The Green Sheet Online Edition
January 12, 2009 • Issue 09:01:01
Changes afoot, challenges ahead
A storm is coming, one that will challenge both merchant level salespeople (MLSs) struggling to maintain residual levels and ISOs who have gotten used to six, seven or even eight figure incomes. Both will be adversely affected due to the severe economic downturn we are experiencing.
There is no doubt our industry will undergo fundamental changes from top to bottom in 2009. Here's my thinking on how the industry as a whole will be affected not only by these challenging economic times but also by a new U.S. presidential administration that must do everything in its power to make sure the economy regains its footing and is reinforced to ensure future prosperity.
No major movement on interchange
Banks will be on the agenda in Washington, D.C., but the No. 1 priority will be keeping banks solvent and getting them to loan money to businesses and homeowners to get the wheels of commerce unglued. Because of this, lobbyists who work on behalf of retailer associations fighting Visa Inc. and MasterCard Worldwide to lower interchange will be pushed aside.
The card issuing banks will most likely receive breathing room; the federal government and the U.S. citizenry, concerned about the deepening recession, will not be looking to take away from the banks something that might help them inch back to stability and pay back the billions of dollars they have received in government aid.
The 111th U.S. Congress convening in January 2009 will be interested in legislation to rein in things that could further devastate the economy: exotic derivatives, hedge funds and 125 percent mortgages, for example.
Hedge money evaporating
To maintain liquidity several major hedge funds, including one run by JPMorgan Chase & Co. and the Tudor Fund (the oldest such fund in the country), have instituted a hold on redemption of investor funds.
A significant amount of capital from hedge funds has been invested in the payments industry, but that flow has begun to dry up.
Money from hedge funds has been invested directly into companies and used to buy portfolios; it has been the funding source behind several cash advance companies; it has been the well from which our industry has grown.
Today, several companies in the cash advance space are having difficulty obtaining new money, and several portfolio buyouts have been stalled. It will be several years before the flow of investor funds resumes.
Also, several companies in our sphere will no doubt be absorbed by bigger, well-capitalized players in the coming months.
No universal health care
I expect that due to the staggering cost of the current economic bailout and all the controversies that will spring forth in efforts to get our economy on the right track, the new presidential administration will not have enough political capital to tackle universal health insurance.
The topic of universal health coverage is fraught with controversy. There is disagreement about whether to insure the approximately 10 to 12 million undocumented people living in the United States.
Also, many people who have insurance do not want to give up their premium coverage for a government medical program.
There may be a push for limited legislation requiring the approximately 17 million apparently healthy people who make over $50,000 per year yet forgo health insurance to be more responsible and buy health insurance.
This group would likely include entrepreneurs (such as ourselves and our merchant customers) who might use available funds to grow their businesses instead of purchase health insurance.
While requiring this group to purchase insurance might not use up much political capital, it could hurt small merchants and entrepreneurs.
It may become more difficult for small businesses in the United States to rise to the next level, especially those at the lower end of the $50,000 income cutoff. They may have to defer hiring new employees or postpone adding new locations due to newly mandated health insurance costs.
Fewer feet on the street
A serious push for a "green" economy and development of "green" jobs will necessitate a punitive tax on gas to make it economically attractive to switch to hybrid or "flex fuel" vehicles, especially since the price of gas has fallen from the more than $4-per-gallon highs that it hit in the summer of 2008. In addition, hybrids and other alternatives are still priced too high compared to traditional gas-powered vehicles.
The big push will likely be for ethanol, the producers of which receive massive subsidies from the federal government to make it work as a fuel. In the short term, that means new MLSs will be driving less and will have to focus on telemarketing to save money on gas.
And merchants in our portfolios will be hit by an increase in phone calls and mailings from ISOs and banks looking to poach business.
Smaller lines of credit
In better times, American Express Co. must have looked like a genius for offering businesses large credit limits. And the practice served small businesses, giving them needed capital to operate.
Now that most merchants have had their credit lines shrunk or altogether eliminated, our merchant customers will face more turbulent times. The Internet is abuzz with business customers complaining about these cutbacks in credit for what appears to be no reason. AmEx seems to be following a strategy of pulling back from the riskier small-business sectors.
Also, banks will not want to team up with AmEx to issue AmEx-branded cards because AmEx just received a bank charter from the U.S government. Banks will see AmEx as a threat instead - a direct competitor to the Wells Fargo & Co.s and the Capital One Financial Corp.s of the world.
In addition, financial institutions will see an opportunity as AmEx retreats from the small-business market it has taken for granted for years. They will be looking to attack this space in the new year.
American opportunity sustained
Conflicting agendas will fight for attention in Washington in the coming year; it is possible mistakes will be made. I hope Congress and the new presidential administration do not legislate away the one thing that makes America special: the courage to take risks and plunge ahead into new frontiers.
There will be a great temptation to legislate all the risk out of the economy. There has even been talk about the "end of capitalism."
But I do not believe capitalism will end. For our country to be relevant in the 21st century it is imperative that we reinforce the initiative that has made our country great.
Perhaps we should come up with "Capitalism 2.0," a refined version of our economic core that gets us back to making things, regulates away complex and possibly destructive financial instruments, encourages innovation and provides the tools entrepreneurs need to keep pushing forward for years to come.
Keep selling in 2009.
George Sarantopoulos is the Director of Marketing for The Access One Group/Access One ATM and is working with a new bankcard ISO -Paymint Partners. He can be reached at firstname.lastname@example.org or 866-764-5951.
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