By Ken Musante
Eureka Payments LLC
I first met Paul Martaus, President and Chief Executive Officer of Martaus & Associates Inc., many years ago. He was a speaker at either an Electronic Transactions Association or Bankcard Services Association event.
Paul's presentation resonated with me for several reasons. I had come from the banking sector, and Paul was explaining how ISOs act and react. This was back in the mid-1990s, and ISOs were becoming the driving force in the industry.
Paul's research and interviews gave him a unique perspective, which he freely shared. He provided both his predictions and comments in a humorous and thought provoking way. I've become friends with Paul through the years.
Although we don't talk often, when we do strike up conversations, they are always lengthy and digress to all corners of the industry. I thought you all would appreciate learning more about Paul and how he has navigated his career.
Q: How did you come to the payments industry, and what were your early career influences?
A: I came into the payments industry through a bank in 1972. I was 21 at the time. By the time I was 26, I was an SVP in charge of the bank's electronic transaction processing. From there I was recruited into building one of the very first shared ATM networks in the early 80s. The Neighborhood Banking Centers was a publicly traded company and ATM network.
I was there only a short couple of years because the leaders of the company were dishonorable, and I did not appreciate their corporate ethics. I joined Applied Communications in the early 1980s, selling ATMs and POS software. Applied Communications Inc. - ACI - remains the most common ATM operating system to this day.
From there, I went to work for PSI [Payment Systems Inc.] in Tampa as a researcher/consultant/sales professional.
I was cultivating clients, conducting the research and selling my work. After five years, I quit (and got fired the same day) because the job became untenable. That same day, I started Martaus & Associates. I used my former company's brand and became an independent contractor for them. Within a few short years, I established my own brand and began marketing services under my company.
My entire career, I was on the bleeding edge of electronic banking, and I had access to the very senior levels of the industry.
These senior executives have remained long-term friends and then introduced me to their staff, who then became my customers as well as my conduit to the information I cultivate. I have known most of my clients for over 25 years.
Q: What do most industry professionals not know about you?
A: I'm an open book. Most folks know I've got a big mouth and an attitude. I make beer and wine in my spare time. I roast my own coffee. Two kids, two grandkids. I am a Vietnam veteran.
Q: What have been some of the biggest surprises during your career within the payments industry? Said another way, what events did you least expect to occur?
A: I'm professionally cynical because my clients pay me to be. Even though I look at the worst side of things for a living, I never saw the economic collapse coming. I know why they passed the Glass-Steagall [banking] Act after the Great Depression, and I noted when it was repealed in 1980.
I likely should have paid more attention to the dismantling of that act, knowing how important it was.
I was not prepared for the ensuing damage done by the unbridled greed on Wall Street. I am against excessive regulation, but I appreciate safe airways, and I want my food inspected.
I support the FDA and air traffic controllers. But I get paid to tell the future, and this recession caught me off guard.
Further, I was also blown away by the Durbin Amendment. And even after it passed, I fully expected its repeal. I don't have a clue of what the Fed is going to now do.
The Federal Reserve, however, is under enormous pressure and responsible to Congress. So the result could well be bad for our industry.
Q: In all your conversations with industry professionals, is there any theme or pattern regarding industry insiders that you could use to generalize our kind?
A: Our industry is built on greed as a driving force. There is a common theme among ISOs: there is bedrock, or incredibly smart, talented, motivated individuals. This differs from the cowboy days of the early 80s.
Today's ISOs are still entrepreneurial, but the margin for error has lessened as the margins have decreased. So today's ISOs need to be more numbers-driven than their ancestors.
Additionally, many of today's ISOs were formed during the days when banks consolidated. The bank consolidation created an excess of acquiring talent (formerly employed by the banks), and these folks became acquirers and ISOs and brought professionalism, or a focus on margin, that was not necessary during the 80s.
Q: Do you have any near-term forecasts you would care to share?
A: If the House and Congress do not increase the debt ceiling, we will have a worldwide financial meltdown. This will be worse than anything we have ever seen. I hope to God this doesn't come to pass.
I'm trying to get a read and baseline on pricing in mobile. We are too early in the mobile cycle to have an impact on pricing.
But if you don't have a mobile strategy, you will lose out in the long run. Mobile at the point of sale will change our buying patterns in the next three to five years.
Because of the ease of siloing (or partitioning) applications in a smart phone, mobile will catch on quickly in cell phones. These smart phones will do a whole lot more than our cards ever could. ... It's a smart device, and that's why they call it a 'smart' phone.
Starbucks' prepaid app on the iPhone is pure genius. This could change the face of our industry because it applies the imagination of people outside our industry to payments [that] make it easy for consumers and [that] make solutions that work for consumers and merchants.
Their solution uses barcodes instead of NFC [near field communication] because 96 percent of their stores had barcode readers, and only 3 percent had an NFC device.
Visa and MasterCard are brand managers, but are managing their brands without the brand manager talent or imagination found in Procter & Gamble and other firms like them.
There are many talented individuals at both card networks, but they think about payment standards, not brands. That could allow innovative brand managers like Apple to overtake them.
Q: How will our industry evolve over the next five years?
A: NFC wallet may be EMV-compatible without the card brand logo. Brand identification is not brand loyalty. ITunes, Apple or Google could easily overtake the bureaucracies that are card brands. Visa and MasterCard are worth billions but are subject to the whims of public companies.
This also makes them vulnerable to the influence of a large outside investor who can accumulate a major position or a board seat in one of these companies.
Q: What impact will the Durbin Amendment have on our industry?
A: Economic upheaval of gigantic proportions. Fifty percent of the U.S. population may be forced back to cash. I say this because 25 percent of the United States is unemployed or underemployed.
When you consider delinquencies and poor-credit individuals, there is a huge segment of our population who will not be extended credit cards.
These same individuals will shun excessive checking account fees and, as a result, be left without access to debit and credit transactions. 'Debit' will be removed from our lexicon in the next few years, and [we will be] moving customers to prepaid cards.
Wal-Mart, too, is in love with the prepaid card. Owning a bank is too much regulation for Wal-Mart. ATM usage will plummet because customers will walk away from banks in huge numbers.
The next time you attend an event where Paul is presenting, I hope you will have a better appreciation for the experience he brings to our industry.
Ken Musante is President of Eureka Payments LLC. Contact him by phone at 707-476-0573 or by email at kenm@eurekapayments.com. For more information, visit www.eurekapayments.com.
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