Steven Morris Discuss The Future of the Payment Industry | Biz To Biz Podcast

Welcome to the Biz to Biz Podcast, your number one source for all business news. Hey everybody, welcome to B2B Vault. Today we're having a Street Smarts edition sponsored by The Green Sheet. So I am the author of the Street Smarts column, which appears in The Green Sheet online, and I write a column that comes out every 2 weeks. And when I— after I do write my stories, I reach out into the agent ISO community and I find somebody that wants to come on and discuss what I wrote about because to show everybody how relevant the topics are that I am writing about in the Green Sheet. And I've known about the Green Sheet since 2000 because one day the guy who was the former owner of JR's POS Depot, Riyad, handed me two copies of the Green Sheet and he said, you seem pretty smart. You probably can figure out how to start one of these companies. And that's exactly what I did. And I've been involved with, you know, on the Green Sheet and the forums, which is kind of floated over to Facebook. And, you know, and I'm on their advisory board. And now I've been writing the Street Smarts column for the last year. So today our guest is Stephen Morris. He's the managing partner of the Gatlick Group. And where are you located, Stephen?

I'm in Lexington, South Carolina, originally from New York City, but, uh, I got married and so that's how I ended up here. But I've been here for the last 13 years.

And how long are you in the business?

Since 1996. June of, of this year will be 28 years that I've been doing this.

Wow, you're doing it longer than me. So I started in '98 and—

okay.

And then, you know, I started my company in 2001, and the podcast is almost 3 years old, and we've recorded over 300 episodes.

That's awesome, man. I'm so honored to know you. I met you at one of the payment conferences and—

Yeah, SCAA.

Yeah, you're probably in New Orleans. That was our first time meeting. I thought we met at the one before that.

We might have met.

Well, we talked more in depth in New Orleans because that's where me, you, and Derek Hess were talking. And man, I got to give you your props, man. You are probably one of the most knowledgeable people when it comes to payments. I can't say that about too many people, but you are a student of this game. And that, that was what was really intriguing for me to know you as a person. So I'm glad to call you not just a business colleague and a fellow peer, but you're a good friend and you know this business.

I appreciate that.

You got it. Give me $50 after this radio interview. No, but in all seriousness, Allen, you're a great guy.

No, I try to, you know, this is my way of giving back to the business that's given to me. So, you know, and I think that there's a lot of information out there that's good and a lot of information that everybody has their own opinion about what's right and what's wrong. But let's, let's discuss something funny. Neither of us today are wearing a tie. Okay.

No, we're not.

Now, when I first started in the business and I didn't know anything, I would literally button-down shirt, long sleeve, and a tie. I didn't wear a jacket, but I did wear a tie. And I thought, because when I first went out to call on people, I would say that between 80 and 90% of clients told me that they were with their bank.

Correct. And we had to look like the bankers.

The look. The part. Yeah, the banker part. Now let's move 20-plus years into the future, right? There's less people doing the door-to-door sales thing, right? People still do it, but I believe that you should be wearing a polo with a logo on it, right? You know, and the other thing I think is that— and I, you know, you could tell me whether you agree or not— I know every agreement out there says, oh, you're supposed to represent our company, right? But I think agents need to think outside of the box. And I have another article coming out that just hit the Green Sheet, uh, yesterday about marketing. And one of the things I think agents should think about is how they can market themselves. So have your own website, make your own company, call yourself a consultant, a technology consultant, you know. And, and, and try, you know, and, you know, when you go to people, you say, well, I work with different companies, because people people ask me, well, you know, what do you do? And I explain to them, I go, listen, we have, you know, technology. We want to get you the best technology for your business. But kind of the problem is, you know, the, the business has kind of changed. Whereas everybody used to have a credit card machine sitting on their counter, now more and more people have a point-of-sale system, right? Right. We have to be, become technology guys and girl— women. Exactly. Be politically correct and not like upset anybody. No, listen, when I first started, there weren't very many women in the business. Now there's a lot.

Oh yeah, and they do very well. They do very well. Yeah. Um, the funny thing is, um, I remember when I first started, there were not a lot of African Americans in payments. I remember my mom, she looked at me when I first started, she's like, what kind of job do you have? She's like, she's like, you're begging people for to sell a HyperCom. What's a, what's a Nurett 2085? Like, she, she really wanted me to quit being in merchant services because she thought I was wasting my time. She couldn't reference how it worked. And, you know, for years, I mean, you can even ask the average layperson on the street today. If you ask them, you say, well, how do you think a business gets their processing? How do you think they get that terminal? 95% of America will say they get it from the bank. And so a lot of people don't know about this ISO world.

