space, and how do they differ from one another?

Ferris: In addition to Vantiv, the major

competitors in this space include Bank of America, Chase, Elavon, First Data, and TransFirst. What makes us differ-ent is that we were spun out of Fifth Third Bank in 2009. That history gives us a unique understanding of finan-cial institutions and their needs. Over the past four years we’ve acquired a number of new capabilities and in-vested heavily in our technologies and products. And because we work with some of the largest and most suc-cessful financial institutions, we have a deep knowledge of best practices around merchant services. Finally, when we work with a financial institution to provide merchant services to its customers, we work as true partners in helping the financial institution meet those customers’ needs.

Q: what will Vantiv be rolling out that’s new in this space?

Ferris: We’ve recently rolled out some offerings around mobility, including Vantiv Mobile Accept and Vantiv Mo-bile Checkout. These allow businesses to use a mobile device such as a smart-phone or tablet to accept credit-card or debit-card payments. We can also tailor services to the specific needs of industries such as retail or restaurants. There are a lot of new technologies and opportunities like this that make it a really exciting time for financial institu-tions to be offering merchant services.

About Vantiv

Vantiv is one of the leading integrated payment processors in the United States. Previously known as Fifth Third Processing Solutions, the company, headquartered in Cincinnati, Ohio, changed its name to Vantiv in 2011, and became a public company in 2012. Vantiv’s credit, debit, prepaid, and mobile solutions help businesses and financial institutions of all sizes get the most out of payment activities.

“ Since small and medium-sized businesses are driving a lot of economic growth and interest rates are at all-time lows, merchant processing is becoming a bigger fee opportunity.”