As payment technology matures, retailers are searching for acquirers who can provide them knowledgeable advice in areas as diverse as POS equipment requirements, payment software options, new payment channels, mobile solutions, marketing, security, liability and business strategies.
ISOs are responding to this demand by adopting consultative sales models that build merchant relationships and capture payment transactions by providing data-centric business strategies, solutions and services.
Pressing questions merchants want answered are the same questions ISOs are struggling to answer themselves: What actions should I take? When? What's the right technology for my business? Is it secure? What's the legal risk? Is there an opportunity here to grow my business?
ISOs, like merchants, often need input from outside consultants to find the right answers to these questions and the correct approach for transitioning their businesses into the world of modern payments. So who consults with the consultants?
Consultants who work with ISOs sell a highly sophisticated skill set that addresses topics of critical importance to the payments industry's feet on the street. The list of services offered includes, but is not limited to, security solutions, strategies for implementing technology, mobile transaction acquisition through merchant-centric marketing applications and services, and protection against legal liability for issues that may arise in conjunction with an ISO's products and services.
A recent sampling of payment consultants found consensus that the industry changes ISOs are experiencing are also bringing industry opportunity. They agreed the savvy and successful ISO will offer customers customized, flexible, highly specific and technically detailed solutions, as well as the special skill sets needed to implement them.
Mustafa Shehabi, co-founder of PayCube Inc., a payment-focused technology consulting company and custom software developer, said the ISOs seeking his advice are increasingly concerned their services and offerings will be ignored as newer entrants into the payments sphere like LevelUp, Google Inc., Apple Inc. and PayPal Inc. dazzle the market with offers of free, easy-to-use POS systems or no interchange fees. "ISOs are worried they will get disintermediated," he said.
Shehabi said the consultative sales model offers ISOs the best opportunity to compete in the new payments environment because it allows ISOs to partner with merchants as they integrate new payment channels into their POS offerings.
This new and sticky ISO-merchant relationship makes sales organizations less likely to fall victim to disintermediation and offers ISOs the best opportunity to compete in the new payments environment, he stated.
"The sales representative is going to become an evangelist of all kinds of processing services, not just credit and debit," Shehabi said. "Salespeople will need to be able to talk with merchants about what LevelUp is doing and how they can capture data and use it more effectively."
Today's sales are not just about processing transactions; they are about building long-term relationships, Shehabi noted. PayCube focuses on working with mid-segment ISOs looking to accelerate growth by promoting technology, in addition to mature companies wanting to increase operating margins by incorporating new technology-based, value-added services into their businesses.
"At PayCube we teach ISOs how to marry their technology strategy with their business strategy," Shehabi said. He added that acquirers and merchants are alike in that they often know what they want to do with technology but they just as often don't know what the technology really costs or how to determine and implement the solutions that are right for them.
Paul Martaus, founder of the payment research and consulting firm Martaus & Associates, said disintermediation is just as much a risk for the new technology and mobile phone companies entering the payments industry as it is for ISOs.
Martaus said new players in payments may find merchants rethinking their deals if customer data is stolen or if merchants discover they have no way to challenge profit-killing chargebacks.
"The payments business is the most complex simple business in the history of the world," he said. "When they look under the hood and look at the engine they will realize how many moving parts it has. Eventually they'll end up trying to replace something little understood and incredibly complex with something else little understood and incredibly complex."
Martaus expects it will be difficult for new companies in the industry to introduce change on a scale that can build and support a national payments infrastructure and generate profits. But he has no doubt technology companies and mobile phone companies will remain well financed and viable competitors to ISOs for some time.
Martaus also believes the way for ISOs to successfully compete with these new payments companies is to adopt a consultative sales model that delivers in-depth knowledge in specific market segments such as health care, restaurants and petroleum.
However, in preparing for the future, ISOs shouldn't lose sight of opportunities available now, Martaus said, noting that the card issuers' push for industry adoption of the Europay/MasterCard/Visa (EMV) global security standard is creating a tremendous opportunity for acquirers.
Martaus said he recently told an audience at the Western States Acquirers Association gathering in California, "If you go out now and sell merchants EMV terminals that also do encryption, you are selling in a marketplace that in today's world has no competition; you get the whole field to yourself.
"The devices you replace today with EMV terminals still have residual value but they will have no value later when the EMV standard is required. Selling an EMV solution now will give sales organizations a competitive advantage for a year or two because they have a super product, no competition and they get to charge a fee."
Richard Crone, founder and Chief Executive Officer of the mobile payment and marketing consulting firm Crone Consulting LLC, said that successful acquirers need a mobile solutions strategy because of the enormous opportunity it offers to acquirers.
"The first challenge for most ISOs as the payments market evolves is to move from the traditional price-based sales model to a relationship and consultative model," he said. "The key criteria for making mobile payment decisions are who controls the data and how a mobile payments solution might work."
Crone believes acquirers in the mobile payments arena should consider building or adopting mobile software applications that give them (and their merchant clients) access to customer data rather than allowing mobile network operators and technology providers lone access to the information.
