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The Green Sheet Online Edition

June 13, 2011 • Issue 11:06:01

Views on regulation and registration - Part 2

Lobbying efforts on behalf of determined, well-funded merchant advocacy groups have brought the payments industry under government scrutiny like never before. The time is right for the industry, as a whole, to step up efforts to police itself. With that in mind, we asked members of our advisory board the following:

  1. Are reputational problems within our industry primarily due to the actions of rogue agents, or are they more systemic in nature? In either case, who or what needs to change for the better?

  2. What type of oversight do you think would be appropriate, and who should do it?

  3. Who needs to be certified and/or registered? Why?

  4. Are there programs currently in place that may help with self-policing efforts?

Many thanks to the busy industry leaders who took time to address these questions. The first set of responses was published in The Green Sheet, May 23, 2011, issue 11:05:02. The final portion follows:

Mark Dunn
Field Guide Enterprises LLC

All sales, like all politics, are local. Individual salespeople have the ability to create negative or positive sales experiences. We have a problem with certain individual salespeople not following best practices. Until we address this with clear sales practices that all players adhere to, these individuals will fly under the radar and do significant damage to our industry.

But the issues go much deeper than the actions of individual sales reps. There are very complex issues here, many of them structural and difficult to assess, let alone resolve. It is impossible to provide a quick fix.

One question is the fairness of interchange relative to the risk the bankcard brands and banks take on. Fair dealing is usually a product of the flow of accurate and complete information, perceived good faith on the part of the seller, and delivery of the full value to the buyer at the agreed price.

Often it is difficult for merchants to know if they are getting accurate, complete information about the merchant service they are considering.

Many problems exist because of the complexity of interchange and pricing programs. Other issues are created because merchants don't make decisions based on good information but rather on perception or while under pressure, then feel taken advantage of after they get a more complete picture.

And, of course, competing service providers are more than willing to tell a merchant what a lousy deal he got from the last guy.

It's in the best interests of all members of our industry to come to agreement on how to address the issue of fair dealing within a complex service and pricing environment. Otherwise, other agencies (the merchant community influencing the government) will step in to try to fix it. I believe none of us wants that or believes that will work.

Certification, registration, accreditation - by any name - will not work without a comprehensive framework of fair dealing, sales best practices, assisting merchants to make informed decisions and required industry self-regulation.

The bankcard companies and nonbank financial institutions have to actively lead the effort along with the ISOs and industry trade associations. All parties must be involved to implement this framework. The trade associations are voluntary groups and can't be effective alone. Don't like the accreditation program?

See the program as too expensive for your ISO? You, as an ISO, can opt out. Where are the teeth in that?

But if you and your sponsor bank agree to a program of fair dealing and sales best practices that is part of your ISO sponsorship agreement, it will get implemented. If the bankcard companies want to continue interchange without government interference, they should work with ISOs and other industry players to create the comprehensive framework just mentioned.

Without leadership by all driving players in the industry, self-regulation will be optional and largely ineffective.

Alan Kleinman
Meritus Payment Solutions

1. Reputational problems within our industry seem to be perpetuated by rogue partners. My industry peers and I conduct business with integrity and are genuinely dedicated to providing merchants with appropriate solutions. The onus to change negative undertones in the industry is on everyone involved. ISOs and processors need to fully qualify their sales partners, and upright sales partners should understand the long-term implications of their actions.

Meritus has a rigorous referral process and clearly defined agreement that ensures we know every sales partner representing our brand. It's not easy, but it doesn't have to be an arduous process either. In the end, the investment in time and procedure is worth it. I feel that our sales force is unified in their representation of the Meritus brand.

2. ISOs and processors have an obligation to know their salespeople. After the initial evaluation and agreement, sales partners should be part of a program of consistent monitoring and consultation. In no way is this meant to hinder the sales process or present roadblocks.

Monthly or quarterly reviews with senior management can identify ways to enhance sales strategies and define future goals. Sales partners are trusted to represent the brand and integrity of an ISO or processor, and they should feel that they have the support of a full office. By tracking sales partner progress, the ISO also discovers misleading sales tactics that may harm the larger brand. The answer is constant communication between the ISO/processor and their chosen sales partners.

3. All sales partners should be registered with the card brands. Certification is an interesting prospect. Understandably, payment processing is a unique industry with many moving parts and many distinct areas of expertise.

Certification may be the answer for boosting the industry's reputation, but it may not make sense for all of our referral partners.

Any full-time, dedicated sales partner should pursue certification, perhaps, with the financial and educational support of an ISO.

The ETA's certification program is robust in its test topics, and it would be beneficial for an ISO to have a program in place that guides sales partners toward ETA certification. An educated, consultative and certified sales partner is a worthwhile investment.

4. There are no programs in place to help with self-policing efforts. We created our own criteria, reporting and systems to ensure that our sales partners are operating in a professional and ethical manner. In addition, we are audited by third parties to review our controls.

