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The Green Sheet Issue 011201-
Issue 011201-
Table of Contents

Brand New Chapter, Same Old Values

Online Help for Newbies and Old Pros

Uncertain Future Could Spell Interlink Breakup

STAR Interchange Fee Increase to Come in Stages

BofA, Thales Team Up for Wireless Solution

Thales e-Transactions Names Fred Silverman President/CEO

How Many Zeroes in One Trillion?

Gassed Up and Ready to Go

Making ISOs Rich

A New Lead on New Leads

Reach Out and Touch

Getting Buddy-Buddy with ISO Businesses

Quick Rejections ...

... And Overcoming Objections


Lead Story:

Hallelujah, They've Seen the Light

"Historically, ISOs didn't feel we were open to working with them. It was an accurate portrayal at that time. The message now is that we have a completely different perspective and embrace the ISO model and are happy to do business with that channel."

Tom Dailey, Senior Vice President, Discover Card

Tom Dailey's proclamation comes after a turbulent time during which Discover Card treated the independent selling community more like a pesky annoyance than a productive alliance - a treatment that was not well received by the ISO industry. An excerpt from a letter sent to The Green Sheet in 1998 summed it up:

"We have given Discover thousands of merchants over the years, and I ask WHAT FOR? Well, no more from this ISO. If all ISOs stopped promoting Discover, Discover might wake up to our industry."

And so it has. Clearly, Discover has been jolted out of bed and is scrambling to secure favor with independent resellers.

Why didn't it court ISOs from the beginning? When Discover hit the market in 1985, it was a new bankcard offering a new network - a network that needed structure and expansion through sales. The processing world was dominated by banks in the mid- to late '80s, and ISOs were not a mighty marketing force at that time.

So Discover set up its own direct sales force and maintained that predatory philosophy throughout the next decade. However, like a precocious child that cannot be ignored, the ISO industry grew into a full-fledged force to be reckoned with during that time.

Bankcard companies like Amex recognized the implications and in the early '90s answered with the first ESA (External Sales Agent) Program. That program established an alliance between American Express and the ISOs that is productively enjoyed to this day. It's taken a bit longer for Discover to make its move.

"We ultimately thought the ISO industry came around to a point where they provided coverage nationwide," says Dailey. "They became a very professional industry. We took a good long look and decided to starting working with those ISOs."

Discover also took a good, long look at its figures and realized that the number of merchants it needed to sign to meet sales figures could only be obtained if it opened a channel to the ISO arena.

"We support the entrepreneurial picture of ISO programs. It provides us a channel for greater coverage than we could do internally," says Dailey. "For two years running, we have had more signings through ISOs."

Dailey says Discover radically changed its business model even though it continues to have an in-house sales force with external agent sales augmentation. According to Dailey, Discover has changed its philosophy and now makes it easy for ISOs to value-add Discover to merchants. It also is encouraging ISOs to put Discover in their first offerings.

From a sales perspective, Discover believes that every ISO sells full- service solutions to merchants. It knows that merchants are not eager to negotiate with three and four different parties.

"If you get there first, you don't have to become an add-on," says Dailey. "We want to be the first part of the sale."

Discover also offers a bounty, though an exact figure wasn't quoted. According to Dailey, it is a fixed dollar amount that has variables depending upon who Discover is doing business with and the type of merchant.

Discover even has created an in-house division solely to support its new ISO partners. Its corporate headquarters is in River Woods, Ill., but Discover's back office - the brains of its ISO operation - is in Columbus, Ohio, staffed by 20 to 30 employees. This dedicated department handles all ISO channel sales issues. During extended normal business hours, more than a dozen Discover staffers respond to the special needs of independent agents.

"We have created a department that solely supports this segment of the industry so a rapport can be created between ISOs and our internal folks," says Dailey.

But, by far, the biggest change is the turnaround time for setting up an account. Dailey says Discover's new service standard is 24 hours, adding, "We want our merchants up running as quickly as possible."

Discover is actively working on speeding up that process from 24 to a few hours - quite a change from the old and sometimes offensive two- to three- day wait period.

