Editor's Note: This is the first of a two-part series on strategies payment professionals are using to succeed during a time of tremendous change in our industry. This article shares perspectives from ISOs on the topic; the second article will delve into what merchant level salespeople are doing to address disruption in the payments sphere.
In a time of greater upheaval than ever before, proven payments industry practices will remain crucial to ISOs despite the fact that they face a host of new technologies, bold upstart payment companies, savvier merchants, new regulations and intensified competition for merchant accounts.
This is according to interviews The Green Sheet recently conducted with ISO owners and other payment professionals who work with ISOs.
When asked about today's payments landscape, Matthew Mudd, President of Phoenix Managed Networks, emphasized the importance of relationships.
"It is an old adage in this business that it is easier to sell to existing, happy customers than to go out and find new ones," he said. "It takes work to move into specific offerings for different market segments, but if the ISO doesn't help identify solutions to merchant issues, someone else will."
Mudd said that in a disruptive market, conversations with customers can be key to an ISO's success. "Apply what you learn from the most savvy of your merchants - how they resolved a technical issue, or added a service that brought them more business or profitability - and bring similar solutions to the rest of the client base," he advised.
The abundance of disruptive technologies makes it important for ISOs to follow industry trends to understand what solutions are working; however, determining what is working for a sales organization can be tricky in this market, Mudd added.
"Set and track a specific set of performance metrics and evaluate the service based upon those metrics every month," he said. "New things take time, and busy merchants are sometimes slow to adapt. A slow uptake, with interested customers and no outright 'nos' in the sales cycle is usually an indication that you are on track."
Mudd also noted that consultants can be helpful but that "subject matter experts within the organization are key to long-term success." Once an ISO has a strategy in place, "a constant feedback loop between the ISO and early adopters will allow refinement of the product," he added.
Peter Davidson, Chief Executive Officer of payment solutions provider Brooks FI Solutions LLC and Chief Accounting Officer of Universal Business Payment Solutions, feels it is a mistake for ISOs to rush to compete with Square Inc. at the low end of the market.
"They should focus on the merchant who does 5,000 transactions a month and needs a services provider," he said. "Merchants need somebody that can provide them with a complete product. Most ISOs have a product that can compete with Square."
Davidson also said it's important for ISOs to stay close to their customers because "merchants don't know that they don't know." While it's true some merchants are willing to deal with automated customer service systems when they have questions or problems, a significant number want somebody they can talk to, and they are willing to pay for the service, he added.
He believes ISOs that see themselves as "sales machines" will fall by the wayside and that ISOs must become consultants who understand the products that can help them sell to their chosen vertical markets. The businesses that have made this transition are proving to be the most successful sales organizations, he noted.
"Sales agents can only understand so much," Davidson said. "Most need to limit themselves to their specific field of expertise. It used to be many ISOs would try to sell ATMs as well as credit card services. Now the industry is specializing, and ISOs are selling web hosting, gift cards and technology.
"Some ISOs are good at card-not-present as long it has a good platform behind it. Some work in communications. There are still a wide range of services to specialize in, and the only way to find a signature niche is to do it."
Regarding the industry's state of flux, Davidson said, "The more the industry is changing the more it stays the same. The products are changing; EMV, Durbin and interchange rules are changing. But at the end of the day, a small number of independent processors still need an ISO to resell to the merchant on the street."
Ken Paull, ROAM Data Inc. CEO, said, "The smarter ISOs we deal with recognize the whole market is shifting to mobile. ... Obviously there's been a huge shift in the general population using mobile wallets. Using a phone to pay is a lot easier than pulling out a credit card. On the acceptance side mobile makes a ton of sense.
"ISOs need to understand the mobile market is moving and expanding faster than anything in the industry has before. It is important for the ISO to develop a strategy, or it risks being left behind."
Paull believes successful ISOs will adopt mobile technology tailored to businesses in a particular channel the ISO already services, such as restaurants or doctors' offices, or as a strategy to attract new businesses and lower attrition with existing accounts.
And he, too, advised ISOs to avoid the low-end payments market exploited by new payment companies. "Sometimes businesses tend to get into a herd mentality," he said. "They see Square go after a market segment that has never been penetrated before, this low-end market, and a lot of ISOs chase them down that rat hole when it's a zero sum game.
"You can't make a business out of a low-margin, low-volume activity. The only way to make a profit is to have an extremely high volume, and we still question how profitable that is. It's a market where only a few players can compete."
Paull noted that while some low-end retailers who do not need terminals will go entirely mobile, there will always be fixed POS systems. He sees mobile connectivity to those devices as another sales opportunity. True mobility allows retailers to make sales anywhere in the store, track sales' history and enable mobile pickup and home delivery. Mobile technology's low cost makes the return on investment attractive, he added.
Paull also pointed out that to continue to profit in a disruptive market, an ISO must constantly evaluate what it is doing. And while it makes sense to avoid merchants at the bottom tier, some ISOs "waste time trying to make it up market farther than they need to go when their strength may be with smaller businesses."
It is also important to remember that the fundamentals of this business tend to stay the same, he noted. "Talking to customers and prospects - that's where the best insight comes from," he said. "People still buy from people.
"At the end of the day, merchants are willing to pay a premium for value added. Merchants know they can afford to pay a processor to bring someone in as a trusted adviser for payments. There are just too many things for a retailer to keep up on. It's still old-style, person-to-person selling total solutions."