Allen P. Kopelman
Nationwide Payment Systems Inc.

1. The ISOs need to do a better job of watching over what agents, ISOs and sub-ISOs do, but they do not; they let things go on and they do not stop anything, nor do they have anything in place to monitor things.

2. This will never happen unless the card brands put something in place and force the Super ISOs, ISOs, etc. to police themselves and police the marketing efforts and so forth.

3. The ETA is moving in the right direction with the Certified Payments Professional (CPP) certification. ... I looked at the sample questions, and half the people I know who are out selling probably could not answer half the questions.

This in itself could have a good effect on the business if the ETA markets it and it is recognized by some organizations like the NRA - National Restaurant Association, or Retail Association, chambers etc. Then merchants will be educated and ask if you are a certified CPP when you walk in the door.

4. There is nothing in place now that helps ... unless you check companies out on BBB, Ripoff Report, the Internet, etc.

Justin Milmeister
Elite Merchant Solutions

1. I believe the problems in our industry with respect to reputational problems are a product of rogue agents, unethical companies and lack of training.

As in any industry like ours, driven by massive amounts of 1099 sales reps where control is limited, you are undoubtedly going to find many sales reps that are unethical, which hurts the merchants financially along with the ISOs' and sponsoring banks' reputations.

When you consider how our industry operates it is no surprise we face so many black eyes. A person calls on an ad they saw somewhere, whether from online or print, and, voilá: a background check and some paperwork and they are good to go and start selling credit card processing services under your company name.

The two parties likely have not met, and in many cases will never meet, but this person is representing your company and in a sense the bankcard industry as a whole.

Now, it is time to consider another scenario, which is like pouring gasoline on a fire. That is when the ISO trains their sales force how to cheat merchants and arms their reps with a bunch of magic tricks to get merchants to sign on the dotted line.

I can't tell you how many times I have seen proposals from other companies that are so ridiculous it is almost laughable. The sad thing is the merchants buy into it more often than not, and the honest sales rep competing for the business loses the deal.

However, over the last few years merchants have become much more astute and educated about payment processing, which makes these tactics a bit less viable. This brings me to the next problem plaguing our industry: lack of training for new agents.

Many agents want to do the right thing, but when they are selling to the merchant they don't know exactly what they are selling and thus unintentionally mislead the merchant.

The merchant gets their first statement and calls their agent and screams at them because they said they would save them 20 percent off their fees but actually cost them 30 percent more in fees.

This is perhaps due to the fact the agent didn't understand that not all cards qualify at the "qualified rate," which the agent told them it would. Or there is an interchange per-item fee on top of the $0.05 transaction fee on the schedule A.

I am sure on many occasions this misrepresentation (sometimes unknowingly) by the agent has ruined long-term friendships and put rifts between family members, as many new agents normally turn to these relationships when getting started in the business.

What needs to happen is for the industry to start regulating itself to ensure that ISOs and agents are, in fact, representing themselves in an ethical manner. I believe an independent board should be created that monitors complaints against sales reps and their associated ISOs.

If a certain percentage of complaints with respect to the size of the overall portfolio is reached, then an investigation would be launched into the company's business practices. This would be similar the way Visa and MasterCard monitor merchants and their chargeback ratios.

2. I believe the industry would be far better off if a certification were required to sell merchant services. It would avoid just anyone armed with merchant agreements and a pen going out and misleading merchants, whether intentionally or unintentionally.

A certification would have educational and ethics components, along with a comprehensive test.

3. Anyone selling credit card processing should be certified to do so. Certification will validate those who are dedicated industry professionals and expose those who are not.

How strange it is that an industry with so much sensitive information, such as checking account information and Social Security numbers, does not require any type of certification or registration at the agent level.

4. Yes, the ETA is scheduled to launch the CPP program later this year. Although this is not mandatory at this time, I think it is a big step in the right direction toward mandating a process whereby anyone selling credit card processing needs to be validated.

David H. Press
Integrity Bankcard Consultants Inc.

1. Although there may be rogue agents, they are few and far between, and the industry as a whole does a good job of exposing them and driving them out of the market.

Regarding reputational issues, ISOs must do a great job in effectively communicating with their merchants and continuing to provide merchant education. The more merchants know the better. If merchants perceive they've been wronged they will tell everyone they know.

2. I'm always afraid when the federal government tries to step in and "help" any industry. Unfortunately, they don't understand the inner workings of this business, and their intervention may hinder the collective good. Acquirers need to step up their enforcement and review processes to learn what their ISOs are doing.

3. I don't think this new ETA certification process is going to do anything but be a nice money making idea at $300+ an exam.

It surely won't have the impact as some of the other certifications out there and, in the end, will serve no greater purpose. The card companies already have registration and reporting policies in place. Another designation is not going to help.

4. The marketplace is the best program there is. Many rogue agents are not around for long, as the public and the industry find out about them and drive them out. end of article

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