Discover is also working on an initiative for all interactions to be electronic. It still does some phone, fax and Internet communication and transactional processing for account setup and reporting. Even though a merchant is signed through an ISO, a separate contract with Discover is established for each merchant.

Discover provides reporting back to ISOs in a variety of ways - some by hard copy, some by fax, some by e-mail. Discover also offers its Web site (, where registered ISOs can go to implement services.

Is Discover selective in its choice of ISO-centric merchants? According to Dailey, it is relying on the ethics and honesty of its ISO pairings as well as its internal risk management division.

"We're not able to physically see each merchant the ISO brings to us," he says. "Through good underwriting and determining risk exposure, we make sure we are making the right decision."

Discover is working with more than 2,200 ISOs. They come in all sizes. "We have individuals that do great selling as well as the major players," says Dailey. "We're happy to work with anyone who meets our certification criteria."

Discover has found the ISO community to be an effective sales channel. And with that channel comes sound quality control by Discover. "ISOs are representing Discover to the merchants," Dailey says. "We do a fair amount of monitoring. We simply want to make sure that we preserve as we expand our program ... as much as practically possible. For our ISO program, the acquisition cost is better than many other channels we use. However, we don't want to expand without maintaining our quality control."

That attention to quality control while improving and enhancing its position has not gone unnoticed or unappreciated by the payment-processing community. Heartland Payment Systems President/CEO Bob Carr has followed Discover Card's metamorphosis the last few years and even wrote about it in his "Knowledge is Power" series for The Green Sheet (Issue 98:06:03).

"They definitely have improved," says Carr. "They have come out with a nice program for ISOs. It's a little late, but it's a decent program. I think Discover continues to have challenges with some of their salespeople who don't have the message that they're not supposed to steal accounts from their ISO partners. Many do have that message, and Discover has improved a great deal."

Discover also saw the need to change another aspect of its prior business plan - namely, listening to the chatter on the streets. Discover has sent and continues to send its senior officers to trade shows like ETA, where they hear what is working and what isn't.

"We feel we have responded to ISO reactions to improve the program," says Dailey. "After all, we do have a vested interest."

Especially since it is a low-cost channel for Discover Financial Services. Discover has seen the light ... and it is green.

What They Were Saying Then ...

In 1998, The Green Sheet asked ISOs to share their views about Discover. Here's a sampling of the responses:

"In my opinion, Discover has taken an adversarial position in establishing a relationship with the merchant. In the end, Discover will most likely change their way of operating their sales activity. Hopefully there will not be too much damage. If not, Discover will ultimately lose the battle with merchant signings and will continue to be disliked within the ISO industry. Come on, Discover, take a partnership approach! Hey, if Amex can tailor a program to the ISO that works and makes sense, why don't you?" (98:08:01)

"I've been in the biz for some time now and, yes, it's all true. ... Hostile attitude, steal leads, pirate merchants, need ESA program, blah, blah, blah. Nothing new here; it's been the same story for years. Yes, we ISOs are frustrated that this unfair situation exists. Obviously, our anger is directed at Discover for being the parasites that they are." (98:08:02)

"We have long considered Discover a competitor in our marketplace. For years Discover has attempted to steal our merchants and undercut our rates in competitive situations. It is for this reason that we refuse to give out the Discover phone number to merchants interested in accepting the Discover Card (we tell the merchants we don't have the number). Additionally, we make sure our system is installed and finalized before even discussing Discover, for obvious reasons."(98:07:01)

"A few years ago, we attempted to form a working relationship with two of the local Discover reps. We had lunch with them and agreed to refer each other and swap leads. We found out that the same day we had the lunch meeting, another Discover Rep was out stealing a seven-location restaurant chain from us! That kind of said it all."(98:07:01)

"I have been disenchanted with Discover's modus operandi for several years. In recent months they have begun selling MC/Visa processing along with equipment . . . thus presenting themselves as direct competitors. I have urged all of our salespeople to negatively sell Discover whenever the prospective merchant inquires."(98:07:01)

"Maybe Discover will take notice and realize that the future of their card acceptance in the marketplace is in the hands of groups like us."(98:07:01)

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