A pioneer in merchant processing, MRA keeps building for the future

First in an occasional series on the increasingly complex world of merchant processing.

Million-dollar months used to be a big deal at Michigan Retailers Association.

Merchant processing was still a relatively young service in the early 1980s, and the flow of a million dollars worth of retailers’ credit card transactions through MRA’s merchant-payment department was cause for celebration.

“Whenever we had a million-dollar month, we’d close down the office at 4 p.m. on the last day of the month and celebrate with pizza,” recalls Chairman and CEO Larry Meyer.

As MRA moves through its fourth decade as a leader in the merchant processing industry, those pizza parties have gone the way of retailers’ first “knuckle-buster” credit card machines.

“Now we process that much transaction volume about every four hours,” Meyer boasts.

Meyer’s anecdote provides a measure of both the tremendous growth in merchant processing and of MRA’s prominent role in processing credit and debit transactions for all types of traditional and online businesses—not just retailers—in Michigan and across the nation.

A pioneer and innovator in the fledgling processing field in the late 1960s, MRA remains Michigan’s largest non-bank organization providing merchant accounts and processing services. MRA currently processes transactions for more than 5,000 member businesses in Michigan and 20 other states, with volume easily topping a half-billion dollars annually.

As processing volume has swelled from greater consumer use of credit and debit cards, so have the number of companies and sales agents soliciting merchants for their business.

“It’s no surprise that not all of the processors out there today have the merchants’ best interests at heart,” says Meyer.

“Processing has become an increasingly complex and confusing world for retailers, and every day we hear about some processors misrepresenting their services, rates and other costs. Our mission at Michigan Retailers has always been to provide our members with low-cost, high-service processing and, just as important, help them understand exactly what they’re paying for and why.”

MRA is committed to remaining a leader in the processing industry in the future, says MRA’s James P. Hallan, president and chief operating officer, because growth in transaction volume benefits all members. “Size is important because, generally speaking, the more members and transaction volume MRA has, the lower the rates MRA can offer.”

A major source of MRA’s growth in processing volume in recent years has come from new channels that complement the standard, direct-sales channel for establishing merchant accounts. Until the late 1990s, MRA only signed up merchants through its field staff of regional marketing representatives.

In 1999 MRA added a community bank channel. The field staff now works with financial institutions around the state and shows them the benefits of letting MRA handle merchant processing for their customers.

“It was a win-win-win move,” said Tom Tuggle, MRA’s director of sales and community banking. “It serves a need for community banks, who might lose business to bigger competitors that offer merchant accounts. It helps their customers. And it helps build MRA’s card processing business.”

Another valuable channel was created through partnerships with other trade associations. MRA has become the preferred card processor for the members of more than a dozen trade associations.

In 2005 the program expanded again when MRA formed a joint venture with Florida Retail Federation to process for the Federation’s members.

“Florida’s sales reps handle the enrollment of members for processing, and we handle the ‘back room’—the customer service, technical support and billing,” explained Hallan.

The growth of MRA’s merchant processing program reflects the tremendous growth of “plastic” as a means of payment. It’s easy to forget how recent the explosive growth in credit and debit card use really is.

In 1970 only 16 percent of U.S. households had a credit card; in 2001, 92 percent of households with income above $30,000 had at least one. The average U.S. household now has 6.2 credit cards.

MRA has been an important player in the industry since the beginning. In the mid-1960s, Michigan National Bank had the Michigan franchise of the innovative BankAmericard (later to become Visa) program and contacted MRA about helping it find merchants interested in accepting its credit cards.

“At that time MRA came up with two innovative ideas that helped transform itself and credit card processing over the next decade,” explained John Mayleben, MRA’s vice president of sales and marketing.

“First, it suggested that in addition to signing merchants up to accept credit cards, essentially becoming the bank’s sales force, MRA could also service the accounts—a somewhat radical idea in a time when banks were the dominant financial institutions in the country.”

Second, MRA recognized that it would be more efficient for it to also handle MasterCharge (later to become MasterCard) accounts. It approached the bank that had the MasterCharge franchise in Michigan and suggested MRA sell and service merchant accounts for them as well.

“This innovative arrangement became known in the emerging industry as ‘duality,’” said Mayleben. “No longer would merchants be required to have merchant accounts with separate banks in order to accept multiple cards.”

Early processing was all paper-based, with MRA employees manually handling transactions—opening huge volumes of mail, sorting and stamping transaction receipts to ensure retailers received their funds, and reconciling statements. One busy day, MRA employees worked 22 hours to reconcile that day’s transactions.

In those days, Meyer estimated that whenever MRA’s transaction volume had increased by $10 million per year, another employee would be required to handle the extra keystrokes needed to manually service the accounts.

The process remained paper-based until 1986, when electronic transactions were first introduced—perhaps the most revolutionary change in the industry to date. Over the next 15 years MRA converted all its merchants to electronic transactions, and today only nine employees are required to service the accounts for the $600 million in transaction volume MRA processes each year.

For many years, MRA only accepted merchants of “dry goods.” In the mid 1990s—when many other types of businesses began accepting credit cards—MRA moved into the “emerging markets” of non-traditional retailers such as hair salons, auto service and other businesses that have diversified MRA’s membership.

Other innovations over the years kept MRA in the forefront. MRA was the first Michigan-based sales organization authorized to sell Discover and American Express accounts to merchants, so that a merchant could set up acceptance of all the cards in a single step.

MRA remains the largest non-bank processor in Michigan, and Mayleben estimates it is among the top 75 in the U.S. in volume. It was one of the first members of the Electronic Transactions Association, the national association for credit card acquiring professionals, and MRA senior staff have served as ETA officers or on its committees.

“We are also one of a handful of trade associations in the U.S. that are registered ISOs (independent sales organization) with Visa/MasterCard,” explained Mayleben. “We have as direct a relationship with these card associations as one can have without being a bank.”

MRA also has made a point of staying current with emerging technologies in the payment industry. It offered processing and equipment (PIN pads) for accepting PIN-based debit cards (often called “check cards”) in the late 1980s, when the technology first became available to retailers.

MRA also provided online processing solutions when e-commerce was just beginning to become popular. More recently, MRA began offering processing and equipment for wireless (mobile) transactions and contactless cards, which are expected to be a common feature of the credit card landscape in the next decade.

In a 2005 report on the credit card industry, the Federal Deposit Insurance Corporation (FDIC) concluded: “For decades it was not hard to envision what the credit card industry would look like five years into the future. This is no longer true.”

Commenting on the payment industry’s rapidly evolving future, MRA’s Hallan is optimistic.

“Whatever the future of the credit card industry,” said Hallan, “MRA’s merchant processing program will continue to innovate, lead rather than follow, and—always—put the needs of its customers first.”