Many times you've heard the statement "We live in a global economy." But how does this affect your business? To get a better sense of what this axiom means to companies in the payments industry, we asked members of The Green Sheet Advisory Board the following questions about their plans for global expansion:
1. & 2. Yes, we would like to work in Canada and England. Puerto Rico and the West Indies [also look promising].
3. Less competition, higher revenues.
4. In Canada and England, it would be a natural expansion of our sales force.
5. We are in the process of learning that information now.
6. Infrastructure issues and cooperation of banks.
7. Potential profits, and the U.S. market is becoming a commodity marketplace with thinner margins.
Several times we have considered entering the Canadian market. Usually there is some other big project that hinders our progress, but it never is completely written off. It's important to realize how, in some ways, things get more complicated and at the same time simplified outside the U.S. market.
For example, you need two acquiring banks in Canada: one for Visa and another for MasterCard. That, as well as the fact that the market is dominated by five main banks, makes entering Canada a challenge.
On the flip side, the interchange [in Canada] is much more simplified. And if you can get in the market having only five primary competitors, it is a lot easier to manage than the hundreds we have in the U.S.
1. & 2. We will continue to pursue Canada as part of our long-term project list. The lack of competition and innovation in Canada creates the right opportunity for United Bank Card.
3. The Canadian market has very few competitors, and the innovation and technology that the U.S. market has seen over the last few years has certainly not made its way to Canada.
4. UBC has over 1,400 ISO partners around the country. Several of them are located along border states, which often presents them [ISOs] with sales opportunities in Canada.
5. Like any major initiative or startup, there has to be a financial opportunity to justify the expense. If the Canadian market had seen the type of fierce competition the U.S. market has been going through over the last few years, it would not even be a consideration to expand in Canada.
Language, political and tax considerations are all an issue but can easily be overcome with the right team handling the initial setup. My concern, especially with Canada, is that there are five main players that really want to keep the ISOs out.
6. As I have learned, securing both a Visa bank and MasterCard bank for sponsorship is a challenge.
7. Diversification is always important, especially if it will complement your existing business channels.
1. Yes, we have had numerous discussions about expanding outside the U.S. from both an operations perspective and a sales effort. We currently have the ability to place traditional higher risk industry types offshore and will continue to pursue those opportunities.
2. Due to existing relationships within the industry, we are primarily looking at the opportunities with the Latin America Caribbean region.
3. Our primary motivation in considering these markets as opportunities [related to operational issues] is the lower associated cost with employment and infrastructure.
In addition, many LAC countries are bilingual, which will allow us to tap into the expanding minority markets.
4. Our current offshore merchant acquiring relationships allow us ... to place any type of merchant or industry that comes into our offices. This can be critical in becoming a one-stop shop for our agents: They know we have multiple relationships in place to assist them in finding a home for an account.
5. Some of the critical things a company must consider are the political environments in which they are looking to expand and regulations regarding incorporating, taxes and currency conversion rates.
The other critical item is ensuring control over the operations. Simply outsourcing to a company that provides these services can lead to lack of control, generic efforts and competitors' using the same sources.
6. With technology evolving so quickly, the language and cultural differences, which in the past could hinder efforts, are becoming less and less [apparent]. Political environments must always be taken into consideration as well. Several countries outside the U.S. have embraced the call center/technology opportunities and have geared their political [strategies], incorporation, technology and taxes to encourage countries to expand into those markets with ease.
7. The ... most compelling reason to look at expanding operations outside the U.S. is the cost of hiring and keeping an employee.
1. & 2. Yes, especially Europe and Asia. ... The Canadian market [also looks promising].
3. Less competition.
4. It would give us opportunity to diversify our presence; hence, there would be a balance in case the U.S. market slows down.
5. The value of a dollar. The conversion rate can change on a daily basis.
6. Political uncertainties, as the others you can overcome by hiring the right people.
1. & 2. Since we are located in South Florida, we get asked all the time to set up merchant accounts in South America, Puerto Rico and the U.S. Virgin Islands.
There is a lot of growth in many South American countries along the coast, where people from the U.S. are building luxury condos and homes. ... Puerto Rico and the Virgin Islands are U.S. territories and use U.S. currency.
But it is not possible for us to set up accounts in either of these two places.
If we were able to ... it would be very profitable because the rates they [merchants] are paying now are very high, and there are only two providers in Puerto Rico and the Virgin Islands. I don't know why the processors don't let us set up U.S. companies down in those areas.
3. The key motivators would be the ability to bring more competition into those markets and to get the merchants better rates and services.
5. The biggest thing is how to manage risk in some of these areas with Visa International and MasterCard Worldwide not really working well with Visa U.S.A. and MasterCard [in the United States].
If Visa and MasterCard wanted the cards to be truly global, then they would open up the international markets.
6. We would only want to work with U.S. companies expanding into these other areas; otherwise, you will have issues in dealing with people from foreign countries. And it might not be cost-effective for every company to have multilingual staff on hand.
Most of the growth for ISOs would be selling to existing clients that are opening up businesses in Mexico, Puerto Rico, etc.
A few more comments: Although Visa and MasterCard operate both inside and outside the United States, there does not seem to be much that merchants in the U.S. can do about chargebacks from international cardholders.
There is no way to manage the risk of merchants' accepting cards from outside the U.S. In the event a chargeback occurs, there is an automatic reversal because no relationship exists between Visa U.S.A. and MasterCard and their international counterparts.
So to truly go global there has to be communication between these entities to resolve chargeback issues. The same goes for merchants outside the U.S. who want people within the U.S. to buy their products and services.
1. & 2. Yes. Western and Eastern Europe, New Zealand, Australia.
3. [They] closely match the U.S. market 15 years ago, with similar opportunities.
4. As U.S.-headquartered companies have globalized, foreign companies are likewise expanding globally.
5. It's not the U.S.: The card Association rules are different; different laws impact our businesses.
And while U.S. culture is becoming more the norm [in foreign countries], they still aren't the U.S. Adaptation and integration are necessary, as well as a long-term payback strategy.
6. It depends on the region. Political and economic instability are more prevalent in South and Central America as with specific European countries.
For CardWare, an established distribution infrastructure, as well as reliable telecommunications, is critical.
As with one's business, a prudent entrepreneur should have exit strategies for varying scenarios: political unrest, economic disaster, nationalization, or dramatic law or rule changes that negate opportunity.
This issue has come up a lot at our company during the past few years for two primary reasons:
a) We represent many franchise systems and, as such, we have been referred to other franchisees outside the U.S. With that said, our processing agreements do not allow us to write business where our merchant's bank account is not in the U.S.
b) Canadian businesses - although just over the border, these merchants also pose a significant problem for us in being able to process for them.
We believe that in order to be a full-service processor, we must have full-service capabilities to work globally, whether we do it ourselves or have strategic partners.
Our current thinking is that strategic partnerships located in a specific country may be our best alternative, considering they understand the culture, language and nuisances of working with that merchant base better than we ever could.
We thank the GS Advisory Board members who responded to our questions. For more information about the opportunities and challenges of expanding a business into foreign markets, read "The World of Payments" (GSQ, April 2007, Vol. 10, No.1).
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