Part 1 of 3-part series “Digital Handcuffs”
In this three-part series, we profile the challenges of switching software, and how fitness center owners are caught in digital handcuffs – tied to gym software because payment processors won’t release their members’ credit card information.
One of Gym Insight’s biggest jobs is untangling a new client from their payment processor. It’s grueling work. Often our sales representatives spend months calling a merchant processor attempting to retrieve a gym’s database of credit cards. Success is often elusive.
Gym owners frequently give up at this point, circling back to their software provider and settling for second best, rather than risk losing credit card data for 1,000’s of clients. Remarkably, this is exactly the outcome payment processors and their ISO’s (independent sales organizations) design. The reason is obvious: the more difficult it is for a gym to leave their software provider, the more money both parties can charge. After all, now the software company knows you won’t leave.
Before we go any further, let’s explain how the system works.
What is a merchant provider?
In the simplest terms, the merchant provider is the middleman between the software and the bank. A merchant provider processes the payment by a member. The gym software provides the information, and the bank transfers the money. Throughout this process, every point of contact is charging the business owner a fee.
Unfortunately, it is more convoluted than a simple distribution system. Because merchant providers generally do not market directly to end users, such as gym owners, they rely on ISO’s – independent sales organizations – to gather the customers and send the data to them for processing.
Therefore, any company selling a service which includes processing credit card information could be an ISO. (This article by Stripe does a good job of describing the payment ecosystem.)
In many cases, your gym software company is an ISO – they guide fitness centers to merchant providers. This “embedded” or “plug and play” relationship creates an incentive for both firms to keep your business – in any way possible.
The problems start when you try to break up the team.
Nautilus Gym of Ramseur, N.C.
Payment Processors Play Good Cop Bad Cop
Fitness software is similar to any other product: as your company grows, your needs change, and there comes a time to upgrade or switch software. In the case of the ISO-Merchant Provider relationship, both parties understand this very well.
As you know, your gym software stores client contact information: name, address, telephone number. What you might not know is the payment processor often warehouses the credit card information.
In an ideal world, when a gym owner decides to switch software, both companies would package their stored data and hand it over to you. After all, the information belongs to you, right? Yes, but no.
In many cases, the first step is easy. The gym software firm releases your clients’ contact information upon request. Then, when you ask for your member’s credit card information, they point to the payment processor.
Now it becomes a David and Goliath story when an independent gym owner attempts to retrieve his clients’ credit card numbers from an international firm hiding behind federal compliancy rules. In our experience, the ISO’s know their payment processor is difficult. Yet, they point you in their direction anyway. Why? In some cases, the gym software firm, or the consultant, receives money for referring clients to certain merchant providers.
In other cases, software firms know the average customer will give up after a month of wrangling with a monster payment company. A bad payment processor becomes a built-in retention program.
Is stickiness a marketing ploy by payment processor companies?
Perhaps. Or maybe it is a natural evolution of our digitized economy. Payment processing is a trillion-dollar industry as evidenced. The largest company, Fiserv, has an estimated annual volume of $2.4 trillion+. Other players are not far behind, with Square coming in sixth at $250 billion. No doubt this network serves a vital purpose in an increasingly digitized and vulnerable financial world.
But in the race to serve their customers – the ISO’s, ISV’s, and vertical SaaS – the payment processors make it increasingly difficult to “own” your own data. And it pays off.
According to a blog posted on Fortress Payment’s company website, “vertical SaaS companies that embed payments can increase ARPU (Average Revenue Per User) by 2-5x and reduce churn by over 30%. Why? Because frictionless payments aren’t just convenient, they’re sticky, scalable, and strategic.”
The blog begins by asking:
,“The real power in payments today? It’s hiding inside your software.”
The only way to counter this strategy is to pick your own merchant provider – severing the financial incentive between your gym software and the payment processor.
Does every software firm tie up my payment data?
No, not every company. There are good, large and small software firms who have your best interest in mind. But they are few. Unfortunately, it is up to you to do your research and choose a company that does not store your data or work in cahoots with a challenging payment processor.
In our next blog, we profile horror stories of independent gyms who nearly lost entire customer databases when attempting to switch software providers. And in our final blog in the series, we cover how to select a gym software firm and merchant provider. Remember to check in next week and to watch for our monthly newsletter in your email!
Gym Insight.
We are an award-wining gym management software company playing by a different rulebook: we write our own code, create simple-to-use software, and never hold your data hostage. Our agreements are month-to-month. Ending our business relationship is as easy as a phone call. We strive to keep our customers through excellent, fully integrated software solutions designed to create profitable businesses: ample reporting capabilities, 24/7 digital keytag door access, a free Members App, intuitive member and staff management solutions, and a tablet-based sales software system that streamlines sign-ups. As our sales reps like to say, “it’s kindergarten easy.” Call us today for a free demo at 855-FOR-GYMS (855-367-4967).