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The Green Sheet Online Edition

November 08, 2010 • Issue 10:11:01


A request from academia

I'm working on a thesis dealing with the electronic payment industry and have three questions I've been unable to answer through other research channels. I was hoping you could help me. The questions are:

1. What is the basis of competition between ISOs?

2. Are gift card/rewards program services potentially a large competitive differentiation?

3. What other sorts of competitive differentiation are there?

Jon Schneider
University of Dayton


I referred your questions to Theodore Svoronos. He is a member of our advisory board, as well as co-founder of Merchant University, which provides educational information on the payments industry at www.merchantuniversity.org. He graciously provided the following:

1. The fundamental areas shaping competition among ISOs are:

  • Price: Price used to be the differentiator a long time ago. This has changed since most ISOs can offer similar, competitive pricing. So it evolved from price only to price and equipment (discounted, leased or free) and now to price, equipment, contract length, additional fees and customer service as a basis of discussion. Though price is still a leg in the foundation of differentiation, these other factors are coming in strong and are carrying their own weight when comparing ISOs.

  • Additional fees: An ISO could have the lowest price but could charge the following: cancellation fee, gateway fee, yearly fee, monthly fee, statement fee, support fee and other miscellaneous fees. Other ISOs may charge some, all or none of these fees to get the business.

  • Contract length: Some contracts are 36 months; others can be month to month, yearly, etc., with no early cancellation fees or penalties. Some ISOs have the flexibility to change the contract length, which is also a factor.

  • Equipment: Equipment is integral to ISOs' offerings and is determined by what they can support, based on their bank(s) and platform(s). Obviously, the more terminals and equipment you can offer and support, the more variety you offer and the more appealing you become. Also, offering different pricing programs and options for equipment, such as buying it outright, leasing, paying for it monthly, or getting it free (based on parameters), is also helpful.

2. Yes, an ISO that offers gift and rewards programs can potentially capture more market share. These products are important to many merchants and drive customer retention, customer loyalty, marketing and cross-marketing efforts, and more frequent and larger transactions.

3. Other sorts of competitive differentiation include:

  • Additional services: These go from the basics to the next step and include check services, risk mitigation services (to fight chargebacks), chargeback insurance, consulting services or any service offered to strengthen relationships and add more value. Also, offering products that pertain to the merchant service industry such as connectivity, accounting software, web hosting and development, etc. The key is to offer a well-rounded menu of products and services without using a shotgun approach. Become the organization that can be considered a one-stop shop, a true resource for merchants.

  • Customer service and support: Merchant services is customer service. Good customer service can keep an ISO's current relationships and foster new ones. Or it can be a big factor contributing to an ISO's attrition rate. In any facet of business, once a relationship has been established an organization must properly maintain the relationship with swift customer service, knowledgeable individuals, professionalism and an eager, helpful attitude. Communication is central to customer service and, if used correctly, can establish, strengthen and save relationships.

  • Credibility: Another difference between ISOs can be their credibility or perceived credibility, market exposure and reviews. When comparing ISOs (which should be on the to-do list of everyone considering working with one), looking at their reviews, knowing or having heard of certain companies, and asking what kind of experience others have had with them can play a big part in the decision-making process. The industry is evolving, and more merchants, salespeople and partners are becoming educated and doing their due diligence.

I hope these answers provide all the information you need.

Editor end of article

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