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The Green Sheet Online Edition

June 09, 2008 • Issue 08:06:01

Bets are on in evolving payments space

By Ken Musante
Humboldt Merchant Services

I recently attended the 2008 Electronic Transactions Association's Annual Meeting & Expo. Having attended the Southeast Acquirers Association's annual meeting just weeks before, it was interesting to note the difference in the size of the ETA event relative to the regional meetings.

One thing is clear: Our industry is growing exponentially. More importantly, however, because of the sheer number of vendors and merchant level salespeople seeking business relationships, processors and acquirers must make decisions about their products and services, vendors and partners, core competencies and markets.

Said differently, we need to decide who we will not engage with, contract with, market to and serve. Failing to do so will result in poor services in all offerings or exorbitant development expenditure.

I have been working in the payment services industry for nearly 20 years, and yet I found it intimidating to walk the ETA's exhibit hall floor.

When booth numbers have four digits, and the same three letters are an abbreviation for a multitude of companies, I get confused. The number of exhibitors and the breadth of the services they are offering is mind numbing.

I endeavored to visit the booths of companies whose names were new to me. My goal was to evaluate innovative offerings or services that will be beneficial for Humboldt Merchant Services and our business partners.

I am sure many of these exhibitors thought I was a first-year payments professional as my brain clicked away, and I asked repeated and idiotic questions in an effort to understand what they do. My point in sharing this is there are so many more vendors and offerings today then there were even a few years ago.

I noted the following offerings at ETA were from companies that were not a part of our industry a few years ago.

  • Virtual authentication services
  • Contactless devices
  • Payment Card Industry Data Security Standard consultation and auditing
  • Software that allows merchants to integrate their payment processing with their accounting software
  • Multicurrency processing and dynamic currency conversion services
  • Outsourcing services that contract with overseas personnel for software development, collections or telemarketing
  • Employment recruiting services
  • Identity protection and notification services
  • Telecommunication services
  • Web site building companies
  • Mobile payments services
  • Decoupled debit
  • Health care payments

Newer or expanded offerings from existing players included:

  • Enhanced multi-application, high-speed, dual-communication terminals
  • Integrated POS systems
  • Prepaid cards
  • Pay-at-the-table terminals
  • Check conversion services
  • Automated clearing house services
  • Residual buyout or residual loan services
  • Merchant cash advances
  • Online and print industry publications
  • Multiservice and self-service kiosks

Adapting to change

The growth and prosperity of our industry has also attracted Wall Street. Several investment banking companies worked the room and polled participants to validate their assumptions and develop reports or opinions.

By far the most explosive growth has come in the merchant cash advance industry. Though this service has a long history in our industry, the growth in such providers is impressive. Two other observations I had were the relative (in)visibility of Visa Inc. and MasterCard Worldwide, as well as the large number of consultants.

Visa and MasterCard would formerly bring booths that were twice the size of my garage and more expensive than the vehicles in it. Some of the booths were two stories, and I could arrive with no more than the clothes on my back, as one of the card brands would provide me with logo-imprinted attire and travel bag.

Neither card brand had that type of visibility this year. To be fair, both were significant sponsors (Visa sponsored the tote bags and MasterCard sponsored Wednesday's lunch) but nowhere near the level of prior years.

Discover Financial Services, on the other hand, was extremely visible and sponsored the ETA's signature theme party - along with a full page advertisement in the onsite program.

Consultants were everywhere - consultants to assist in buying portfolios, selling portfolios, securing your data, selling your services, legal services, reducing interchange, reducing staff and obtaining cash.

At one point I saw five individuals from five different consulting companies locked in a discussion. If they had all been on the clock, that conversation could have well been more expensive than a Barry Zito win. (Zito is a starting pitcher for the San Francisco Giants.)

I bring all this up to admit my confusion resulting from increased complexity within our industry and the continual evolution as evidenced by the exhibitors at the ETA.

Industry professionals and acquirers need to adapt. Moreover, the number of consultants tells me there are a lot of others like me - equally confused and needing the services of a professional industry consultant.

Assessing the odds

That said, here's my conclusion: We need to be placing appropriately sized bets on new offerings and technology such that if we are wrong, the bet does not impede our progress, but if we are correct, we more than make up for our incorrect bets.

Some folks will cringe at my use of the term "bet" and will insist they are investing in their businesses. I know better. Anything less than a sure thing is a bet. As payments professionals, we need to continually scan the environment and make the bets with the best odds. That does not always mean the safest bet; it means the bet with the greatest potential that is within our financial wherewithal.

It also means evaluating our own strengths. There are so many new offerings. Neither HMS nor any other acquirer can possibly expect to integrate every new service. Instead, we need to evaluate which new services have the best chance of succeeding within our own environments and build on our respective strengths and minimize our weaknesses.

All acquirers must continue rolling out and supporting projects and services that we believe will give us the best opportunity for winning merchants in the short term and keeping them for the long term. No one will succeed with all bets. But we all have to continue placing them or we will lose our place at the table. end of article

Ken Musante is President of Humboldt Merchant Services. Contact him by e-mail at kmusante@hbms.com or by phone at 707-269-3200.

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