Opening the consultants playbook calculating the real cost of payments

Transcription

1 Opening the consultants playbook calculating the real cost of payments Elley Frost, CMSpi President and Brendan Doyle, CMSpi CEO Wednesday February 15 4:45pm 5:30pm

2 Contents Calculating the real cost of payments Cost reduction case study: Cost analysis & benchmarking PIN debit routing Industry issues Identifying hidden costs Opportunities for cost reductions Cash budget reduction opportunities Important considerations when reviewing your cash management processes Calculating an effective AT schedule for your estate Opportunities for cost reductions

3 Cost Reduction Case Study

4 What makes up the cost of payments? Credit Card fees FANF Staff Costs Fuel charges Chargebacks Network fees Banking Smart Safes Authorization fees Voucher fees Cross-border fees Card brand fees Zero limit floor fee Assessment fees Excess bags & trips Encryption & Tokenization Processor fees Cash registers Interchange Holiday surcharge Routing costs Integrity fees ATMs PIN debit Funding costs Terminals & gateways Switch fees EMV Cash Processing Armored Transport Settlement fees Excess liability fees Time on site Transmission fee Kilobyte fees Excess bags

5 Case study: sample merchant profile Cost of payments: $25,691,204 Signature/Credit PIN Debit Cash Mid-sized US merchant Around 500 sites across the US 2015 revenue was $2 billion

6 Adjusted payments cost per transaction How does your business compare? Market Comparison = Merchants The $3 million dollar gap Merchant Size Average Performance Best Practice

7 Where does Payments the $3 million Cost gap Benchmark come from? Best Practice $0.58 $0.26 $ % higher than best practice Average $0.59 $0.28 $ %+ higher than best practice Current $0.61 $0.33 $0.15 $- $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 Signature/Credit PIN Debit Cash

8 Where does Payments the $3 million Cost gap Benchmark come from? Signature Credit $850,000 Cash $635,000 PIN Debit $1.45m Total: $3m

9 Debit card Payments cost breakdown Cost Benchmark Best- Practice Average Merchant Hidden opportunities for cost reductions Interchange Switch/Network Fees Routing Authorization Fees Encryption/Tokenization Fees Terminal/Gateway fees Other Transaction Fees Funding Costs $- $1.0m $2.0m $3.0m $4.0m $5.0m $6.0m $7.0m $8.0m

10 PIN Debit Optimization

11 Our generic order is optimized to best suit us and any Network agreements we have with them. Quote from a leading processor in recent negotiations

12 PIN debit routing: industry issues Key Issues Fixed priority orders not as effective as dynamic routing Opaque agreements between networks and processors Ownership conflict of interests Acquirers not updating their routing tables Poor MI systems High smart routing fees

13 Cost per Transaction Current: sub optimal routing Original Routing $ ,000 $0.45 $0.40 $0.35 $0.30 $0.25 $0.20 $0.15 $0.10 $0.05 $- 250, , , ,000 50,000 - Number of transactions Interchange Fee Switch Fee # Transactions

14 Cost per Transaction Reordered routing Original arrangements Routing $0.50 $0.45 $0.40 $1,050m reduction 350, ,000 $0.35 $0.30 $0.25 $0.20 $0.15 $0.10 $ , , , ,000 50,000 Number of transactions $- Interchange Fee Switch Fee Transactions # -

15 Cost per Transaction Selecting suppliers Original for negotiation Routing $0.50 $0.45 $0.40 $220k ($1,270m) reduction 350, ,000 $0.35 $0.30 $0.25 $0.20 $0.15 $0.10 $ , , , ,000 50,000 Number of transactions $- - Interchange Fee Switch Fee Transactions # (take 2)

16 Cost per Transaction Reconciling & reordering Original Routing $0.50 $0.45 $0.40 $180k ($1,450m) reduction 350, ,000 $0.35 $0.30 $0.25 $0.20 $0.15 $0.10 $ , , , ,000 50,000 Number of transactions $- - Interchange Fee Switch Fee Transactions #

17 Recap Most merchants still have a 6 and 7 figure savings opportunity through optimal routing Processor solutions aren t always what they seem How do you check the savings figure you re given by your processor? How do you know what baseline they are using to measure savings? It s important to weigh up the cost-benefit of any solution available Ongoing analysis & reconciliation is required

