By Ken Musante
Napa Payments and Consulting
Editor's Note: This is the third and final article in Ken Musante's retrospective series. Parts 1 and 2 are available at www.greensheet.com/emagazine.php?article_id=7365 and www.greensheet.com/emagazine.php?article_id=7402 , respectively.
In 2008, First National Bank of Arizona/Nevada was heavily invested in the mortgage market and was among the first banks to fail. Its subsidiary Humboldt Merchant Services became an asset of the FDIC and was sold to Moneris Solutions, U.S. as a distressed asset.
I was blessed to lead a company from cradle to grave, but it was a dishonorable death. I assisted with Moneris' integration of Humboldt and driving sales. I reported to Greg Cohen, and while I was treated well, the situation was difficult. We sold the Humboldt Merchant Services name and high-risk portfolio to Marc Gardner. It was a great fit. I’m pleased the Humboldt name lives on.
After 18 months, during the depths of the great recession, I left to start a direct-to-merchant ISO, Eureka Payments. My partners, Steve Kimberling and Scott Bartlett, and I built a niche portfolio. About the same time, the Durbin Amendment passed, rolling back debit rates for regulated debit transactions and effectively disabling the efficacy of the three-tier pricing model.
The liability shift for non-EMV transactions went into effect as well. Magnetic stripe terminals, which had lasted for decades, were replaced by EMV devices that failed monthly and cost three times as much.
As an executive of a small ISO, I picked up a new skill: expert witness testimony. This began because a former client reached out, believing my knowledge of the card brand rules and industry norms qualified me. I reluctantly accepted an assignment. Doing so opened an entirely new line of work. (For more details, visit napapaymentsandconsulting.com/blog/f/expert-testimony.)
The most renowned case was when I was the star witness for the U.S. Department of Justice in the criminal case against Jeremy Johnson and fellow iWorks executives. It was sobering to testify in a case where a man’s liberty was at stake. I saw firsthand the methodical and overwhelming evidence the U.S. attorneys brought to bear. The statement, Don’t make a federal case out of it, remains etched in my mind.
During this period, developers and payments executives learned that maintaining PCI compliance was expensive and unnecessary. Divergent evolution produced the superior semi-integrated solution. PC based solutions became a liability and gave way to cloud based solutions, card accepting apps and smart terminals.
The pace of innovation quickened. Terminals became an afterthought and way to accept cards in a PCI-compliant fashion and with EMV capabilities. Wallet apps became a thing. One of the first wallet apps was launched in 2012 by a joint venture between Verizon, AT&T and T-Mobile. Unfortunately, they named their wallet app the same as a yet to be identified Middle Eastern terrorist group — ISIS. The name was most unfortunate.
Further, another failed large merchant payment consortium added credence to Mastercard and Visa’s contention that escalation of U.S. payment card interchange rates and fees was justified because merchants on their own could never build as efficient a payment card acceptance network.
Eureka Payments had a large merchant that grew exponentially. The merchant was referred to me by an ISO because the account was in danger of being closed for factoring. I worked with the merchant and the processor to register the business as a payfac and fit within the newly developed payfac rules.
The merchant was subsequently purchased by a national media company and grew virally through its free app and additional utilities for youth sports teams and their fans, players and payers. The age of the payfac, as a legitimate vehicle for processing, had come.
To be close to my children, I accepted a position with WePay, a large payfac, now owned by JPMorgan Chase. I was a product manager assisting developers with integrating card-present functionalities into WePay’s card-not-present environment. It was great first-hand experience managing the scrum cycle and understanding sustainable engineering alongside marketing wants and roadmap realities. At times, the "viable" within "minimum viable product" became elusive, and reality clashed with deadlines, but I sat shotgun in the ride to card-present device certification and integrations. I met some wonderful people, but two and a half years at a large bank is an eternity.
Regardless of my tenure at WePay, financial firms and tech companies strived to intersect a consumer’s wants and needs. Fintechs aspire to arm a technology company with the requisite financial trust to disrupt federally insured banks and investment houses, or to provide traditional financial institutions with the requisite technology and agility to outmaneuver a Silicon Valley startup. In both cases, the technology is built to communicate through application programming interfaces (APIs).
APIs are easier to integrate with other applications, allowing engineers to rapidly scale services. Instead of a monolithic program, microservices may be developed so code may be incrementally added and refactored to accommodate dynamic business needs.
APIs were the pathway that allowed for independent software vendors (ISVs) to be recognized as a part of a payments strategy. ISVs would build out a business operating solution around a specific vertical and monetize their offerings through payment processing in a semi-integrated solution. The asset value of these new payment channels was many times the multiple of traditional payment channels.
The pandemic pulled forth omnicommerce faster than video killed the radio star. It is no longer a two channel system of face-to-face and ecommerce. Omnicommerce expands the channels and experiences to offer on-demand, delivery, curbside pick-up, in-person and mobile options. Social media and voice-activated devices continue to add dimensions. Businesses must adapt and combine online and offline interactions with a payment system that supports the interactions, inventory and transactions demanded by omnicommerce.
Payments must remain fast, seamless and efficient yet evolve to account for the multitude of entry points. Google, Apple and PayPal continue to vie for consumers credentials. The Holy Grail is the super app that obviates the need for interchange and directly connects consumers and merchants. This will occur. I know this as certainly as I know I will one day perish. But it may be easier to predict the date of my death than the day the super app overtakes the card networks. Godspeed. 
As founder of Humboldt Merchant Services, co-founder of Eureka Payments, and a former executive for such payments innovators as WePay, a division of JPMorgan Chase, Ken Musante has experience in all aspects of successful ISO building. He currently provides consulting services and expert witness testimony as founder of Napa Payments and Consulting, The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.
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