CrossCheck Blog

CrossCheck Blog

Check Processing & Payments Information

Generating Bank Revenue with Merchant Referral Programs

Posted by Brandes Elitch | Fri, Mar 22, 2019 @ 06:45 AM

bank buildingOf all the different components in the payments ecosystem, only one commands absolute trust among its clients — the banking industry. This is one of the main reasons why merchant referral programs are excellent revenue sources for banks.

After all, a bank is where you keep your money. No matter what form of payment you tender when you buy something, all payments begin and end in a demand deposit account. You know that whenever or wherever you access your bank — branch, ATM or online — it will be open and ready to serve you 7/24/365. You also trust that your statement will balance to the penny and be delivered on time. Aside from the banking industry, I don’t know of any other ecosystem that is 100 percent reliable.

Ways of Generating Bank Revenue

Through our blog and our monthly column in the GreenSheet, readers often ask us how banks work and how they 6 percent interest ratemake money. Sometimes we answer tongue in cheek: “Bankers use the 3-6-3 Rule: they pay 3 percent interest on deposits, charge a 6 percent prime rate on loans, and are on the golf course by 3 p.m.” But this is not really true.

Making good loans that don’t default or work out is a tricky business. We won’t dissect that here, but we will talk about another side of banking that is very important: fee-based income. Some banks are very good at this and have multiple sources of revenue such as investment banking, securities trading, insurance agency and underwriting.

Today we want to focus on the basics of checking and cash management. Non-interest income can account for about half of a modern commercial bank’s operating income, so this is an important subject.

Cash Management Services for SMB

It used to be that only large enterprises needed and used bank cash-management services, but today even small- and medium-size businesses (SMB) need them. These services include:

  • Account analysis, zero balance accounts, cash concentration accounts, and escrow and sub-accounting capability
  • Remote deposit capture
  • Online reporting for balance and detail records, and capability for digital disbursements (ACH and wires)
  • businessman smilingSmart safe (for cash based merchants)
  • Lockbox
  • Positive pay and full account reconciliation
  • Fraud and risk management protection tools

Unlike large corporate customers, SMBs do not typically have a designated cash manager. Thus, many of the related functions are carried out by the owner when they have free time (which is almost never for those running a small business).

Corporate cash management salespeople do not generally call on small businesses in person, so this task usually falls on branch personnel, who have many additional duties themselves and find it difficult to get out of the office. As a result, some merchants who could really benefit from these services don’t get the word unless the bank is really good at direct marketing, customer contact and or follow-up. This situation may change with artificial intelligence or automated chat services, but it usually takes word of mouth to explain how these services work and why merchants would benefit from them.

Revenue-Generating Merchant Referral Programs

One of the biggest headaches for a small business is returned checks. Aside from the aggravation and cash-flow issues, nobody wants to call the person who wrote a bad check and ask them to pay. It is embarrassing and can be emotional. While you don’t want to lose the customer, you need the money and it belongs to you.

Many small businesses today do not take checks at the point of sale for these reasons. It turns out, however, that some companies not only take checks, but they actually prefer them. You may have seen a sign in your dentist office such as: “10 percent discount if paid by cash or check.”

Other businesses simply do not want to pay credit card interchange rates for a high-dollar payment because it takes a big bite out of their gross profit. Car dealers are the quintessential example because they have a lot of Kia Dealershiphigh-dollar payment volume as well as the need to carefully manage their expenses and cash flow.

Being a factory franchise new car dealer is one of the most challenging businesses on the planet, and even the biggest publicly traded mega-dealers operate on a margin of less than two percent.

So when car buyers want to put a full price or down payment on a preferred card — where the dealer is paying transaction fees of 3 percent to the card company — dealers naturally decline and ask for a check instead. There are other reasons to accept checks too.

Other consumers might not have an adequate open to buy on their debit cards, and thus it is unclear if the cards will be authorized in the future for those amounts.

Merchants in other verticals and industries are in the same position: auto repair and auto aftermarket shops, furniture stores, home service businesses, building supply centers, funeral homes and medical/dental/veterinary offices.

When the bank relationship officer is speaking to these merchants, they should ask: “Would you like to simplify your check processing?” By this, she means, “Would you like to use remote deposit capture so you don’t have to take your checks to the bank anymore, and would you like to have finality of payment and never deal with returned checks anymore?” Many merchants in these segments will say, “Yes!”

Now, the question is, “What happens next?”

Revenue-Generating Merchant Referral Programs

bank vault doorThe bank will not offer a check guarantee service of their own, so they offer solutions from companies like CrossCheck that serve this market. This is the essence of the CrossCheck Bank Referral Program.

For merchant referral programs to succeed, the bank needs to make their branch personnel and calling officers aware that they have a strategic partner who can provide a check guarantee service. The calling officer does not have to know who we are or how we do it, they just have do three simple things:

  1. Ask the question, “Do you take a lot of high dollar checks?”
  2. If the merchant says “yes,” then ask, “Would you like a quote on what it would cost to have payment guarantee so you never see a bounced check again?”
  3. Fill out a short referral form and email it to CrossCheck.

We will take it from there: account setup, staff training, and equipment programming/no-fee loaner equipment (if needed).

Cha-ching! … The rep has just secured a referral fee for his bank over the lifetime of the merchant account. This is a tried and proven arrangement.

We currently close over 65 percent of the referrals from one of the largest super-regional banks in the country. This makes for a happy bank customer, a good merchant client for us, and an ongoing referral fee for the bank over the life of the account. Merchant referral programs are a win-win for everybody.

For more information about the referral program, contact Vice President Travis Powers (800-654-2365 or and we can arrange a presentation for your bank.

Referral Program_2

Topics: Brandes Elitch, Independent Sales Organization (ISO)

Written by Brandes Elitch

Brandes Elitch is Director of Partner Acquisition for CrossCheck Inc. A certified cash manager and accredited ACH professional, he garnered a Master of Business Administration from New York University and a Juris Doctor from Santa Clara University.