The Green Sheet Online Edition

April 14, 2014 • Issue 14:04:01

2014: A promising year in payments - Part 1

So far, 2014 has been a year of transformation for The Green Sheet. And it looks like the year will be a good one for our industry. The payments landscape, although ever-changing, seems to have entered a cycle of increased activity and innovation. While not every change will lead to significant opportunities, the possibilities of new technologies lend to an atmosphere of excitement and anticipation. � We wanted to learn what members of The Green Sheet Advisory Board find compelling right now � both the hurdles to overcome and the best opportunities. So we asked them the following questions:

1. What are you seeing thus far for the industry in 2014? What excites you? What do you find to be challenging?
2. How can our readers utilize what you see as exciting? What should they be doing to prepare for the challenges?
3. What topics would you like to see The Green Sheet cover in the coming year?

Following is a portion of their responses. Further answers to these questions will be published in an upcoming edition of The Green Sheet.

Cliff Teston, Signature Card Services

1. So far, 2014 appears to be a value-focused year. Most ISOs have figured out that undercutting on price is not an effective long-term strategy and leads to a race to the bottom under which everyone is worse off.� Instead, ISOs have shifted their competitive focus from pricing to value, whether it be through POS systems, rewards programs, or other agent or merchant solutions.

   This process is exciting because it comes at a time when technological improvements and innovations are making great strides, and many ISOs are able to come up with unique value-added products and solutions for both merchants and agents.�

   The challenging part is going to be on the back-end � there will be a shakeout, as only a few solutions will survive over the long term, and converting merchants away from their current systems and to these new or surviving systems promises several hurdles, particularly for proprietary systems.

   Europay/MasterCard/Visa (EMV) has been the most talked about subject in the industry this year thus far. It will continue to dominate the industry�s landscape, as we are getting closer to October of 2015. Despite a lot of negative rap, we think very positively of what EMV migration is bringing to ISOs. Particularly, we are excited about the opportunities in the card-not-present sector as fraud migrates there after the adoption. New technologies we see coming will not only beef up the security of Internet and MO/TO merchants and decrease ISO losses, but it will also become a great opportunity for monetization.

   Competition is as fierce as ever. It�s a constant challenge to be able to differentiate yourself from others to stay relevant. We see the solution in knowing exactly who we cater to and being able to tailor solutions to meet the market needs and wants. Learning to do so with the help of new technologies is very exciting for us.

   What we have found challenging is the "disruptive" processing forces in the industry � Square, Stripe, etc. � that add little to no value from a support standpoint but have a "lowest cost of goods." We do see a light at the end of the tunnel, however, because as more merchants go through these companies' user experience, we expect the market to swing back to traditional merchant accounts. Service will always be valuable, and once merchants experience lower service levels that impact their businesses the inherent value will once again be realized.

2. If they haven�t done so, ISOs should consider coming up with value-added products, but be careful through the process. There are a lot of solutions pitched as value-added but, in reality and for all practical purposes, don't help merchants. While these plus factors may offer sales points, they won't be nearly as effective in closing the deal. Agents should talk with their ISOs to see what value-added products are available to help them close sales.

   Big data will play an instrumental role in constructing successful offerings. We believe that armed with the information, ISOs can make precise market micro-segmentation, down to merchant type, volume, location, etc., to deliver the most relevant value-adds.

3. A few topics that might be good over the coming year: emerging technologies; merger and acquisition case studies; a regulatory watch as there are proposed regulations which will likely impact the merchant acquiring space; a closer look at back-end processors/vendors (First Data, TSYS, Paymentech) with perhaps a line-by-line comparison with pricing, service level and benefits information; best practices guides for underwriting, risk, compliance, and other internal ISO functions; a feature on acquiring banks including their risk tolerance and their varying types of agreements with ISOs; an ISO-startup piece for large agent offices; maybe an ISO-of-the-Month feature to highlight differences between ISOs, and agent office best practices/tips.

   Also, it would be great to see some real estate dedicated to the new generation movers and shakers. Everybody knows payments CEOs, and it would be great to learn about our rising stars.

   Another interesting topic and or a standing column would be economic factors that impact the acquiring space so that ISOs can look for trends and/or emerging markets in today's marketplace. Providing some sort of data as well as analysis to show ISOs where they can go to be out in front of the market as opposed to chasing it would be exceptionally valuable, and obviously this information would also flow down to the agent level.

Steve Sotis, eProcessing Network LLC

1. Although EMV, bitcoin and security breaches are hot topics within the payments industry, eProcessing Network (ePN) is focused on delivering quality value-added payment solutions to resellers, giving them the tools to help their merchants accept credit cards anywhere they serve their customers. What ePN finds exciting are the emerging tablet POS market and other cloud-based POS systems.

   These technologies are creating a positive market disruption to the incumbent legacy POS system providers. The constant challenge�is keeping our resellers up-to-date on what's important to the small to mid-sized merchant and the variety of payment solutions and integrated back-office services that ePN offers that help the merchant be more efficient and productive at a lower cost.

