By Ken Musante
Eureka Payments LLC
The world is changing. Chip cards have made it to our shores. Consolidation is happening in the payments industry. Hoverboards were the hottest Christmas gifts. This was the backdrop for my Dec. 28, 2015, article, "Will new payment schemes bump card brands aside" (www.greensheet.com/emagazine.php?issue_number=151202&story_id=4711) in which I presented two recent and revolutionary developments.
The first was the acquisition of clearXchange by Early Warning Services LLC, which created a bank-owned, real-time payments network. Second, JPMorgan Chase & Co. partnered with Merchant Customer Exchange (MCX) to enable Chase Pay in CurrentC wallets and allow Chase Pay to be accepted at CurrentC merchants. Both of these were significant; they were even more remarkable because both had zero participation from Visa Inc. and MasterCard Worldwide.
In the article, I concluded that although Visa and MasterCard will eventually be disintermediated, the time is not nigh. What remains disconcerting, though, is when the eventual disintermediation does arrive, will there be time to adapt, or will we be Uberized?
Uber so rapidly disrupted the taxi industry that not only were cab drivers harmed, but banks that lent to medallion owners ran into financial troubles because of the rapid deteriorating value of the medallions. According to a May 26, 2015, TheStreet article by James Hickman, the value of a New York City taxi medallion dropped by $400,000 from April 2014 to March 2015 (from $1.3 million to $0.9 million) and total annual net pretax owner income per hour dropped by 24 percent from June 2013 to March 2015.
By contrast, the move away from checks has been glacially slow. Since I began my career in 1989, the promise of a checkless society has been as satisfying as the migration to the metric system. Industry players were nudged to new products and services; others have done just fine digging in.
It is with this backdrop that I pondered goings on at the Western States Acquirers Association's annual meeting. The event was very well attended and finely hosted. When I compared it to tradeshows of yesteryear, I made the following observations:
Certain aspects of our industry have remained largely unchanged. Innovation at the POS continues, but much like today's hoverboards (which are like a Segways without handles), improvements in POS devices are linear and incremental. First Data Corp. is again publicly traded, and the Omaha platform is off the endangered species list. ISOs are numerous, resourceful and innovative. They continue to make substantial and recurring revenue. But for how long will this remain true?
While I do not know the answer, I have an idea of what the indicators might be. The first is tedious to measure: attrition. In Darwin-speak, the survival of the species is dependent upon the accumulation of merchants by ISOs. It need not matter whether they remain with each of us individually. It matters if we are collectively losing them or their volume to Square Inc., PayPal Inc. or automated clearing house processing. We need to look at individual closures and determine if there is a better alternative in the minds of those merchants. Even a small number of merchants do matter. We also need to examine whether merchants we retain are offering additional solutions that are outside of our offerings.
The second is the number and intensity of folks trying to buy us. I don't fear consolidation. My company can be consolidated just as well as the next, so long as the valuations do not decrease. While I have no desire to sell, I am reassured by the fact that I’m getting continual inquiries and that The Strawhecker Group and First Annapolis Consulting continue to report healthy sales valuations.
There may be more scientific metrics that can be studied such as what new merchants are choosing, but I cannot easily measure that. I can, however, understand our attrition and stay tuned to the industry and leaders like Joe Kaplan, Chief Executive Officer of Total Merchant Services. He always makes the right move at the right time.
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