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Big Payments Events in 2003 Mean Big MLS Opportunities in 2004

By Steve Eazell

Welcome year 2004, a leap year for those of you who didn't know, which gives us all one extra day-Feb. 29-for opportunity for success. This is the greatest time to be in the electronic payments industry, which is the greatest business in the world.

I strongly believe that there are more self-made millionaires created in this business than in any other. There have always been plenty of opportunities for those future millionaires who think outside the box and several events from 2003 should provide even more inspiration for industrious Merchant Level Salespeople (MLSs).

Readers of The Green Sheet are familiar with articles regarding the safeguarding of their wealth. I'd like to briefly re-visit a different aspect of this concept. If you're not concerned with your merchant base and reducing attrition, then you're probably in jeopardy of losing your customers, most likely forever.

It's no secret that the most expensive sale is the lost merchant. So many of us continue to lose accounts to competitors because we fail to look down the road to our future residual base, our most valuable asset. Instead, some of us focus only on the next sale. Let's face it: we entered into this business because of the recurring revenue aspect of it-remember 'money while you sleep?'

There were some important events in our industry during the last year that some of us have taken notice of (others have glossed over) and may have caused us to take our eye off the ball as we work toward our first (or next) million dollars. Consider these developments and what impact they may have on your business:

  • The passing of the Check 21 initiative
  • The Visa/MasterCard settlements
  • The proposed First Data Corp./Concord EFS merger
  • Wal-Mart's decision to stop taking MasterCard signature based-debit cards
I believe these events are not only important for the industry overall, but also for the opportunities that they could bring to our respective bottom lines. What ramifications could these monumental events have for MLSs?

The Passing of the Check 21 Initiative

First of all, let's look at the Check 21 initiative, passed by Congress late in 2003 to help financial institutions save money. When this legislation takes effect in Oct. 2004, images of paper checks can be transmitted electronically rather than being physically sent by planes and trucks, far more expensive modes of transportation.

The implications for MLSs are great, but not complicated. Some banks will choose to spend the money to image and store these documents.

However, there are numerous up-front, out-of-pocket expenses involved; there will be financial institutions (including credit unions, small community banks and others) that may opt to not participate.

This will provide an opportunity for us to form strategic alliances or agent bank relationships with these financial institutions to offer their merchant bases check conversion, ARC or other revenue generating ACH options.

These services also transmit the images of paper items electronically, but the financial institutions benefit without the initial capital outlay-and you reap the profits.

The Visa/MasterCard Settlements

Next let's look at the Visa/MasterCard settlement in the class action lawsuit, which Wal-Mart and other retailers filed because of the associations' 'honor all cards' policy; as part of the settlements, Visa and MasterCard both agreed to lower interchange rates for debit signature cards.

I agree that smaller retailers will probably never benefit from this change, but with the outcome, we are seeing that the associations are no longer bullet proof.

Acquirers have had to accept interchange increases without so much as a 'thank you, may I have another?' before they're raised again. We would all agree that interchange is probably a necessary evil, but enough is enough.

For those selling it, the issue of pricing has come down to lost margins. Even though this may look like another opportunity for the rich to get richer, it could turn out to be the end of the juggernaut of the monopoly-like price gouging we have been forced to endure.

The Proposed First Data Corp./Concord EFS Merger

With that being said, let's look next at the FDC/Concord EFS merger. Once these behemoths merge their large portfolios and gain a gargantuan share of the market, it might seem like the beginning of the end to competition.

Let's think about this for a moment.

This merger will probably be finalized this year. Because FDC already controls both issuers and acquirers, it will continue to process 'on-us' transactions (FDR is owned by FDC) without going through the associations' networks.

It is also true that the associations are trying to sue FDC for violating their regulations, but there is nothing holding them back from doing so in the absence of an injunction. Suppose FDC wins a lawsuit claiming Visa and MasterCard have been operating as a monopoly all of these years.

Perhaps simply due to market forces, the associations could see this as an opportunity to balance the scales by actually reducing interchange.

We could see a certifiable battle of the titans-"Godzilla vs. King Kong"-which might seem extremely far-fetched, but I believe it is feasible and will provide a chance for all to benefit from lower fees and fatter margins. We can only wait and see.

Wal-Mart's Big Decision

Last but not least, there's Wal-Mart's decision to stop taking signature based-MasterCard transactions. Let's say, for the sake of argument, that other retailers follow suit and decide to stop accepting one card or another.

Many of us currently use our "check" cards rather than our PIN-based "debit" cards because we know that we are going to get at least two days of float.

But if the option to use a payment card isn't there, we may ultimately have no choice when our bank accounts are anemic and will have to carry checkbooks again. If checks ever become more prevalent again, the associated risk will increase.

This means opportunity for MLSs to generate more revenue by offering check services including conversion and plain old-fashioned check guarantee.

What I'm getting at here is that opportunities exist where you would least expect them. If you're not paying attention, rest assured, someone else is.

If you're not diversifying your product offerings, taking care of your customers and communicating with them regularly, they won't be around for long-and neither will you.

There really can be a silver lining behind every black cloud. You just have to take a moment to look for it, even if it is somewhat faint.

Steve Eazell, a 15-year veteran of the payment industry, is the Director, National Sales and Marketing for San Diego-based Secure Payment Systems, Inc. (SPS), a national provider of value-added services, including electronic check and stored-value gift card services.

For more about SPS, visit or e-mail Steve at

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