Historians credit Charles Darwin with positing that a species' survival depends not on strength or intelligence, but on the ability to respond and adapt to changes in its environment. For ISOs and merchant level salespeople (MLSs), adapting to the ever-changing economic, regulatory and technological landscape is critical to maintaining portfolio and revenue stream growth.
"You have to remember that this year and in 2008 new historical precedents are being set because this country has never seen economic conditions like this in the electronic payment age," said Paul Martaus, President of payment consultancy Martaus & Associates. "But the good news is that I see ISOs and MLSs across the spectrum saying things may be down and, yes, stuff happens, but the people I talk to don't complain. This is a vibrant industry. I've counted out the payments business five times in my career - and five times it has bounced back."
Many industry professionals also believe adapting to market and consumer spending trends and transforming business models to take advantage of them is the only way payment professionals can reach their full potential.
Ed Medeiros, Chief Executive Officer of payment solutions firm East Commerce Solutions Inc., believes the best first step financial services organizations can take to deal with changes in the market is to evaluate sales, marketing, administration, underwriting, risk management and information technology (IT) strategies to determine if those divisions are operating in a manner conducive to optimal success.
"You always have to take stock of where your organization is going and, if necessary, reinvent yourself or return to that personal formula that worked for you in the past," Medeiros said. "And obviously, you have to enjoy what you're doing, but it's important to remember that ISOs must continue to work with their MLSs to examine their sales techniques and their IT expertise to help them form a growth plan.
"Self-analysis and self-examination enable management to ask if they are giving their sales teams, IT experts and all other staff members the appropriate tools they need to adapt to and compete in the marketplace and, more importantly, if they are personally invested in their people.
"But in the end it really comes down to the individual and what he or she is willing to do, willing to learn and willing to achieve."
Summertime is traditionally a season for healthy consumer spending, though many professionals agree that summer sales volumes have been adversely impacted in the Great Recession of 2009.
The U.S. Economic Indicators Q3 2009 Report, published in August 2009 by The Electronic Transactions Association and research firm The Strawhecker Group, stated that consumer spending for the second quarter of 2009 was 2.02 percent below 2008 second quarter totals.
The report also indicated overall retail and food service sales were 7.96 percent lower in July 2009 than in July 2008. Same-store sales dropped 5.1 percent during that period.
So as consumer spending habits move from a sluggish summer into what is projected to be an even slower fall and winter season, it's important for payment organizations to not only help MLSs stay on top of the latest trends and innovations, but also offer them educational and incentive programs.
"As MLSs come off summer vacation, we try to get everyone jump-started as we move toward Labor Day and beyond," said Jim Fink, Director of ISO Sales for New York-based payment processor EVO Merchant Services Inc. "At EVO, we'll run specific, short-term sales contests and incentives to keep motivation up after what has been an unusually slow summer.
"We're also focusing on more recession-resistant verticals like government, health care, education and utilities companies. And it's important that ISOs not get hung up or bogged down by all the negative economic news."
Medeiros said that to stay ahead of the economic curve, ECS holds a conference every year at the end of summer to introduce new products and services to its MLSs, help them refine their skills with additional training and goal setting, and provide them an opportunity to share ideas, impressions, concerns and needs companywide.
"I think that ISOs' neglecting to invest in their MLSs could come back to bite them in the behind if the agents don't have the proper technical information and the latest sales techniques when they are out on the street," Medeiros said. "They want the business but many often don't plan properly or have a marketing plan in place to help the agents optimize closing strategies.
"I personally still go out on the street and take people out and sell. It helps me to keep my finger on the pulse of the market and makes me more empathetic to my agents and enables me to offer better feedback."
Terence Van Horn, CEO of The Van Horn Group, said regardless of the verticals ISOs target, success depends on using all sales, marketing and IT tools at a company's disposal.
"We forget what we have available," Van Horn said. "Many ISOs have an assortment of tools to help bring in more merchant business but aren't using them to the fullest extent. And without the right information, we can't show our merchants how to protect their bottom line."
Van Horn feels that payment professionals by and large tend to stick to areas they are most comfortable with, but by doing so they overlook the greatest potentials for portfolio expansion and higher revenue streams.
"Merchants who want to further reduce fees incurred by the card brands are now considering ATMs for the first time," Van Horn said. "I also think that ISOs should be looking for opportunities in the e-commerce space, yes, but prepaid has tremendous potential as well.
"Additionally, a lot of agents and ISOs haven't even considered going to banks and trying to offer services there. And I think a lot of these issues are simply due to a lack of training.
"I just don't think ISOs understand the power of the tools they have at their disposal. And it's hard for a merchant to say no to any new system, product or application that's going to save them money."
Opportunities exist in new market verticals. Many experts agree that it really comes down to due diligence and focusing on what occurs in various markets as seasons change. ISOs and MLSs might also think about sectors that are adjacent to their traditional reseller channels.