Yeah, they'll say the bank, Stripe, Square, PayPal.

But this is before Stripe and PayPal. Like Stripe and PayPal and, and, and, and, and, uh, Square, they're technically kind of still new. They're less than 10 years old. A little bit like, I think Square is probably the oldest, 10, 10, 15 years old. But I'm talking about started with their little tiny dongle, the little white reader. Yeah, but I'm, I'm talking back from the '90s and the 2000s. Nobody knew, nobody knew how processing worked. And the only reason that we know of Square and PayPal today is because of SEO. That's it. Yeah. So, so we, we were at a place right now where payments, it's not going away. We, we pay for more stuff with our smartphone now than ever before.

Oh yeah, for sure.

And so it's only, it's only gonna get to the point where this generation, and I say this generation of 20 and 30-year-olds, I call them the Cash App, Venmo, and Zelle generation. When they're in their 30s and 40s, everything will be contactless and technology-based. How fast can I get paid? And how can I incorporate your merchant services into my software or into my platform that's going to make my business run better? So you're right, um, The ISO world, it's, it's an interesting world. It's more diverse now than it has ever been in times past, but I think that that's a good thing. Now, the problem I'm having is, uh, people jumping into the industry and not becoming students of this platform because it, it's a very attractive industry. Um, you know, Elliot Foreman from Bonita Payments in New Orleans, he said something to me that I'll never forget. He says, wherever there's a lot of money to be made, there's a lot of corruption.

That's true.

That is such a true statement.

I mean, so you get a lot of people jump into the business, like when the mortgage crisis happened. Oh yeah, tons of mortgage brokers jumped into this business. Realtors jumped into this business.

Yes.

You know, a lot of bad actors jumped into the business. We have, you know, look at how many merchant cash advance companies are all being investigated in the last year or so.

Correct.

People going to jail. You know, because there's a lot of money to be made in merchant cash advance.

Correct. But we're one of the few industries that's not regulated. And so anybody can jump in without a license, without anything, and they just go out there and they kind of make it up as they go. And I think that hurts us. So for guys like us that are the veterans, we have to make sure that we protect the integrity of our industry because it's, it's a, it's a, it's a changing industry right now where we We gotta monitor those who try to disdain our credibility and disdain our profession.

And one of the things that, you know, a couple of the things that are going on that really like upset me in the industry is, one is I don't mind having referral partners like business consultants, you know, CPAs, website development companies, software vendors, you know, people who do other types of consulting, build out funnels and they need someone to help them get merchant accounts for their clients. But, you know, there's all these companies popping up and all that are basically paying merchants to process.

Yeah. And I think that's really—

I think it's real, you know, it's making our business look really sleazy. I'll talk to— I was talking to a business owner and he's like, oh, well, this guy told me he's going to give me back you know, 20% of what I— of 20%. So I'm like, listen, you're not getting back 20% of what he's trying to explain to me. Like, oh, I do $30 grand a month, I'm paying 3.5% on cash discount, and the guy's going to give me 20% of that. I go, no, there's money— people don't understand, like, interchange transaction fees, BIN fees, card, you know, card brand, have the account on file fee.

Like, they don't, they don't get that.

But I'm saying, like, you have all these fees, right? And I told I had a business owner, you know, back in the day, like I've had, I used to have business owners when I first started selling and they're like, oh, explain credit card processing. And I would draw them a picture. Here's your machine, here's the processor, here's the bank, and here's your bank. And this is how it all interacts.

And confused them.

Oh, they would be like happy because they didn't understand how it worked today.

Right.

They know, oh, the money goes from the machine, I get it in my bank account.

Mm-hmm.

But The problem is, is, you know, you get these merchants and they're like, they want to get paid for their, you know, their— my dog has a lot to say about it. He doesn't like it. You have merchants and they're like, yeah, this guy's telling me I'm going to— he's going to pay me for my— on my merchant account. There's even companies out there and that's their whole business plan is just paying merchants. And I think—

I think that's— I think that sucks. I think that's like— that's like going to buy a car and the dealership is going to pay for your gas for the life of as long as you own that car. It's just a bad business model. I— your merchant is not going to give you a commission every time you shop there or send somebody. They're not going to give you a discount on the steak, right? They're not going to do that. So why would you create that model? And, and that, that just leads me to believe that, you know, our industry is very competitive, that these other companies have to build a model on gimmicks. Now the sad part is that's not going to last, because if you're doing it, then some other idiot is going to do the same thing, and they're just going to pay your guy more. And then there's that loyalty— there's that disloyalty amongst the merchants. I truly believe that organic growth built on rapport and credibility is the way you survive.

Rocky, stop it!

