THE PAYMENT ADVISOR
|Copyright 2014 by Virgo Publishing.|
|By: Ross Federgreen|
|Posted on: 03/01/2007|
Payment these days isn’t as simple as handing over a fistful of dollars or even accepting any card offered. A self-storage operation needs to consider a number of factors when deciding what methods of payment it will accept, especially if it owns more than one facility. Let’s look at a recent case study that illustrates how complex the undertaking can be.
The self-storage company, whose name shall remain confidential, is a rapidly growing operation with 14 facilities in multiple states. After quickly acquiring smaller operators in a number of competitive markets, the company grappled with how to handle central administration of payments. The main issues were:
Economic Disparity and Reality
Because the facilities were located in areas with wide socioeconomic disparities, the company wanted to accept as many payment types as possible: cash, paper or electronic checks, credit cards and debit cards. Another goal was to provide gift cards or a loyalty program for storage customers.
Analysis revealed customers’ preferred payments were predictably related to the demographics of each facility, with a couple of exceptions. One interesting finding was the vast majority of users in poorer areas had access to credit and debit cards, which they preferred to use over cash; they cited cardholder safety as the reason. Another surprising discovery was that the payment of choice in wealthier locales was American Express, allowing cardholders to accumulate points.
No one had interest in facility gift cards, and the idea was abandoned before implementation. However, loyalty points registered as highly desirable among potential clients, prompting the company to develop another customer-reward program. Loyalty points were awarded based on the lease length and products purchased such as boxes.
Since cash wasn’t anybody’s favorite payment, facilities opted to restrict its use as much as possible, reducing security concerns for both cardholders and operators. Only those customers making a substantial payment, who had no other options, were allowed to use cash. In fact, this issue became a major point in tenant approvals; the lack of any payment card, regardless of socio-economic strata, indicates a questionable business relationship, according to studies.
Finally, acceptance of payment cards was addressed. In many of the economically challenged areas, residents don’t have bank accounts, using payment cards issued by their employers instead. The practice is common in the hospitality and restaurant industries, and it was strongly recommended that payment cards be accepted.
Another major issue was payment controls. The company had to consider the facility’s numerous locations, its third-party reservations service, historical precedent and organizational checks and balances.
The only payment format that truly needed to be managed on a local basis was cash acceptance—a further incentive to minimize such transactions. The cost of handling cash is significant from a direct and indirect cost perspective. Issues included the physical storage of cash onsite, its transfer to a banking facility, internal and external theft as well as the increased costs of insurance.
Electronic payments via credit card and debit card, ACH and electronic check were encouraged. These types of payments, except for walk-in traffic, could be effectively managed from a central location.
Complicating matters, however, was the utilization of a thirdparty reservation system; such services sometimes have their own payment provider. There are many reasons call centers use their client’s merchant service relationship, including improved control, security and aggregation.
The company also had to choose payment equipment for its local sites and central offices. It’s important that it be integrated with the centralized management software and banking system by using appropriate middleware. Many leading industry platforms have “integrated” their software to work with a limited number of providers (financial institutions). This isn’t good because it restricts management from migrating between providers based on cost, compliance and risk factors.
The next series of questions on equipment deals with functionality and compliance as well as encryption and security. If your company is using electronic payments, a key component is the middleware or universal transaction gateway (UTG). The UTG stands between the storage operator and the processor. It’s important to verify your middleware is: 1) compatible with the management software, 2) neutral to the processor community, and 3) offers significant security protection in terms of encryption and compliance with the rules of PCI.
As this case study shows, self-storage operations face a myriad of issues in selecting an electronic payment system. In today’s environment of increasing costs and liabilities, it’s imperative to understand your options and use a systematic approach in making your decisions.
Ross Federgreen is a co-founder of CSRSI, which provides an integrated approach to the analysis, design, implementation, deployment and management of electronic transaction services and systems. Since 1999, the company has helped more than 350 public and private institutions reduce the cost of acquiring money and minimize liability exposure related to payment transactions and customer data. For more information, call 866.462.7774, ext. 23; e-mail firstname.lastname@example.org; visit www.csrsi.com.