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Table of Contents

Lead Story

XTP: Putting sexy into payments

News

Industry Update

PCI - the talk of NRF 2008

It's a woman's world, too

Calling all Canadian ISOs, MLSs

Uh oh, where'd Penney's data go?

Payments in podcast

Features

AgenTalkSM:
Steven Peisner

EMV and the United States

Tracy Kitten
ATMmarketplace.com

Views

Gift card muscle flex

Maxwell Sinovoi
United Bank Card Inc.

Education

Street SmartsSM:
Are you prepared for the big R?

Dee Karawadra
Impact PaySystem

Three ways to boost sales in 2008

Scott Henry
VeriFone

Residual report review

Jeff Fortney
Clearent LLC

Stop, look, listen to merchants: Ten tips

Aaron Bills
3Delta Systems Inc.

Get a grip on revolving doors

Curt Hensley
CSH Consulting

Pounce on cash advance pronto

Mike Evans
2nd Source Funding

Company Profile

ProposalPortal.com

New Products

A paper-thin RFID shield

PaperTyger Defender Contactless Card Shield
Chase Corp.

Elo touch screen at Vegas POS

Elo TouchSystems 1729L
Elo TouchSystems

Inspiration

Little lovin', big boost

Miscellaneous

POScript

ISOMetrics

Departments

Forum

Resource Guide

Datebook

Skyscraper Ad

The Green Sheet Online Edition

February 11, 2008  •  Issue 08:02:01

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Street SmartsSM

Are you prepared for the big R?

By Dee Karawadra

In a January 2008 press release, American Express Co. stated it saw signs of a weaker U.S. economy "as card member spending began to slow, and delinquencies and loan write-offs trended upward during December." And media headlines indicate we might be headed into a recession (that awful R word) or something very close.

I have always boasted that our industry is recession proof, but as we've experienced weaker economic conditions, I've wondered, is this so?

In good times, consumers use their debit cards because they have cash in the bank. On the doorstep of a weak economy, however, consumers start relying on credit cards because their bank balances are decreasing.

Ccguy on GS Online's MLS Forum stated, "While people will spend less, credit card usage should go up. ... So a recession is good, and when the economy is good our business is good. As long as plastic is being used, business is good for our business."

So, will the recession not affect us? This is the billion dollar question. What happens when consumers cannot afford to pay off their credit card balances, and their available credit is reduced? They can't spend.

And what does this portend? Marc Scheipe, Managing Partner at FrontStream Payments, spent an hour helping me understand the likely impact, and the MLS Forum provided much insight, too.

Don't assume we're immune

MLS Forum member Mike Maxon said, "I have seen the results of recession on our industry over the last 25 years or so. There is no doubt that every recession has had an impact on everyone that markets merchant accounts. ... This time around there is an added effect on all business formations because of the lack of easy capital.

"The business formation explosion over the last 10 years was fueled by home equity loans and rapid increases in home values. This easy, low-cost capital source actually pulled people from the standard work force and encouraged them to try out small businesses.

"This capital source shut down about eight months ago and the resulting drop in new business formations is the clear result."

Stay on your toes

So what are the sure signs of recession? According to Maxon, look for the following:

Other facets of the industry may also be affected. MLS Forum member Beanstream stated, "I think that another important impact of a potential recession will be the extent to which many organizations undertook debt over the past few years in order to finance growth and expansion.

"I have no doubt that the Fed will continue to lower interest rates if they continue to see weakness in the economy, but this will not provide short-term assistance to companies that face the double whammy of high debt servicing costs (due to tighter financing controls) along with reduced revenue and earnings from operations (due to a slowdown in the economy).

"There is a very real risk that some of these companies may have to undergo restructuring or a sale in order to adjust. This will lower company (not just portfolio) valuations and further impact the ability to grow a business in our industry."

And the valuation process will impact the industry as a whole.

Make savvy choices

No matter what side of the argument you are on, take proactive measures to ensure your survival in case the big R is coming. I have always preached a diversified portfolio, but targeting certain business types or SIC codes (standard industrial classification codes established by the U.S. government) is equally important.

At Impact PaySystem, we have introduced a product (health insurance verification/eligibility) that will help us to get into the medical industry.

We believe the health care sphere may not be affected as much by a slower economy. Some of the other industries that will likely prosper in a downturn include automobile service providers, pawn shops and grocery stores.

The most important factor is to be educated on what is happening around us. Don't think for a minute that if the economy continues to be lackluster, you won't be affected. Chances are we all will, and we need to be highly proactive in the coming year.

Start writing your deals in a way that will give you more security. For example:

It's time to buckle down. The big guys in our industry are doing this already. I hope discussing this subject will help us gear up for a rainy day. But let's hope we get refreshing sun showers, not torrents pouring down in heavy winds.

Dee Karawadra is the founder, Chief Executive Officer and President of Impact PaySystem, based in Memphis, Tenn. He and his team have a wealth of knowledge on the merchant services industry, with a niche in the petroleum market. Dee's experience on the street as an agent has guided him in laying a foundation for an agent program that is both straightforward and lucrative for his agents. Contact him at 877-251-0778 or dee@impactpaysystem.com.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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