"ISOs would be best served to focus on a merchant-centric approach rather than a third party intermediary approach," he said "They could end up doing a bunch of charity-based work for First Data and Google if, at the end of the day, they give them the consumer data."
Crone feels that for most merchants and ISOs, data acquisition begins at the prepaid level. These ongoing spending accounts with a merchant are an entry point for mobile marketing and loyalty programs.
Marketing and loyalty applications are an important new source of revenue for sales organizations faced with declining interchange rates and disruptive new pricing models, he said, adding that ISOs ignore them at their own peril.
"If you don't have a mobile payments strategy, now's the time to get one," Crone stated. He predicted ISOs that do not offer a mobile processing platform soon will lose business to companies with merchant-centric mobile payment options. He said his job is to help ISOs and sales representatives understand the issues they face in mobile payments and translate that knowledge into sales and revenue.
"Mobile payments is a defining moment for ISOs and MLSs and they need to be very strategic in their approach," he said.
Todd Whittaker, Senior Channel Sales Manager at Authorize.Net, a payments solutions provider for the Visa Inc.-owned electronic payment and risk management company CyberSource Corp., said his company embraces its new role as "the consultants' consultant." Acquirers need to speak to merchants with confidence and knowledge about fraud, and they need to know who the fraud and security experts are when they need additional support, he stated.
"In order to remain close to their customers, ISOs are tasked with an obligation to be the industry experts, trusted advisers who understand security issues tailored specifically to their merchants," Whittaker said. "This industry cannot be about one sales organization closing a single customer deal.
"I believe that ISOs who invest in cultivating long-term relations among their partners and customers, and therefore bring more to the table, will win the hearts of their merchants and ultimately experience long-term success."
Whittaker said the constantly evolving threat of fraud is a driver behind the changing role of ISOs and merchant level salespeople (MLSs) and opportunity lies in the realization there is no one right solution.
"Long gone are the days of the 'set it and forget it' strategy to fraud prevention," he said. "Merchants are looking not only for flexible and scalable solutions to their business challenges, solutions that take an ecosystem of partners to create, but also a trusted adviser who will be there during these times, helping them navigate through the change. This is why consulting and partnerships are key for all industry stakeholders."
Autorize.Net's approach to consulting is based on a "holistic total system, layered approach to network and payment security," he said. The company's services include face-to-face meetings with ISOs to discuss payment opportunities and challenges; sales collateral through the Authorize.Net portal, educational videos and visuals, and hands-on product training.
ISOs sometimes don't realize how the development of technology can impact their businesses from a legal perspective, said Adam Atlas, an attorney whose practice has focused for more than a decade on clients in the payments industry.
ISOs providing merchants with security services and other consultative-related offerings should have legal agreements in place that provide liability protection. "The legal solidity to supplier agreements is really the pillar on which your business rests," he said. "Without these agreements properly in place, the ISO can lose out on huge sums of money."
In-house development of payment software is becoming more and more common for acquirers. Atlas said ISOs delivering these products need to be aware that development of new payment software should be accompanied by added legal support such as licensing agreements for merchants.
Also, as ISOs begin to build custom solutions for clients, they need to keep in mind that the customer's requirements can sometimes unknowingly push the acquirer solution into governmentally regulated areas, "and that's a whole other kettle of fish" he said,
Kevin Jones, President of SignaPay Ltd., an ISO delivering high-tech, high-touch solutions and services exclusively to ISOs and value added resellers (VARs), said his company has realized "an unprecedented evolution in a turbulent marketplace."
One way SignaPay is positioning for long-term success is through its partner agreements. SignaPay, for instance, offers its sales organizations the ability to board merchants on several major processing platforms. SignaPay also has deals with three POS manufacturers to offer EMV- and near field communication-enabled terminals to customers as soon as they are available.
"Our infrastructure, platforms and middle-ware technology are totally scalable and positioned for long-term growth," Jones stated. He added that it is becoming "much more complicated and hard to survive as an ISO," and a sales organization needs to decide what role it is going to play in the ecosystem as it moves forward. He advised ISOs to focus on demonstrating payment sophistication and experience.
"Those who succeed in this next payments revolution will be those who capitalize on the existing distribution channel: ISOs and agents," he said. He feels it would be wise for upstart payment companies to use ISOs as a distribution channel because that would enable them to acquire transactions at a faster pace while eliminating distribution problems.
He also advised ISOs to develop partnerships with new payment companies that add value and can influence merchant loyalty and buying decisions. "The [new payments] companies that offer us simple solutions backed by training, marketing and excellent customer support will be the ones that succeed," Jones said.
Jones noted that SignaPay is positioned to be a "high-tech ISO and VAR boutique," and the company will continue to drive change with simple, scalable solutions that help ISOs navigate the complicated electronic payments ecosystem. "We want to supply our partners with all the templates in the marketplace and help guide them appropriately," he said.
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