What kind of dog you got?

He's a Jack Russell mixed with a pointer.

Oh yeah, he's going to keep barking.

He'll stop. Someone's either at the door or doing something.

But, uh, but yeah, it's based on credibility, man. We got to go back to the days where we shake hands and we talk belly to belly with these merchants and they trust us, because that's what has gone away from our industry. Henceforth, that's why people coming in with all these gimmicks, and gimmicks don't stick long. That's just me.

Well, it kind of makes us look cheap and sleazy, you know.

We've been looking cheap and sleazy for a long time.

Well, no, it's always something like, oh, free machines that really aren't free, and free POS.

That's really not for 20 years. Is it? We, we, we— here's the thing, like I said, in, in an industry that is known for having a lot of manipulation, you got to be that person that does things the right way. Because I, I truly believe that if you do things the right way, you're going to get the right results. When you try to skip and jump hurdles and try to do all these things to, uh, to get, to get down the road faster, 9 times out of 10, you set yourself back. And if you do stuff that is sleazy, it's going to come back to bite you in the behind at the end of the day. So all these companies that we know about that, you know, I'm not going to say names because I don't want to besmirch anyone's character, but all these companies that we know about that are no longer around or practice all these manipulative things, eventually they go to the wayside. The cream rises to the top.

No, the thing is, is that, you know, when you have all this stuff going on, it just makes like— it just— the merchant starts to lose trust and then they go— they just go to Stripe. Square, PayPal, and we basically like besmirch ourselves. So we're doing things that basically chasing the customers that we could be getting away from us.

You know, they have their problems too. I mean, Square and Stripe, they, they have their problems.

Oh yeah, but I'll just say, the people look at them and say, well, they're more transparent than we are.

I don't think they're more transparent. I just think They capitalize on the people who have, who have kind of left a stain on this industry. I mean, think about it, when you're dealing with people and you're, you're trusting your rep to do their job, you're trusting the ISO that they signed you up with to do their job, and then that doesn't happen, then you just like, you know what, this is easier, let me just go this route. But I mean, let's be real, we're human beings and we deal with technology. Those are the two things that are going to mess up. But what makes you great as a salesperson, what makes you great as an ISO and as a company, is when those problems arise, that you handle it head-on. There's always going to be batch issues. There's always going to be issues with risk and somebody ran a transaction that was higher than it should have been run. That's always going to be the case. But how do you survive in the midst of your merchants having issues, knowing that they can count on you? Square and Stripe are never going to be able to compare to us on that.

Yeah, they don't even have a phone number to call.

There you go. There you go. So, so we, we win in some scenarios.

Today there was a discussion in one of the forums on Facebook. They're talking about this agent was complaining, going, oh, this— some rep was going into, uh, an account that was auto repair and promising this like super low rate. Some other guy was commenting, oh yeah, you can get it down to like below 1%. I'm like laughing because I knew that I get— I get agents all the time. They're like, oh, I'll bring you this auto repair, but can you code it to this SIC code? And then I look at the SIC and it's gas station. I'm like, dude, it's not a gas station. And we had a merchant that came to us about 3 years ago, and they were doing about $400,000, $500,000 a month of auto repair. And the reason that I got them was, is they had gone to a local attorney down here. They got a letter from Visa, and the letter said whoever they were doing business with miscoded their business to the wrong SIC code.

Oh Lord, what happened?

The bank who would— the, the ISO who they were with got sold to another company, and then that company— during the, during the sale, they got audited and they found this, these, all these, this merchant, right? So they're telling them like he owes all this interchange back, right?

How many years?

Oh, for like a few years, for the life of the account. It was a huge— let's just put it this way. It was a pretty big number. It was over $1 million. So, so of interchange owed. So the guy, the lawyer came to me, goes, well, what do you think about this, that, and the other thing? And I said, well, let's get— does this guy have a copy of the contract with the terms and conditions in it and all that? So we found that the guy did have a copy of the contract. He didn't have the terms and conditions, but that was pretty— we didn't really care about that. And on the contract it said auto repair. And then we got a copy of the guy's VAR sheet and found out that they coded it to fuel station. And, you know, fuel station has caps. So they have caps. So either you, you know, if you like, they have caps on like gas. So let's say it's like 0.5%, you know, like half a percent. And then there's like a, uh, there's like a $50 cap or something on it. So if you're repairing cars and it's thousands of dollars, all of a sudden you're getting this $50 cap where the interchange should really be like 2%. You know, you might have $100 worth of interchange, right?

Right.

