The Green Sheet Online Edition
February 14, 2011 • Issue 11:02:01
Game changers for 2011 - Part 1
In the payments industry, one thing is certain: if you don't like the way things are, wait five minutes; everything will change. Whether influenced by global economies, legislation or advancing technologies, a sea change always seems to be taking place in our beloved industry.
To gain insight into industry changes most likely to influence the coming year, we asked our advisory board: What do you see as some of the biggest game changers for 2011? How do you see them affecting the industry? How can merchant level salespeople (MLSs) work these factors into their game plans and keep ahead of the curve?
This article contains the first portion of their responses. The remainder will be published in The Green Sheet, Feb. 28, 2011, issue 11:02:02. Many thanks to all who contributed to this dialogue.
Avid Payment Solutions
The biggest game changer for 2011 will be debit card interchange regulation. It will mean increased profits on existing portfolios for many ISOs, and it will create opportunities and pressures in the competition for new accounts.
It will also further level the playing field between signature and PIN debit, and may spell the end to PIN debit entirely as the benefit to merchants of accepting PIN over signature debit diminishes. PIN pads will gather more dust. PIN debit networks will be challenged to keep their payment option viable.
The long trend of increasing share for all kinds of debit may level off, or even drop, as banks naturally pull back, issue fewer cards and find ways to fill the revenue gap created by the government.
Secure Payment Systems
I think you are going to see a lot of movement in the area of mobile payments. Numerous companies have released or are getting ready to release a product for smart phones that will give us all an idea of how consumers will respond to using phones as payment devices.
I don't believe we will see huge changes in that arena, but I do believe we'll get a good idea how this particular market is going to play out. There is huge potential in this arena, but how quickly the consumers respond to the process will dictate how quickly this paradigm shift will take place.
Mobile payments have inherent issues that could stall the overall speed of success or cause it to screech to a grinding halt. I believe, however, the issues will be resolved and mobile will eventually be a very successful business model.
I believe that, as an ISO or MLS, you must be aware of the marketplace and its movements ongoing. You must constantly be thinking of creative ways to generate revenue. Credit card processing has become a commodity. The only ones truly generating any real money are those that are constantly tuned in to the ever changing landscape of this business and tweaking their own business models from time to time.
The more creative and open you are to what is out there, combined with your ear tuned to the merchants' wants and needs, will dictate how successful you will be this year.
One of the largest game changers in the payments industry is regulated debit card interchange. For the first time, merchants know (from the media coverage) exactly what the "pass-through" cost for debit cards is (taking away the percentage-based cost perception similar to credit-based products). This will really impact the ISOs and processors that use a "cost-plus" pricing model where the merchant will demand pricing very close to the regulated fee.
ISOs that serve large merchants will need to innovate with value-added services (or technology) to remain relevant regarding debit-based products. There will inevitably be consolidation in this industry, as the issuers will try to market credit-based cards over debit cards.
Each MLS should analyze how debit card regulation impacts his or her portfolio (at the merchant level) to best gauge the impact to the residual stream. Introducing new technology (specific to a vertical market or geography) is one of the most important ways to stay relevant and to contain attrition (or at least pricing pressure) due to the debit card legislation.
Impact Payments Recruiting
Two big game changers that I see affecting the industry for 2011 are the possible effects of government regulation of our industry and the emergence of mobile payments.
Government regulation swings into full gear this summer with both the Durbin Amendment taking effect in July and the new Consumer Financial Protection Agency (CFPA) being formed to regulate financial products. It will be important for MLSs to work with ISOs and processors that pay close attention to how government mandates will affect their sales processes.
It's important for MLSs to be able to intelligently speak about these government regulations if asked by merchant prospects or current clients. Reading industry publications and weekly email industry updates is a good way of arming yourself with this knowledge.
If you looked at the industry updates in The Green Sheet for most of 2010, it seemed like half of the partnerships being formed and half of the new products being unveiled had to do with mobile payments.
The volume of mobile payments in 2011 will still be a small percentage of the overall transactions done, but MLSs can get a leg up on their competition by showing their merchant prospects some of the new cutting-edge products available for mobile payments.
Even if a particular merchant has limited interest in mobile payment technology right now, the merchant will see it as a potential giant in the future of payments and therefore will be more inclined to sign with a merchant services provider who is up to speed with the latest technology.
United Bank Card
United Bank Card has always been recognized for our innovative programs that have consistently taken the industry in new directions. Our free terminal program and free ECR program are prime examples of this.
We started off 2011 with an announcement that eclipses both of those initiatives in terms of the effect it will have on this industry: our free Harbortouch POS system program. This initiative is the definition of a "game changer" and will truly revolutionize the future of the ISO/MLS business model.
POS systems comparable to our free offering sell for tens of thousands of dollars due to the countless time- and money-saving features they offer.
Merchants benefit from streamlined operations, comprehensive reporting, inventory tracking, employee scheduling and much more. This truly unrivaled program gives our sales partners the ultimate advantage in the marketplace: why would a merchant opt for a standard credit card terminal when he or she can receive a full-featured, touch-screen POS system for free?
We have created a comprehensive training program, Harbortouch University, to make it easier for ISOs and MLSs to take advantage of this game changer and differentiate themselves in the marketplace.
Allen P. Kopelman
Nationwide Payment Systems Inc.
The biggest game changers for 2011 are going to be how the card associations deal with the Durbin Amendment. At this point in time, it is still a big mess and in the long run will not save businesses or consumers money.
It will just pollute the already complex system of interchange categories. It will affect ISOs who are using tiered pricing. At first they will make extra profits, and then the merchants will be bombed with offers of special "debit" rates.
Another big game changer could be more terminal rental options for the MLS, as a few companies are rolling this out.
Yet another game changer is always Payment Card Industry (PCI) security standards compliance: how will PCI 2.0 affect the current systems in use, and how much will it cost a business to get PCI compliant. The last game changers are going to be more mobile applications, virtual POSs and other techie things that are going to start to gain traction.
As MLSs, you need to watch, wait and listen to see how the companies you do business with are going to react to different changes in PCI, Durbin, rates, fees, 1099 reporting fees, etc. Keep an eye on who you are partnering with now and in the future to make sure you are getting your merchants with the best company.
Some MLSs are unhappy right now if their ISOs charged merchants a new 1099 reporting fee, and they are losing clients or might lose clients due to this or other new fees that might be charged.
Meritus Payment Solutions
Some of the biggest changers in 2011 are the Durbin Amendment, industry consolidation, and growth of alternative and mobile payments.
The Durbin Amendment means:
- Potentially, a dramatic decrease in debit fees that can create opportunities for merchants. MLSs can capitalize on merchants that pay bundled pricing for PIN debit. Some processors only price merchants at bundled rates, which creates an opportunity because the cost savings are dramatic.
- The ability for merchants to determine the debit network to use, which will allow educated MLSs to consult with merchants on profit-maximizing opportunities by selecting the best debit network at a given transaction level.
- The ability for merchants to surcharge customers will allow sales people to offer a payment solution to merchants that is cost neutral or potentially a profit source.
Several major buyouts in 2010, and potentially a few more in 2011, will lead to opportunities because of potential service and support issues that occur with consolidations. Many new buyers may impose changes that can impact incumbent MLSs.
Alternative and mobile payments open new markets and discussions with merchants on new technologies.
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