By Brandes Elitch, CrossCheck Inc.
Surely everyone who reads The Green Sheet knows of the existence and importance of the Electronic Transactions Association. If not, you should. The ETA was founded in 1996 to provide a foundation and forum for people who work in the bankcard acquiring industry. Aside from regional associations (such as the Midwest Acquirers, Northeast Acquirers ,Southeastern Acquirers and Western States Acquirers ) it is the primary voice for its members.
The ETA has over 5,000 members from 30 countries. The annual conference, Transact, is typically held in April at the Mandalay Bay Resort and Casino in Las Vegas. This year, more than 4,000 attendees and 200 exhibitors attended the tradeshow. As Ed Sullivan might have said, it was a "really big show!"
The U.S. payments business will collect approximately $90 billion in fees this year, according to Bloomberg, and a large part of that is the fees merchants pay for their banking and credit card processing. Yes, most merchants typically use their local credit line bank for their concentration account and for cash management services. However, they are most likely to use a merchant processor or ISO, not the local bank, for their credit card processing.
This is not to say that banks don't want to get into this space, but most of the 4,600 commercial banks in the United States are local banks without this capability. This is probably why two of the three major bank core processors, Fiserv and FIS, have recently bought merchant processing companies. They see this as a way to integrate merchant processing with their core processing, basically providing the entire general ledger accounts system for the client bank, so now even community banks can be acquirers.
On top of this, an ongoing trend towards consolidation of merchant processors exists, as evidenced by the recent acquisition of Jetpay by NCR and Cayan by TSYS, and the recently announced merger of TSYS and Global Payments. We can expect further mergers acquisitions this year, which makes it exciting for the ETA member companies.
One reason to attend Transact each year is the profusion of educational tracks. Here are some examples:
People asked me what the hot topics were this year, and I would suggest there were two: calling on SMBs, and being a payfac. Until fairly recently, really the advent of Square and Amazon, if you were a merchant, you had to have your own merchant account. If your volume was too small to justify this, you could not just "borrow" someone else's merchant account. This was considered a serious rules violation by the card brands. It was called "factoring," and it would quickly get you on the Member Alert to Control High Risk Merchants (MATCH) list.
But Square changed all this. And the card brands changed their approach to allow payfacs to provide settlement to individual merchants without each merchant having their own merchant account. About 8 or 9 million merchants have their own tax ID number and employees, but another 10 or 20 million or more have home-based businesses, want to sell something to someone and need to accept credit cards to do so.
Payfacs provide all the benefits of a merchant account, but the money settles in the payfac's account initially. One commentator noted that the space between the ISO, value-added reseller and independent software vendor is blurring and predicted that by next year $1.5 trillion will settle via payfacs, and eventually payfacs could control half of the payment volume in the country.
One of the most interesting comments I heard is that ISOs are competing against each other in a race to the bottom regarding pricing of merchant services. One statistic mentioned at the show was that 90 percent of net revenue for an ISO comes from merchants with less than $1 million in annual volume, and for merchants with less than $5 million in annual sales, their volume is increasing at 4 percent a year.
Very large enterprises typically negotiate with the card brands directly or with a dozen of the largest acquiring banks. This leaves the SMBs as about the only segment where ISOs can make a decent margin on the services they provide. While SMBs are small-volume shops compared to larger merchants, they need help and guidance when it comes to growing their businesses, and who better than ISOs to provide that?
It will require a more consultative approach to the sales process, not just saying, "Give me a few months of your statements, and I will see if I can give you a better price." Not every salesperson will be able to do this because it means you have to really get inside of a merchant's business, understand how it works and identify areas for improvement. This is hard work, but many experienced ISOs can do it.
One of the most interesting discussions pertained to mergers and acquisitions, which might be top of mind for many attendees. We have had a seller's market since 2012, with transaction value per deal increasing and buyers taking on more risk. Private equity groups do 35 percent of the transactions; they have to buy, and then they have to sell again in the following 5 or 6 years to collect on their investment. The "overhang" (amount of cash available to invest) is said to be around $1 trillion. Private equity funds must either invest it or give it back to the investors, and debt is cheap right now, so you can see where this is going.
Now a major change is coming, because once the new V4 terminals come into use next April, the V3 ones that are currently used by retailers will no longer be supported, a process called "sunsetting." Continuing to use unsupported terminals without the latest software updates and security protocols will make merchants liable for any fraudulent transactions. This is an opportunity for ISOs. (For details on changing device requirements, visit the PCI Security Standards Council at http://pcisecuritystandards.org.)
Thanks to Amy Zirkle and her team at the ETA for another excellent show. When I look at the depth and breadth of the agenda, it is obvious it must take a whole year to put it together. For people who are immersed in the merchant processing business, it is mandatory attendance.
But the ETA is much more than its annual conference. The association has four major sections: industry affairs/education, governmental affairs, membership, and publications) and a panoply of committees staffed by member volunteers. The ETA also holds regional events, in Atlanta and San Francisco, and forums, including the Fintech Forum and Strategic Leadership Forum. Committees meet monthly by conference call. It also offers regular webinars, on topics such as securing ecommerce and mobile sales and underwriting and risk management for ISOs and merchants.
In addition, ETA University offers a route to certification as a Certified Payments Professional for members who successfully complete the course of study. At Transact 19, there a seven-session track served as an overview for new participants and included information about continuing education.
Brandes Elitch, director of partner acquisition for CrossCheck Inc., has been a cash management practitioner for several Fortune 500 companies, sold cash management services for major banks and served as a consultant to bankcard acquirers. A certified cash manager and accredited ACH professional, Brandes has a Master's in Business Administration from New York University and a Juris Doctor from Santa Clara University. He can be reached at firstname.lastname@example.org.
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