So there's, you know, and I don't know who, you know, I just tell people like, hey, we're not miscoding anybody. I talked to another merchant last week who was selling, um, peptides online, and somebody created a front website for him, and, and he was doing a million dollars a month, and now he's on the match list. And he has other, other bigger problems because he has some 3-letter agencies coming after him. And I was like, no, you're, you're not going to recover that business. You can't You know, I have merchants come to me all the time. I'm like, I look up the ingredients of their Nutra product and it's a, it's, it's a, there's ingredients in there that say requires a prescription.

Right.

Well, you know, you got to have a prescription. We're not going to board you selling GLP-1 and tell them.

Let me ask you a question, Allen. Why do you think that that's the case? Why do you think? Because we live in a get over mentality. Everybody's trying to get over. And the sad part is you might get over in the beginning, but eventually you're gonna get caught, right? Let's, let's just be honest. This is banking. Uh, people, I, I tell this to ISOs and agents all the time. At the end of the day, the reason why you said in the beginning you used to wear a tie and a shirt is because you wanted to look like the banker. Well, truth be told, agent on the street, you are in banking. You're on the acquiring side of it. And so you can, you can manipulate the paperwork all you want and try to change the SIC code and, you know, not do the site surveys and all the things that are needed to, to make sure your merchants are boarded correctly. But it's gonna come back and bite you in the behind because if you are doing it half-ass or if your customers are trying to get over by not being truthful in what they're selling in their product or service, it is only go— it's gonna come back to bite you. You might get away with it for a couple of months. You might get away with it for a year. But when it comes back, it's going to bite you in the behind, merchant. And guess what? You know who they're going to blame? They're going to blame the agent. Yeah.

And also, you know, like I, I do, you know, I was working with an ISO that was, you know, nice to do a little consulting for them. So they would say, oh, we need to run some stuff past you. They would pay, you know, an hourly rate for this information. And they had— they went through an audit and I was like, well, what happened? So they told me and they said, we got caught with all these all these people as gas station instead of auto repair. And Visa's— Visa and the bank are finding us $2 million.

Come on.

So they ended up—

did they have it?

Hopefully they had to pay. They ended up doing a partial portfolio sale.

Yep, that's it.

There, of their own merchants like that they had internally, and they sold off some merchants back. They actually sold them back to their bank, and to, to pay the $2 million, they actually just gave them the merchants.

Wow.

Handed over like a— handed over like a bunch of merchants, and they go, there's your $2 million. That's going to give you your $2 million.

That covers your— that covers your— your—

that covers our fine.

Because—

and the bank had to pay. Somebody had to pay because the card issuers are the ones who want their money. Of course, you know, the card issuers want— you stole from the card issuer.

Yeah, that's right. That's that interchange, card issuers to acquirers and back.

Yeah, a lot of agents don't understand, like, that's where the interchange is going. It's going— like, when I see, you know— but let's just talk more about this race to the bottom. I mean, by giving out like lower pricing and causing and doing all these different things, you're just creating less profit for yourself. You're degrading, you're also— yeah, you're destroying value. You're not giving value to your customers. Listen, I was talking to a guy on one of the forums and he's like, I don't know what to do. And I said, well, what happened? And he goes, I had a guy with 2 restaurants and I gave the guy 8 Clover systems for free and the guy used them for 2 months and then told me— somebody else thinks and he wanted to fly out there and try to get it working the way the guy wanted it to work. Obviously, he's not a Clover expert, and his ISO wasn't a lot of help in doing that. A month later, the guy unplugs it all and tells him to come pick it up.

Yep. And that's because you didn't put a value on— on you. Here's the thing I've learned over the course of time. Any time you give someone something for free, there's no value to it. They don't— there's no— there's no commitment to it. Like, you remember when you bought your first car? How much do you pay for your first car, Allen?

My first car?

I think your first car that you ever bought, not the one that was given to you. The first car that you've ever bought.

First car I ever bought, I paid $500, right?

But you love that car and you valued it. You probably had it to where the windshield wipers might be falling off and you put tape on it to keep that car staying alive. But the reason why you put so much love into that car is because you put money behind it, right? What happens is when we get to a place where we're giving merchants 8 Clover systems, you basically gave this guy $8,500 worth of free equipment.

Well, it's more than that. One of those Clovers, they're close to like $2,000.

I'm being conservative because they might have been some minis, they might have been some Clover Flexes.

There were full stations.

Okay, so you gave this guy $10,000, $14,000 worth of free equipment. And now what do you have to show for it? The reason why he didn't value the Clover system is because you went in there automatically with your draws down, right? You know what he did? He took the petroleum jelly and he gave it to you. And so now you're out of this equipment, right? You gotta— you can reprovision it for another customer, but now your time— see, here's the thing, you can always make more money. You can't buy back your time. So that whole sales process Guess what, brother? It was a waste. It was a waste of time. And now you got to go back to the merchant. You got to go back to the merchant out of state and pick up that equipment. You've lost so much time and value. I bet you— I'll put you this way, Allen— I bet you he'll never do that again.