18 Cash Opportunity

19 Where does Payments the $3 million Cost gap Benchmark come from? Best Practice $0.58 $0.26 $0.07 Average $0.59 $0.28 $ %+ higher than best practice Current $0.61 $0.33 $0.15 $- $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 Signature/Credit PIN Debit Cash

20 Overview of current arrangements Total Pickups per Week Avg. Pickups per Week Avg. Pickup Amount Current Safe Limit 1, $3,330 $15,000

21 Cost of cash breakdown Merchant Average High fixed & variable AT costs Fixed AT costs Variable AT costs Cash Processing Banking Staff Costs Other Fees Best Practice $0 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000

22 Armored Transport Optimization

23 Average cost per pick-up Benchmark 5 Benchmark 4 Benchmark 3 Benchmark 2 Benchmark 1 Competitive cost per pick-up Sample merchant Total cost per pickup

24 Average Number of Pickups per Week Average Pickup Amount Average pickup amount by sector 3.50 $160, $140, $120, Sample Merchant QSR Benchmark Restaurant Clothing Supermarket $100,000 $80,000 $60,000 $40,000 $20,000 $- Average Number of Collections (LHS) Average Collection Amount (RHS)

25 Current armored Current transport AT Arrangements arrangements Current Cash Profile $1,200, Total Daily Cash Takings Profile $1,000, High Saturday takings $800, $600, $400, $200, Average in Safe Average in Transit Average in Bank $0.00 Monday Tuesday Wednesday Thursday Friday Saturday Sunday

26 Number of Pickups per Week Number of Sites Current armored Current transport AT Arrangements arrangements Current Pickup Profile Current Number of Pickups Monday Tuesday Wednesday Thursday Friday Saturday Sunday Number of Pickups per Week

27 Number of Pickups Current distribution of collection amounts Current schedule: High number of pickups Low average pickup value Pickup Value

28 The Cash Cycle - Considerations Account size Locations Change Tips Banking Fuel costs Time windows Provisional credit Cash flow Checks Franchisees Recycling Average pickup value Geography Time on site Days of the week Labor Store profile ATMs Insurance limits Distance

29 Stakeholders affected TREASURY I.T. FINANCE LOSS PREVENTION RETAIL OPERATIONS

30 Pinpoint:Cash Suite Software Pinpoint:Scheduling is our unique armored transport optimization software that compares 127 weekly scheduling options for each individual site, factoring in your business unique operational parameters. Pinpoint:Location is our unique supplier capability assessment software which allows us to analyze the suitability of any given AT and banking provider to service each of your sites effectively. Pinpoint:Risk is a mathematical model that assists clients in calculating a rating for each of their sites and the risk/cost balance of walk to branch, armored transport and smart safe options on that individual site basis.

31 Number of Pickups Optimal distribution of collection amounts Current schedule: High number of pickups Low average pickup value Pickup Value

32 Number of Pickups Optimal distribution of collection amounts Current schedule: High number of pickups Low average pickup value Optimized schedule: Reduced total pick-ups Spread pickup value Pickup Value

33 Optimal average in bank Current Cash Profile Optimal Cash Profile Average in Safe Average in Transit Average in Bank Average in Safe Average in Transit Average in Bank

34 Recap $635k cost reduction Look beyond fixed prices Scheduling is about achieving a complex balance between efficiency, risk and operational constraints Involves a number of stakeholders but it needn't be political You can reduce AT visits and improve cash flow at the same time Introduce science into your loss prevention Reduce employee time dealing with AT Optimizing schedules can lead to lower AT costs, a higher bank balance and less risk and a better, safer working environment

35 Conclusion

36 Adjusted payments cost per transaction Bridging the $3m gap Market Comparison PIN debit: $1,450m reduction Cash $635k reduction Other: $900k+ Reductions The $3 million dollar gap = Merchants Merchant Size Average Performance Best Practice

37 Key take-away points In concentrated and complex markets, suppliers hide behind opaque charging structures Supplier solutions aren t always what they seem Pricing negotiations aren t the end game There is significant value to be gained in effective benchmarking Ongoing analysis & reconciliation could save you 6 or 7 figures per annum A scientific approach to cash management could substantially reduce your cost base.

38 Thank you Brendan Doyle, CEO: Elley Frost, President: