GonzoBankers, Happy 2006! It’s been a busy year already at GonzoBanker and our Cornerstone mothership. Lotsa talk and new buzzwords in the air these days. New strategic plans are in full Execute mode, and the scramble has generated palpable energy among banks, vendors and consultants alike.
One of the topics spawning water cooler witticisms at banks nationwide is Merchant Capture. You know the drill – merchants scan their customers’ checks, electronically deliver a deposit file to the bank, and never have to fill out a deposit slip, go to the branch or use a courier again. Banks save time and money. Commercial customers save time and money. Everyone’s thrilled. Bankers, just send your cash management sales reps out there to start filling in the purchase orders. In theory, that’s 100% Right.
But then Reality has to rear its tenacious little head. The truth is, there are not yet enough hard core success stories to prove the cost justification logic correct in all but the most obvious situations. Merchant capture will be a home run for the Targets and Gaps of the world, but what about the six-store liquor chain? Too early to tell. Vendors will tell you that they have sold dozens of merchant capture packages to their commercial banks, but when you dig deeper, you clearly hear that actual implementations by small business end users are seriously few and far between; I hear many stories of “pilot programs” and beta testers. (Vendors, I know there are exceptions out there. Hold your emails for the more blasphemous points I’ll make later in this article.)
I have talked with several vendors who admit that most bank merchant capture programs are in alpha or beta. That’s no criticism. We’re talking about some pretty new technology and a brand new way of delivering services to small business customers. But newness alone doesn’t explain all of the relative lack of real, in-production merchant capture sites out there. No, I spoke with several cash management sales reps at mid-size banks and they report that they have encountered noticeable push-back in their sales efforts.
Let me run through the various ways that banks are advised by their vendors to help small business owners cost justify a merchant capture project – and the obstacles my cash management friends are finding along the way:
The business owner will realize drastically reduced transportation/courier costs. The story goes that with merchant capture the business does not have to drive the deposit items to the bank or pay a courier to do so. What did my cash management sales reps tell me?
Automating the deposit process will make a small business back office more efficient. If a small business can scan its checks and use CAR/LAR software to read the check amounts, this argument holds water. It sure beats an error-prone adding machine tape.
The business will realize better funds availability and lower per item charges from the bank. With items arriving at the bank earlier and in a better format to be cleared more quickly (and cheaply), there is definitely potential for the bank to realize better float and lower item costs – regardless of whether it processes items or not.
Far too many banks are either deciding not to pass along the savings at all or pass along only a crumb. If you’re looking at merchant capture as a long term relationship builder, hogging all the savings for the bank is decidedly short-sighted.
Remote capture will allow business to work with fewer banks and maintain fewer accounts. With merchant capture making the physical location of a bank almost irrelevant, the small business no longer has to work with (sometimes) many different banks that have branches close to the various business locations. Also, the need for some sweep accounts goes away with merchant capture.
A couple other points that my cash management reps said we should all consider:
Is merchant capture going to explode and change the payments landscape forever? I think the answer is a bold, Earth-shattering, “Uh, of course, Beavis!” It’s just not going to be as fast or as easy a sell as the vendors would have mid-size banks believe. Use the Reality Check above to make sure a merchant capture sales strategy is viable and realistic for your small business customer base, and remember that the healthiest perspective on merchant capture is that of a long term customer acquisition and retention strategy versus a short term revenue bump.
Special note to “Lost in Vegas”: Take the Over and the Steelers to cover.