No, he told me he ended up having to drive. He tried to— the guy wouldn't pack it up. He wouldn't even take it to the UPS store. So he ended up having to get in his car It took him 2 and a half days to drive over there. I don't know where he was driving from, but he told me he was driving halfway across the country for 2 days. 2 days in the car, right? He goes, gets there. The guy doesn't show up on time. He gets there. The equipment's just all like thrown in a pile in the back of the restaurant. Not really, you know, nicely.

Probably got grease on it, pizza sauce. Probably didn't look nothing like how it looked when it got shipped.

Right, so then he had to like take it all and wipe it all down and then put it in his car and then go to the other restaurant, put it all in his car, and then drive home with his tail between his legs. And I've heard lots of stories like that.

I'm glad that happened to that brother because I promise you that, or at least I hope that will, that will never happen again. I, I just, you, you gotta sell value. You have to make it make financial sense.

And you also got to put these people like in a contract, right?

Yeah, yeah.

I'm gonna give you a free credit card terminal, like it says in our paperwork, oh, you're getting a terminal. People ask me, oh, can I buy it? Yeah, we'll let you buy it, but if you want to— if you want to just pay $39 a month, if it breaks, we'll replace it. But if you buy it and you drop it on the floor and the thing smashes, you got to buy it.

You own it. Yeah, you got— thank you. You— that's the thing about business is you have to set the expectations in negotiations, right? If I'm gonna give you something And I don't like using that word free. I think that word free is a horrible word. I'll always say pro bono, or I'll say at my cost, because when I say it's at my cost, then that lets the merchant know that there is a cost associated with this. But you as an agent have to say, if I'm going to front this, this is what I require. We placed a POS system in a liquor store, and it's a good liquor store., the, the, the, uh, client didn't wanna do dual pricing, but he wanted the system for free. Well, what do you think I said? I told him, I said, if I'm placing this at my cost, you're gonna have to do dual pricing at least until I make my money back. And we put that in the paperwork and he agreed to that. So it, it's, it, it all boils down to the sales moxie and, and, and these ISOs have to realize you didn't get in the business to, to give stuff away for free.

And the other thing that happens in our business, which is really crazy, is agents sign contracts, they don't read them. There could be—

they don't even read their ISO agreement.

No, there could be a monthly minimum, like you got to send in 4 deals. And also they don't read the section about like if you're taking these upfront bonuses and the merchant leaves within the first year, you might have to give all or half the— you might have to give a percentage of the money back.

Yeah, most of the time it's all of it. If they cancel, most ISO agreements will say if they cancel before 13 months that those clawbacks do. Um, there's a company in Michigan that is famous for that. They, they do a 14x true up and all this other stuff. But here's the thing, they— these guys fall for it because they need the money. They need the money. And so this industry, it's not about the bonuses. Like, bonuses, if your ISO gives it to you, God bless you, but notice you're on the hook for that if that merchant cancels. But this is a residual-based business. So it's a slow migration and a consistent marathon that we guys run.

And the guys have it easier than when we started. We were out selling like 3-tier, then we were selling cost-plus. And if you had an account doing $30,000, $40,000 and you cleared $50, you were like, you were good. I'm making $50. It's awesome. Today you get a $25,000, $30,000 merchant. And they're doing dual pricing or surcharge, you're cleaning out a grand, right?

Exactly. So it's, it's, it's so funny how the industry has changed. And I'm learning a lot even as I've been doing this for a long time. I'm still learning about ways to be a better business person. And that's why I think mentorship in merchant services is needed. I get it. Everybody wants their ISO to be the greatest. Oh, you know, I write for this guy and we're the best and you're my competitor.. But honestly, you're not gonna make it anywhere in life without mentorship. If you look at the greatest quarterback, we got the Eagles playing, uh, the Chiefs in the Super Bowl. Patrick Mahomes, one of the greatest quarterbacks of our, of our time right now.

Yes.

You don't think he has a, you don't think he has a coach that's like, hey Patrick, you could have threw that ball a little bit better. Or he has a conditioning coach, he has a trainer, top of his game in the NFL, multiple, multiple wins as a Super Bowl champion, MVP, right?

Right.

Still is being mentored at the highest level. So what makes you think you're going to come into merchant services and try to figure it out on your own? You have to be mentored to be better for greatness. Otherwise, but a lot of the reps know they want 80, 90%, right?