Paull believes an ISO should determine what it has to offer to existing customers, as well as develop an approach to new prospects. However, he discourages ISOs from cobbling together a mobile solution from different vendors with different parts to the solution.
"In 90 to 95 percent of cases, it makes no sense to put your own program together," he stated. "I've seen few positive long-term outcomes when ISOs put their own mobile program together. Most of the time the ISO can build a system that works, but that's about all you can say. It's not an elegant solution; it's not a comprehensive solution."
On an encouraging note for U.S. ISOs, Paull stated that ISOs in the United States have a "higher sense of urgency" than ISOs in other parts of the world, and this makes them more nimble.
Simon Gamble, a founder of New Zealand's Mako Networks Ltd., a network management and security company, stated that it is more difficult to specialize in specific vertical markets in the United States than it is in other countries because the technology employed by U.S. payment networks is varied. Many U.S. merchants use Internet Protocol (IP) for payment like most of the rest of the world, but others are still on dial-up systems.
"The [technological payment] differences in the verticals in the U.S. are quite large," he said. "Because it is a much older system in the U.S., retailers here have gone through fits and starts on technology that the rest of the world didn't."
Since much of the rest of the world didn't operate on a credit system similar to the one that emerged in the United States, much of the developed world was able to move directly to the IP standard for payments, while the United States was stuck with different protocols for its merchants, Gamble said.
Learning to understand what merchants have and what they need for payments "is not something you pick up and read in a magazine at the doctor's office," he added. "ISOs need a clear understanding of the sales cycle of the verticals they are working in. Everything is merging to IP nowadays. "ISOs focused on payments are forced into understanding far more of their customers' networks or operations than they previously needed to. The more understanding ISOs have, the more the sales cycle is extended, as the ISO does more consultation and more evaluation."
"The fundamentals of the business haven't changed," Gamble said. "Smart ISOs from five years ago should still be smart ISOs today. It comes down to common sense. ISOs need to expand their knowledge base beyond payments to all the details.
"Many of the new solution providers don't offer full service. Merchants can be left feeling abandoned, and they end up going to the ISO to address the whole problem. Any ISO that says all they do is sell and service POS systems is shortsighted and missing out on huge revenue opportunities."
Gamble advised that ISOs attend tradeshows as a way to research and manage business development. Selling Payment Card Industry Data Security Standard-certified products and Europay/MasterCard/Visa (EMV) technology will also present opportunities for ISOs in 2013.
Brandes Elitch, Director of Partner Acquisition at CrossCheck Inc. and a frequent contributor to The Green Sheet, pointed out there is a big opportunity for ISOs this year in old-fashioned POS terminal sales.
"MasterCard and Visa have mandated that merchants must use terminals that accept chip and EMV cards," he said. "There are 11 million terminals out there that need to be replaced.
"Industry observers say that there are only enough feet on the street to replace about 2 million a year. However, starting in 2015, the liability for chargebacks will shift to the merchant if they are not using a compliant terminal.
"So, this could open up a whole new vista for ISOs, and the smart ones will make an effort to establish a relationship with the merchant rather than just swapping out a terminal."
Thus, it appears that ISOs that can develop long-lasting, mutually beneficial relationships with their partners and merchant customers will be well on the way toward meeting their goals, no matter how much disruption they meet along the way.
In the series, "New times, new strategies," published in The Green Sheet, July 23, Aug. 13 and Aug. 27, 2012, in issues 12:07:02, 12:08:01 and 12:08:02, members of our advisory board shared strategies payment companies were employing in the 2012 business climate. Following are several excerpts that still apply in today's increasingly disruptive market.
"I believe the payment business is shifting from being a 'financial service' to a technology business; the old way of selling on rate, reviewing and analyzing statements, etc., is getting harder and harder to be successful at; today merchants are looking for integrated solutions where payments are part of a total business system, specifically POS systems for retail and restaurant merchants."
- Joe Creegan, Credomatic USA
"Merchants are in a general state of confusion regarding the many new payment options, whether they be legacy payment solutions or new proprietary payment systems.
"One of our strategies is to bring clarity to our clients in evaluating their payment options as to the cost, the return on investment and how it may or may not increase their revenue."
- Joseph N. Bizzarro, PE Systems LLC
"Payment businesses have to re-evaluate where they have a proprietary advantage in their respective market. With both new companies disrupting the traditional merchant model at point-of-sale and online, as well as the awareness around pricing due to the Durbin Amendment, payment companies need to focus on what they offer that is sustainable beyond just the 'technology du jour.'"
- Matt Golis, YapStone Inc.
"Payment companies are employing new strategies at a furious pace compared to just a few years ago. ... Companies are developing their own POS systems/applications so they can control the entire spectrum of the payment process and reduce merchant attrition, as these systems are generally proprietary ... making it very difficult for merchants to switch providers."
- Justin Milmeister, Elite Merchant Solutions
"An area that I believe is beneficial to merchants is 'data' - offering analytics and analysis of neighboring merchants; data is king, and too many merchants run their businesses by 'a feeling' versus having the hard-core data to properly analyze their metric.
"While the industry is quite competitive, smart ISOs and agents can still offer both tangible and intangible services to differentiate their business."
- Jeffrey Shavitz, Charge Card Systems Inc.
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