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2. ePN is committed to providing the most up-to-date payment and business solutions to help the merchant process transactions and manage valuable data via more compatible devices and in less time. �For example, ePN is focusing on providing mobile SMS texting services to help merchants communicate more effectively with their customers and generate brand awareness, helping them work to increase sales and improve customer loyalty. Resellers may wish to consider creating more of a partnership with their merchants, thereby assuring the merchants and the resellers are generating new and efficient business strategies that are taking advantage of the emerging technologies to improve growth strategies along with equally growing their respective customer base.
3. The Green Sheet does a magnificent job at keeping its readers current on the payments industry, especially from an ISO/MSP perspective. Ideally, it would be advantageous to continue to focus on trends like (EMV, bitcoin) and adjacent competitors such as (Square, Stripe, Facebook, Apple and PayPal) that are directly impacting merchant and consumer behavior.

   It would also be interesting to have discussions and articles about what the sales channels are seeing as positive market trends and threats along with more�in-depth viewpoints on the ever changing and rising association fees that are impacting merchants and the�acquiring industry as a whole.

David Parker, Polymath Consulting

1. The first is bigger than probably anything in the last five years: Visa and MasterCard endorsing host card emulation (HCE) and taking telcos out of the mobile payments loop. Secondly, it is the emergence of companies like Itemize.com that extract data from receipts using machine learning. Suddenly you can get line item data on consumer spend to drive loyalty offers with.
2. Start thinking: How are you going to launch your HCE solution, what added value propositions, how can you really understand what your user wants and thus drive use of your service?
3. Receipt automation and mobile payments without telcos.

Justin Milmeister, Elite Merchant Solutions

1. Thus far in 2014, I am seeing more complimentary products and services coming to market at a furious pace. It is essential for survival in our highly competitive industry to stay abreast of new technologies and various innovative services because your competitors are aware and adding these products and services to their respective arsenals.

   What is exciting me is vital customer data that is available to merchants that will let them know who their best customers are and where to find them. Additionally, the information provided in the credit card transaction data will provide merchants with a wide array of customer intelligence that can be used by business owners to make more efficient marketing/promotion campaigns and help with inventory decisions that will help with cash flow, to name a few.

   The challenge in this fast-paced market is the very thing that is exciting. ISOs must constantly be in contact with various companies offering these new products and services to decipher which make most sense to offer to their clients. This means a tremendous amount of time spent meeting with these vendors, presentations and, of course, contract negotiations. Then, of course, you must roll out these new products and services to your sales force and train them on how to sell them.

2. ISOs need to do their homework and research a wide array of cutting edge products and services available. Many of these companies advertise in our trade publications such as The Green Sheet, but many do not. ISOs should always keep their ear to the ground and go to tradeshows like the ETA not only to visit with potential vendors, but also network with fellow colleagues.

   In preparation for the challenges, ISOs and MLSs should be comfortable with whom they write their respective business through and their provider is on the cutting edge and have the resources to do much of the upfront legwork, sales training and back-end support, if applicable.

   It is simply not good enough to offer a product or service but not realize it is inferior to another comparable product or service, pricing is not competitive, and you can't roll it out effectively to your agents.

3. I think The Green Sheet has always done a great job in covering a wide array of topics over the past 12 years I have been part of this industry. I would, however, like to see more interviews of industry veterans and their respective outlook on the industry today and what is keeping them awake at night because of excitement and what is keeping them awake because of nervousness.

   Additionally, as consolidation becomes greater and greater in the payments space, it would be great to get interviews from both buyers and sellers in various transactions. It would be interesting to get feedback why a buyer made the purchase and why the seller decided to sell.

Allen P. Kopelman, CPP, Nationwide Payment Systems Inc.

1. The No. 1 challenge is EMV. There is still a lot of speculation as to what the real story is. Cards are not really being issued by banks due to the cost of cards being $5 to $10 or more. The No. 2 challenge is figuring out the landscape of cloud POS. POS systems are getting less expensive and ISOs and agents are going to need to find a partner to offer this product to new and existing merchants.

   This industry excites me every day, there is always some new technology � and technology is what is going to get you your next customer or help you develop a vertical market.

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2. Anyone doing business in this space needs to find a technology product or products they like for payments, and learn it, love it and start selling it. Will the traditional credit card machine die? Not for a long, long time. There are many places where the Internet is either super expensive or not available at all.
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3. A monthly update on EMV focusing on what card issuing banks are doing or not doing. Also, post listings of all the cloud-based POS systems that are out there. Another thing going on is that there are new lawsuits weekly. Maybe there can be a page on the website keeping up with all the lawsuits, or maybe have a special forum where the GS can list the lawsuits and then forum members can leave comments and discuss. The suits are all very confusing and it seems that Visa, Master Card, etc. are spending a lot of money defending suits.

Mike Fox, CPP, Group ISO Merchant Services

1. Technology is really taking that next step this year and going forward. Another big thing now is the PSPs and aggregator route being such a hot topic. New and innovative mobile technology, big data being a large focus this year, and even new PayPal-like aggregators are really the scope of 2014. It's exciting to see where we will go with big data and the new technology coming with it. It's challenging to me, trying to figure out if aggregation is the right new avenue/vertical for our company.
2. Staying educated on all the new products � how big data is being used, how the wallet is being created, what's working and what's not. You've got to know where we are going as an industry because if and when the change happens, you don't want to be the one stuck in the past.
3. I know you've covered aggregation but I wouldn't mind seeing more on this and a focus on where we are going as far as the wallet or bitcoin or another alternative, etc.

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