But they don't want to do all the work.

Do one deal a year.

No, no, they don't want to do all the work, right? They don't want to do the work that, that's needed to, like, maintain that merchant. To, to have the relationship with the company that has the technology that the merchant needs, you know, and things like that. And, you know, you have— I remember I first started in this business, it was a 50/50 split, right? And then we got to a point where, okay, hey, we brought in like $2 million in processing, you know, what are you guys going to do?

You got the guys now that have $2,000 in volume and they want an 80% split. Right.

No. And I'm like, yeah, it's crazy.

No, but that's where I went.

We went back to our ISO. We renegotiated our contract. Right.

And you can do that because you have leverage. Right. That's that leverage piece. If I got $2 million in revenue coming in every month, I can go back to the ISO and say, hey, I think I kind of got this. I want a little bit more of the lion's share. And then that's where it goes to the negotiation. But you got— and here's the funny part, Allen. You got people that'll say, well, I get an 80% split with such and such company and you offer me a 50. Most of the time they don't even know what their cost is. Right. So if you're getting an 80% split of a higher padded Schedule A, you're actually getting a 50% split. Right. So if, if, if I gave you the option and I said, hey, Allen, would you rather have 50, would you rather have 90% of $1 million or 50% of $3 million? Right. The 50% of the $3 million is better because even though the split is less, the profitability is more. And the problem is most of these agents don't read their ISOGAM. I had a girl the other day reach out to me. She sent me the Schedule A of a local comp— well, not a local competitor, but a competitor out of Texas. And her Schedule A automatically said it interchange plus 5 basis points and 7 cents. That's her cost, right? So most, like I said, the race to the bottom, it's a sucky race, but I just refuse to participate in it. At the end of the day, I have to make money as a person, as an agent. I understand my processor has to make money, right? And I got to bring value to the merchant. If I could do those three things, I'm good. But the problem is you have to be in the value chain, right?

The agent, the ISO. The bank or whoever, however that's set up, every— you have to be, you have to be a good partner to your partners.

That's right.

Be a good partner so they treat you fair. Like I brought in like a high-risk deal, right, to, to a, to one of my partners, and we get a big split there. And I said, listen, I know you're not giving me my usual split on this deal, right? This is a hot— this is a higher-risk deal. It's a ton of volume. Okay, but I want to write— I know you guys can do this deal, right? Right. I'm talking about it's multi-millions, all non-card present. And they—

nice.

And they said to me, okay, we'll give you— we'll give you 70%. I'm like, okay.

And the funny thing is you have that negotiating power because they know what you're bringing to the— like, your ISO is not stupid. They know who their top reps are. They know who signs good deals. They know the margin that these guys sign deals at.. But if you're a guy that does one deal a year and your average, your average merchant is doing $3,000 a month, you, you're not gonna have that leverage to be able to negotiate on certain accounts. And, and that's the thing that you, it can only be, it can only be taught by us, the veterans, to these new guys. Because here's the thing, Allen, another 20 years from now, you and I are not gonna be actively cold calling. We are not.

So I'm not even actively cold calling now.

Right. But my thing is, we, we, we, when we pass the baton to this next generation of payment professionals, they're going to be trained to just race to the bottom and do these scumbag type of negotiations. They got to learn value somewhere because if not, it's just— it's going to be a very, very sad day in payments.

One of the other problems that I have in the business, and this is like an ongoing thing, so like you're going to laugh at this, but I have one portfolio that I started in 2001. I'm going to tell you the journey it's been on. It went from Imperial Bank to Comerica Bank to Global Payments. They told us— everybody, they told us we had to leave because we had so many Narit 2085s and they couldn't figure out how to deal with them on the back end. And they were like, no, no, no, because we had one client that had 100-plus stores and they were like, No, you got to leave this. This, we can't have this because we only programmed about 10 stores on them. They're like, no, no, we don't want that merchant. Take all your merchants and leave. We ended up going to Comdata. We were on that Comdata for several years. They sold to PAI. We were there for probably like 8, 9 years. They sold to, to Clearant. That was the worst. I don't want to badmouth whatever Clearant.

My friend John Chip, we're supposed to be nice.

But whatever, they, you know, their attitude was it's not PAI anymore. Now it's clearance. And this happens a lot during sales where all of a sudden the buyer has buyer's remorse and all of a sudden they start raising the rates on the merchants. And then as the rep, you're still getting paid residual, right? Because your residual just gets switched from Company A to B to C to D to E, F, G, right? So now, and then you got to go back to your merchants calling you, hey, I just got raised 20 basis points, or I just got hit with some $300 fee. And that's just another really bad part of our business where the ISOs do damage to the, you know, to the agent's reputation, you know, as far as that goes.