"Yes, right now we happen to have an economy that sucks," Martaus said. "Having said that, what we have to do to fix it is go out and find new businesses. New merchant formation is dead right now - there are no new businesses being formed, so now where do we go? We have to go to those sectors that are adjacent to what we traditionally do.
"If someone specializes in auto parts, maybe they start going to dealerships or perhaps head downstream to junkyards. An ISO with a large shoe business portfolio may go into sporting goods. These guys have to adapt, to look at new segments they would be comfortable with, then look at less comfortable verticals - until finally they're branching out into areas they never even thought of approaching before."
One sector that has remained strong throughout the recession is Internet retail sales. According to the U.S. Census Bureau, e-commerce sales totals declined slightly from $33.5 million to $31.7 million between the first quarters of 2008 and 2009; however, during the same period, e-commerce transaction volume grew to 3.5 percent of total retail sales, a 0.2 percent rise.
Payments industry marketing consultant Daniel Wadleigh believes significant investment will be made in providing security services to help merchants meet the Payment Card Industry (PCI) Data Security Standard (DSS).
"There are two attitudes that propel people to act," Wadleigh said. "One is the desire to improve the status quo and the other - which I feel is in place now - is that merchants and consumers want to protect the status quo.
"People will still spend money on things they need, but it will be done cautiously. Consequently, it's up to ISOs and MLSs to continue to offer services that protect the cardholders' personal information."
In addition to security and compliance solutions, many payment professionals see the medical claims field as the big "hot button" item. Also, the transition from summer to fall makes child-related goods and services attractive. Back-to-school supplies, shoes, clothes, cell phones, iPhones and BlackBerry's are expected to sell well this year.
Other verticals with significant revenue potential are gift cards and check conversion products. "ISOs should market gift cards to merchants by the end of October so that they'll have them in November for the start of the holiday season," Medeiros said. "With demand for check imaging and conversion processing on the rise, check readers can be an option for ISOs who had not previously considered them," he added. "And by aligning with a POS company, those ISOs can bring in higher volume merchants and generate new equipment sales."
The U.S. Economic Indicators study found that overall unemployment dropped from 9.5 percent in June 2009 to 9.4 in July. However, the number of long-term unemployed (those jobless for 27 weeks or more) went from 4.4 million to 4.9 million in the same period.
But increased unemployment levels in the United States due to layoffs and early retirements might actually be a boon for the payments industry - if it is willing to embrace the fallout of a squeezed economy that has put many promising MLS candidates out of work.
Martaus said ISOs and other payments industry organizations should pay attention to newly unemployed sales professionals coming from a wide spectrum of verticals as companies adjust to the economy. He believes this influx of talent will be a significant driver of change in the industry.
"We are seeing the advent of a whole new bevy of MLSs and independent contractor salespeople coming into payments who have industry-specific knowledge of the businesses they just got canned from," Martaus said. "Now you've got someone who may have been the head of research for a company, knows everything about that vertical, knows all the right contacts - and is highly motivated to sell credit card processing because he's out of money."
Linda Mahy, President and CEO of payment convergence specialist ConnectiveIQ, agrees that this is a shift the payments industry will have to embrace as both a natural evolution of business and a new avenue for growth. "My husband sold his traditional ISO five years ago and now has a health care ISO," Mahy said. "I clearly think this was the right strategy. It was also smart to do a knowledge-based ISO, hire people from the health care space and then teach them payments."
As credit card companies and banks struggle with an increase in defaults, they are lowering credit limits and increasing penalties.
As a result, Fair Isaac Corp. (FICO) scores are dropping, which directly affects even the most robust retailers. "FICO scores across the board have dropped, but the payments industry is still using 1990s underwriting guidelines that need to be updated," Medeiros said. "Of course FICO scores are important, but so is the applicant's character.
"You need to look at how long the merchant has been in business, whether they own or lease their property, how they have weathered economic ups and downs and what their cash flow and assets are like.
"Only then can you make a proper assessment of a potential client's profit margins."
Many payment experts believe two additional drivers are causing a shift in industry business models. One is merchants going out of business, especially the smaller and mid-sized mom-and-pops. The second is a decrease in state-by-state same-stores sales.
"We track how much volume a retailer does period to period over previous years, and from last year to this, same-store sales in all sectors are down," Martaus said. "You also have to understand there is additional impact because most ISOs and MLSs have a revenue sharing agreement with the portfolio provider.
"The run-and-gun sales agents - what we used to call trunk slammers - who had no stake in any kind of residual payment are a dying breed. And since you are sharing in the revenue stream you have to figure out creative and innovative ways to sell if you're going to continue living your existing lifestyle."
Martaus has said many times that payment professionals are some of the most entrepreneurial and motivated people in business today. And for ours to remain a viable and profitable industry, ISOs, MLSs and all payment organizations must continue to tap into that esprit de corps while traversing the unpredictable payment terrain ahead.
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