The Green Sheet Online Edition
April 23, 2007 • Issue 07:04:02
Paying the payments dues
Every industry has barriers to entry. In banking, for example, a new financial institution's board of directors and charter must be approved by governmental agencies. There are also ongoing compliance requirements, including the level of capital necessary to remain in business.
Consequently, even a company as powerful as Wal-Mart Stores Inc. can be effectively shut out of the banking industry. (It recently backed out of an attempt to enter U.S. banking.)
Another substantial entry bar is certification or accreditation. No one can simply decide to become a doctor and set up a medical office on the spot. The profession requires advanced and specialized education along with certification.
Other businesses have far fewer initial hoops to navigate. For example, multilevel marketing companies that sell such wares as jewelry, food containers, make-up and nutritional supplements have among the lowest barriers to entry.
There is little or no capital investment. No college degrees or long-term advance planning are required (although the jobs themselves entail substantial planning). One can literally become a distributor within a couple of hours.
Escalating entry requirements
Until recently, it was much the same for people entering the payments industry. Over the past several years, however, the barriers to entry in the merchant processing space have grown rapidly and become more numerous.
We have always had regulatory hurdles. And Visa U.S.A. and MasterCard Worldwide sponsorship will continue to be an obstacle for many.
Sales professionals need to understand and comply with card Association rules and adapt to them as they are updated. More recently, this reality has been reinforced and expanded.
The danger caused by card breaches has led to enhanced scrutiny. There is now a greater chance that merchants, ISOs, agents and processors that are not compliant with all card Association rules and regulations will be fined.
Additionally, banks are performing ever more diligence and requiring greater revenue for sponsorship. Certainly, regulatory muscle has been widened and strengthened.Also, the capital needed to enter our industry has been transformed from a Louisiana levy to the Hoover Dam. In the past, merchant level salespeople (MLSs) could start out with no money.
Today, leases (and the working cash they provide) are far less prevalent. New sales professionals must have a capital reserve sufficient to carry them financially until their residuals accrue to a level where they provide a livable income.
The third barrier is knowledge. This hurdle has expanded faster than the first two. Just a few years ago a sales professional needed only to understand dial-up terminals and a couple of interchange tiers.
Today sales professionals must be advanced technicians. They must:
- Know and understand integrated POS terminals and software
- Understand and be capable of navigating the various telecommunications options
- Install and support cellular, Wi-Fi, lease line, high- speed Internet and radio frequency communications.
Moreover, each communications method has an ever expanding array of hardware and software to master.Interchange has always been complex. Today it could baffle two-thirds of Mensa International's members.
Unique interchange programs have been installed for our largest retailers, small-ticket retailers, municipalities, utilities, Internet merchants, supermarkets, warehouse merchants, cash advance merchants, petroleum resellers, and travel and entertainment merchants.
This is in addition to the myriad rates based on card types: Unique programs exist for debit, rewards/premium, corporate, business and prepaid cards. These are in addition to all the other expanding payment forms.
Challenge = opportunity
These stiffer regulatory, capital and knowledge requirements mean becoming an MLS today is more challenging than when most of us started in the payments industry. Recognize, too, that profit margins are thinner, and competition is tougher.
But before you get depressed, remember that nearly every problem is also an opportunity. Much of what I've discussed in this article may actually be good news. Stay tuned; I will explain why _ in my next article.
Ken Musante is President of Humboldt Merchant Services. Contact him by e-mail at email@example.com or by phone at 707-269-3200.
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