And do you think they care about that?

No, they don't. They just care, especially, especially when the private equity money is there. They're going for the private equity people or the ones running the show.

What I've learned, what I've learned over the course of time is that when, when a company sells to another company, be prepared for rate increases because they don't look at it as, you know, hey, Mr. Merchant, the pizzeria, or Mrs. Merchant, the retail location. To them, it's just one collective book. And if we raise the rates of every merchant on that book, if we lose a couple, it's going to happen. Attrition is going to happen regardless. Right. But for them, it's how much money can I make on this book that is recently purchased? Now, will they still pay the agent? Of course they will. They got an obligation to pay those guys. And sometimes they'll offer you a buyout if they feel that your residual portfolio is very low. But overall, Whenever companies buy other companies, and it's gonna happen, like, I— that's why agents need to have an exit plan, because you have to be strategic in your career, from the sales side to the management side to running a small retail ISO. You have to be able to, um, know your strategic career moves 5, 10 years in advance, because I, I don't care who anybody is, oh, we're never going to sell— those are the ones that usually sell. We're not going to sell anytime soon. Next thing you know, oh, we're selling. We got $30, you know, $33 million on it. It happens all day, every day. So unless you control the bin and you're the main ISO, you're subject to somebody saying, hey, I want to buy your portfolio.

Oh yeah, I get that.

So what?

So I mean, I don't know what the solution— you know, I don't know what the solutions are for the race to the bottom other than like the sales reps need to take a little bit more pride in what they're doing. And a lot of times they don't even understand. Like, I've, you know, we have like one— I have a couple of accounts where they're on a very low cash discount rate. When you say very low, you mean like 2.89%?

Oh yeah, right.

So really low because it's a— and they're doing big numbers, like over half a million a month. But, you know, I have to sit down with the rep all the time because I'm like, okay, yeah, man, I understand, like they did this much money. But, you know, we're in this economy right now where, you know, debit cards are not— credit cards are being used more than debit cards.

Correct.

Right. And so when there's more credit card and less debit card, your margin of, you know, your profit margin is going to go down slimmer because your expenses go up.

Are going up.

And I—

and I— we were just talking about that in my office today about expenses, about expenses going up because more and more people are using credit cards. We were just talking about that.

Yes. So, and I can look into my port— different portfolios that I have, and I can see like, okay, well, you know, if you're on a cost— if you have all these merchants on Cost Plus, your kind of margin is built in there. And, you know, your margin is going to be the same. But if you're doing flat rate processing, right, a flat— a total flat rate, and I have some large companies on flat rate. And you can see, you can see, you can go into the— we can go into the data and we can look, oh, what's the percentage of credit and what's the percentage of debit? And it doesn't matter what kind of credit is, whether it's consumer credit. These are, these are all like consumer, or it's rewards cards, right? Versus, versus is it, is it debit, you know, at 0.05. But we've also— and I try to explain this to agents too, is that Debits kind of changed over the last few years because we have all these neo banks now like Chime and PayPal and all these companies. They're not in that 0.05. The only 0.05 banks are your humongous banks like US Bank, Chase, Citi, Bank of America, right? All the big, you know, national banks, right? Everybody else is on regular debit interchange and your younger consumers, right? They go away, they're going to the credit unions, they're going to the community bank, they're going away from corporate banks. Right. And then they're also using all these apps, you know, like they're getting their payroll on Chime and, you know, they don't even have savings, right?

They're getting it all on the banks that don't have a brick-and-mortar location.

So you're right, they're getting it. It's on a card, you know. So they're, they're on, you know, they're on the, you know, we're in this trajectory where all of a sudden you have this is, you know, I take my customer base and we did an analyzation and we, you know, we say people 40 to 45 and above are on this side, 40 and 45 and below on this side. And both of those groups have two completely different buying habits, right?

That's true. We're the last generation of check writers, right?

Yeah, young people don't even know how to write a check. I'll talk to merchants and they'll be like, check? I don't have any checks.

That's right. They don't— they— like I said, the average 30-year-old doesn't even know how to write a check, and the average, uh, 55-year-old person, they're the last generation of check writers. Like, that's why Deluxe bought, uh, Elliott Management Group. Nobody's writing checks anymore. When we used to go to the bank, they would say, oh, you want the Garfield checks or the Scooby-Doo checks? Nowadays they're like, here's your one direct deposit form, give that to your HR department. So we're living in a world where, you know, like I said, the race to the bottom, unfortunately, it is a real thing. I hate it. But the only way it's going to change is when people take stock of who they are, their time and their effort to being really consummate payment professionals and moving forward to realize my time is money. When you take that mindset, Warren Buffett says that all the time. When you take that mindset that every second, every minute counts as dollars being exchanged, you will really not waste time with situations like you said, the guy giving away 8 clovers. That would have never happened to me. That's crazy.

