By Ken Musante
Editor's Note: The Green Sheet is delighted to introduce payments industry executive, articulate conference presenter and spot-on contributing writer Ken Musante as the new author of Street Smarts. Sharp, congenial, and highly experienced, Ken is a generous mentor bent on fostering a lively dialogue with readers in the coming year.
Becoming the full-time writer for Street Smarts is intimidating. Sure, I enjoy writing, and I have appreciated the opportunity to be a guest columnist. But that was before I had deadlines. Going forward, I have one article due every two weeks - and my day job. So I am asking for help upfront. To make these articles topical and informative, I will be interacting and posing questions via GS Online's MLS Forum.
Please post your responses to my queries - laugh at me, agree with me, argue your point. It will boost the content value and allow me to dig deeper into issues that are impacting all of us.
To facilitate our interactions, I'll start with some background information on me. I am the middle child with two brothers. I was born in 1965 and raised in the San Francisco Bay Area. Upon graduating from University of California, Davis, I attended an on-campus interview for Wells Fargo & Co.'s credit card division. I was hired in 1989 as a trainee in the issuing division.
For six months, I worked within the various departments of a credit card issuing center and reported directly to the senior executive responsible for the trainee program. All of Wells Fargo's operations were housed in Concord, Calif.
Consequently, I had short tours in plastics, credit, human resources, customer service, collections, disputes, risk and fraud, and marketing - essentially, all functional areas except legal and compliance.
After training, I landed a job supervising a unit in the 24-hour customer service center. As luck would have it, I worked the swing shift. We were forced to make decisions at odd hours when no senior managers were around.
We had to decide on emergency credit line increases and act on cardholder requests pertaining to lost or stolen cards. I was exposed to the entire issuing side of the business, as customer service receives all types of card inquiries.
Eight months later, I became a supervisor on the fraud/disputes team. It was another ideal learning experience: we had just purchased a bank and had to run the purchased portfolio on the existing processor until the processing contract expired.
This allowed me to manage a unit that was on an entirely different system from the rest of the bank's cards and become familiar with the various chargeback rules and dispute process.
Less than a year later, I moved to the acquiring side of the business. This was before Wells Fargo formed an alliance with First Data Corp. Deborah Rossi managed the division, and we were implementing Visa Payment Systems 2000, which necessitated tiered discount rates.
My long-time friend and payment professional Michael McCormack (of Noblett & Associates) led the project team. I supervised technical support and learned about lease lines, terminals, front- and back-ends, and host- and terminal-based systems. It was a great foundation for my next job.
In 1993, Humboldt Bank was starting an acquiring program in Eureka, Calif. Because my wife grew up there, I was a frequent visitor to the area. Ted Mason, the founding Chief Executive Officer of Humboldt Bank, hired me to start the acquiring program.
The first year was difficult. Culturally, Eureka is isolated. Folks were pleasant, but stores and restaurants close at 9 p m. Urgency had a different meaning there, and I clashed with the Chief Financial Officer.
As the year progressed, we established a leasing business for terminals and sponsored two large ISOs (CardService International and Electronic Card Systems - the precursor to iPayment Inc.). Revenues picked up, and the CFO and I developed a mutual respect. During this time, I developed a tremendous understanding of the Visa Inc. and MasterCard Worldwide rules.
During my tenure at Humboldt Bank, I worked with Tim Jochner (then of Superior Card Services Inc.) and other acquirers to successfully deter the card brands from enacting rules that were extremely unfavorable to smaller acquirers.
I understood the rules well enough to maximize our processing. Before Humboldt Bank sold its portfolio in 2003, we were processing nearly $5 billion annually, and the bank had less than $1.5 billion in assets.
No story regarding my tenure at Humboldt Bank would be complete without divulging our foray in ATM sponsorship and ATM funding. We had a niche business that more than doubled in size when Humboldt Bank purchased Tehama Bank. With that acquisition we acquired several ATM funding agreements that allowed the ISO to also act as the funding agent.
As we were unwinding these contracts, we found ourselves short $5 million. Though much of the money was recovered by the FBI and insurance proceeds, it was a painful learning experience. Further, and more horrifying, the main suspect in the theft was found dead in his rented home in Florida.
In 2002, Humboldt Bank hired a new CEO, and by then our stock was NASDAQ-traded. Our price-to-earnings ratio was hampered by our noncore earnings from merchant services. Consequently, the board of directors decided to sell my division to iPayments in July of that year.
By October, that deal fell through. Luckily, Pat Lamb, whom I met at the University of Washington's Banker School, was an executive at the privately owned First National Bank of Nevada, and the bank wanted to enter the merchant services business.
FNBN purchased Humboldt Merchant Services in March 2003. This involved only our bank-owned ISO program, which was started in late 1997 with the help of my long-time friend Jamie Savant (now with The Strawhecker Group).
I continued on as President for over five years. We grew continuously and profitably through an ISO-, direct bank- and telemarketing-based sales force. We in-sourced all customer touch points to ensure we had control of the merchant experience.
Chargebacks, terminal support, customer service, technical support, risk, credit and systems development were all housed in Eureka. Because we were self-contained, we were able to nimbly add new products and services if they fit within our target market.
Because FNBN was a large mortgage lender, however, it was among the first banks to fail in July of 2008. Fortunately, Humboldt Merchant Services was a separate company and spared foreclosure, which might have occurred had we been a division of the bank.
We were owned and managed by the Federal Deposit Insurance Corp. for three and a half months until we were purchased by Moneris Solutions Inc. in an asset sale in October 2008. Upon the Moneris acquisition, I served as an executive and Chief Sales Officer in charge of the ISO, financial institution and regional sales force. I commuted between Schaumburg, Ill., and Eureka.
I was fortunate to work for a processor of Moneris' size (the eighth-largest processor worldwide), which allowed me to better understand how a larger organization services clients and minimizes operating costs. Further, the vertical partner channel established at Moneris is a brilliant strategy that breeds long-lasting referring partners and merchants.
With much trepidation, however, I left Moneris in March of this year to become part of a startup ISO. I believe in this business, and my skill set is better positioned working closer to the end customer and in a smaller organization.
I am pleased and proud to work alongside my long-time friends Steve Kimberling and Scott Bartlett. Our new company will specialize in direct merchant placement and merchant consultation. I will miss many of the folks I have worked with at Humboldt Merchant Services and my new friends at Moneris. But enough about me.
I hope you will share your stories and opinions with me on the MLS Forum. In fact, the reason I agreed to write Street Smarts is because of the collaboration it entails.
I often hear that people want to give back to the industry. I'm a little more honest (or selfish). I enjoy interacting and collaborating with industry folk, and it helps me keep abreast of the changes within the industry.
The payments industry is too big to allow professionals to stay current in isolation: selling, compliance, pricing, card network rules and risk management are all significant issues that we can better understand through forum dialogue.
I hope to select multifaceted topics. And while we may provide some answers, we will bring to light many more areas that will require further research. My job has changed substantially and continues to evolve, as does the industry. Like you, if I do not adapt, I will not be effective.
Consequently, here is my first forum post: Some say ISOs will become extinct. We have sold all there is to sell. Future merchant sales will be done by an employee-based sales force like Heartland Payment Systems Inc.'s model. Do you agree or disagree?
Please share your comments at www.greensheet.com.
When in doubt, sell something!
Ken Musante is President of a startup ISO. Contact him by phone at 707-476-0573.
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