Four industry leaders participating in the Electronic Transactions Association Strategic Leadership Forum's CEO round-table discussion, titled Is This a Revolution or an Evolution?, agreed ISOs that can master and adopt the best technology while broadening the scope of their services will hold their own against new tech companies entering the payments space.
The forum was held in Chicago from Oct. 25 to 27, 2011. Round-table participants included Moneris Solutions Corp. President Greg Cohen; Adam Coyle, President of National Processing Co. Inc.; Roam Data Inc. Chief Executive Officer Will Graylin; and Chris Spinella, CEO of Apriva LLC.
All panelists believe the new POS systems, terminals, smart phones and tablets that support new add-ons like Square Inc.'s dongle or PayPal Inc.'s cardless payment system are important developments and present new challenges in the payments space. But they won't push ISOs out of business. "The market still needs service providers who can teach [merchants] how to adopt and use the technology," Spinella said.
Cohen pointed out that technology companies are a different type of value proposition. "ISOs have to build new models that compete," he said. He explained that ISOs are the conduit and pipeline into retail sales. The key to ISO success is the ability of the ISO to expand the pipeline to include different types of value propositions such as advertising and loyalty solutions for merchants.
"We need to be selling advantages," Cohen added. "This is not the traditional ISO role. We are asking the industry to sell something it is not used to selling."
Spinella said ISOs need to focus on "making sure they help merchants with realizing new customers, retaining those customers and help drive up revenues." He said ISOs no longer just provide businesses with processing services; ISOs are educating merchants on tools they can use to grow their businesses.
Coyle noted that technology doesn't make things easier. "It expands the demands of what people want," he said.
But which technology will win customer loyalty and merchant support? According to the round-table participants, the answer isn't clear.
Cohen said most industry leaders are waiting to see how the technology will evolve. "You can't turn your entire business around 180 degrees overnight because everyone says this is the way to go now," he said. He advised ISOs seeking to evaluate new technologies to talk with merchants about what they want.
"We are having to ride the wave in the direction it leads us," Coyle said. Value propositions like payroll systems, loyalty and rewards programs and other platform add-ons will be driving sales in the payments industry for years, he said.
The panelists indicated small players, often from outside the industry, will continue to enter the payments market with new technology. They said they are happy to let the new entries take the risks inherent in marketing new technology while they watch and see what happens.
"To what point do we want to have risk?" Spinella asked. "I like Square. I think it is interesting. The question is, What is the risk? Let's see how it evolves. Let's let innovation come from outside the industry and see what works."
Graylin said it is important for ISOs to understand they are not competing against innovations like Square. To Graylin, Square is just another technology ISOs can adapt and use to go out and win merchants. (Some ISOs are exploring partnership arrangements with Square, for example.) ISOs that fail to adopt new technology are going into the battle for merchants armed with axes and swords when the other side has machine guns, Graylin said.
Cohen predicted the end result will be more specialization among ISOs, more concentration on certain market segments and more attention to the needs of merchants.
Participants also agreed technology represents opportunity for ISOs. "Anytime you are forced to change your business model it is an opportunity," Coyle said. "We have to capitalize on this. It's not about payments; it's about providing solutions." In the end, the ISO advantage is that relationships drive sales, he added.
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