Also, you know, I think a lot of this we have to look at and who's to blame, the acquiring banks and then the ISO who's sponsoring these ISOs below them, right? Because a lot of people don't realize that you can have like this big super ISO or someone who's a full-service ISO and then they sponsor other ISOs underneath them. And I think it starts at the top. I think that these companies that are at the top of our food chain, right, right, that those companies, I think that they need to really look at how are, how are these companies going to market, right? How are their, their agents going to market? How are their agent offices going to market? How are their, how are their, um, ISOs going to market, sub-ISOs? And go, you got to show us what you're doing. Uh, I'll give you another example. Had a friend of mine and he calls me up, he's like, oh, I have this guy needs a new home. So I talked to the guy on the phone, the guy starts telling me how he's leasing $99 a month for 48 months Clover Flexes or Clover Station to every merchant, whether card present, non-card present, they don't even need a, a machine. He's just they got to get a lease. And I was like, no, I'm not doing business with you, blah, blah, blah. He went to another guy that I know, and that guy called me on the phone. I said, there's no way I'm getting involved with this guy. And he wanted to send me some of the guy's deals. And I was like, no, I talked to that guy. I can't do it. And now my friend who took some of the deals from the guy has his whole BBB blown up because of people complaining about these $99 leases on these Flex that cost cost $500 or $600.

Well, they do that. And whenever I see a heavy lease shop, that means you're not making residuals. So that's— I've never seen a situation where a rep is out there and they're forced to lease $99, or they just forced to lease, period. I've never seen them earn the lion's share, or at least the regular 50-50 rep share of the residuals. 9 times out of 10, they're leasing those systems for $99 a month, the ISO's making thousands of dollars every lease.

Yeah, but they may get—

they may get 20%.

This guy had his own leasing company. He wasn't doing it through the ISO's leasing company. The ISO wasn't even getting any money from it.

So he's— so he's basically scamming the people. Wow.

He had—

he was spending a ton of money on—

wow, he was spending a ton of money on advertising, and he said he needed that $99 lease to keep the advertising doing. And I was like, this is the kind of stuff, you know, can destroy your business because, you know, and I think from the top down that these companies that are on the top, right? Because ultimately they're the one, I think that they need to take some responsibility and put a stop to this. And I remember my very first contract with Imperial Bank. They told us you cannot sell for less than this. We couldn't sell for less than a certain price.

That's right, because they're not trying to lose money.

Huh?

They're not trying to lose money. They're not trying to lose money. And that makes sense. Yeah.

And if we had to get something for special pricing, we had to send it to them and get it approved.

I wish we need to go back to those days.

Yeah. And I think more people need to put their foot down and kind of stop doing all these shenanigans because they're, you know, It kind of stopped for a while, you know, and then with cash discount, everybody was doing like really well. And then it started again when everybody started to lower the fees, pay the merchants under the table.

And also that part blows my mind. I will never— mark my words, I will never pay a merchant for processing. That, that you're just not my customer. Because like I said, if I'm going to pay you, the next guy is going to come in and offer to pay you more. And then I'm Exactly. That's what it is. It's not worth it. It's not.

It's just race. That's why my article, Steer Clear of the Race to Sub-Zero. So that's the story for today. Check it out in the Green Sheet, uh, greensheet.com Street Smarts column. My name's Allen Kopelman, B2B Vault. Welcome. Thank you for Stephen for joining us today. Any last words, Stephen?

I just don't participate in the race to the bottom. Value your— value who you are as a sales professional. When you look attorneys and doctors, like I said, they make a certain amount per patient or per hour. You got to put a value on your time and really say, hey, I'm not in this business to work for free. And I'm not in this business to give everything away. Learn how to negotiate, learn how to make sure that it makes sense to you. And learn— and here's a challenge. If the deal doesn't make sense, are you man enough? Or are you woman enough to walk away and say you're not my type of merchant. That's when you know that you've matured in the payment space, when you can say, hey, you know what, you're not my customer, and be confident enough to walk away because you would have lost money on the deal. So that's my last final words. Thanks so much for having me, Allen. I appreciate it.

Thank you, Stephen, very much. And everybody, if you enjoyed the podcast, like, follow, subscribe. You can find us on Apple, Spotify, YouTube, and we're on all the social medias. Follow B2B Vault and watch out for more episodes of Street Smarts if you're in the payments industry. Peace out and carpe diem.