You've probably already heard or read some industry pundits recite the epitaph of the ISO.
The acquiring side of the bankcard business is dead, the only things left for ISOs to sell bankcard merchants are new equipment and paper products. Bankcard Rebates have been very elusive for most ISOs, and there is very little money in selling Debit. Banks are aggressively selling Point-of-Sale terminals these days, so that income opportunity is no longer enough to sustain a salesforce. Besides, everyone is buying PC's to replace their POS terminal, and you can buy that software by mail. The only real frontier that is left is the Internet, and with all the hype and flurry, no one is making any real money. Bankcard ISOs in the Financial Service Industry, you know those guys who sell, won't exist five years from today.
This is certainly a pessimistic view of some of the products and services which have sustained ISOs over the years. Some of these concerns may have a foundation of truth, even though we found a great deal of optimism about the future of ISOs (Independent SALES Organizations, as opposed to Independent Service Organizations) among those that we interviewed last July. (See Issue 95:07:02, Bankcard Time Capsule)
Given the continually changing landscape, we thought that it might be timely to continue our interviews in 1996, with even more ISOs (most which have been in business less than 5 years). This is to find out how they see the current market conditions now that bankcard and Check Guarantee consolidation have settled down, payments on the Internet are more than just an idea, and Transactions cards are being discussed more than Debit.
We asked, is there any truth to the epitaph?
Jack Hieda, of Express Merchant Services, in San Francisco, believes there is some truth to the ISO epitaph. Jack notes, "Years ago it was possible for an ISO to earn 50 basis points on a merchant sale, but today it is too competitive to earn more than about 10 basis points. The average bankcard customer does $2,500 a month, so you earn an average $2.50. This means that an ISO will receive 90% or more of their income from equipment rather than bankcard rebates, and the Verifone/Royal deal, a couple of years ago, seriously reduced the profit on terminals."
Robert Rainey who has been in the business about three years, and works out of the Washington D.C. area, agrees, "Yes, there is some truth to the Epitaph."
Robert feels some disenchantment with Bankcard revenue, Equipment leasing and Debit. "I am not impressed with Debit. I was high on Debit two years ago, but as I go back to those customers, I hear that the Pin Pad just sits there and is not getting the draw that the customer thought that it would. I don't like having to do high leases on equipment to make money selling Bankcard, although American Midwest Bankcard has been an exception," says Robert.
Robert is very high on Check Guarantee and the Internet stating, "My residuals are growing nicely with CrossCheck, and I get great support from them. I am very excited about the potential money that can be made on the Internet."
Robert explains further, "I am looking into being an Internet Service Provider, and I like all the information that I have received from The Green Sheet about this income opportunity."
John Castle, who works out of his York, PA office, agrees with a good deal of the Epitaph saying, "You must be a multi-market faceted ISO to stay alive today."
John says, "You have to keep looking for new arrows for your quiver." John has three banks through whom he writes bankcard business and has had his fair share of problems in receiving the rebate (residual) payments promised to him.
This is one of the reasons that John began selling Check Guarantee services for CrossCheck.
Although he has solved his rebate problem by securing his current bank relationship, he still thinks he must make too much of his bankcard income from equipment sales. John continues to sell Debit, "However," he says, "demand is very low for Debit, with 1 out of 30 transactions being a debit transaction."
Although extremely optimistic about being an ISO, John believes you must stay on the cutting edge as an ISO. In this regard, John has become an ISP (Internet Services Provider) selling such accounts as PC Parts, an Internet seller of IBM parts, on both Web page design and Hosting services from InterNet Trader, his local service provider.
John believes there is a significant opportunity on the Internet, noting as an example, "PC Parts received 900 inquiries during the first month on their Web page, for which I received a payment for each hit."
Angela Nurse, who works the Georgia marketplace from her office in Stone Mountain, was the most recent interviewee to become an ISO. Angela says, "I am almost completely focused on Check Guarantee at this point in time, having interviewed for and rejected an employee position with CrossCheck, Inc. I have been an employee, and sold financial products, and wanted an opportunity for a residual based income, and the opportunity for becoming an ISO at this point in time made more sense to me. I feel that things come to you at the right point in time"
Angela notes, "Merchants that I am talking to are asking me about bankcard services and POS equipment, so I plan to look into these options, but I want a bank that will have good service and will complement what I am already doing."
Bob Miller, President of California Bankcard Systems in Vista, CA has been around long enough to find all the necessary elements to ensure continuing success of his operation and is even more optimistic now than when we interviewed him in June of last year.
"I have found various ways to accept bankcard customers so that I can reach all of the potential opportunities for sales," says Bob. Bob further noted, "You can't have just one bank anymore, since many will not take Telephone/Mail Order businesses, you have to find solutions to each problem, since each prospect opportunity is precious today."
When we interviewed Bob he was extremely excited about the Retriever program both in terms of Bankcard processing and Equipment. Bob explained, "A significant opportunity will be opening for all of us within the next few years. The predominant terminal in the marketplace, the VeriFone Zon JR XL, has a built in 'Time Bomb' ticking away. The date in the terminal's clock chip expires December 31, 1996, and the terminal will not process any credit card which has an expiration date after that date. This time around we will have to convince the merchants that we are not selling them a product with built in obsolescence and that we have a program in place to prevent that occurrence. Retriever has such a program."
Bob continued by noting, "You must look for every revenue opportunity that you can find. We are going to be selling ATM's to install in retail locations now that surcharging is possible, and we are going to be doing more with software, replacing some POS terminals."
Bob notes, "In general, the market is not what it was when I first opened my office, however, in some ways opportunities have never been better. I believe CrossCheck is the very finest Check Guarantee service in the industry with tremendous residual opportunity. I think every successful ISO should include CrossCheck in the portfolio of products they sell. CrossCheck has had a stabilizing effect on my residuals since early 1986."
Bob says, "I believe the epitaph will fit those who are not reshaping their own future and changing with the times. I am in a position to help other ISOs with Mail/Phone and ATM opportunities, so have them contact me."
Bob Miller can be reached at (619) 940-0716.
Conrad Klapstein, Owner of Universal ATM Network in Santa Barbara, CA is highly focused in the Debit world, and has seen the decline in Bankcard revenue.
While Conrad agrees in general with the Epitaph, he remains optimistic. "Two-thirds of my bankcard sales continue to be existing businesses," says Conrad. "Only one-third are new businesses or businesses on the fringe," he reports. Conrad agrees that banks are more aggressive than in the past and that it is more competitive both for bankcard rates, and terminals, but he is not having difficulty finding business.
"I do not sell SCAN any longer, because it upsets customers. Merchants still received bad checks with SCAN, and I didn't earn any income from it," says Conrad. Noting what he perceives to be a difference in the Santa Barbara area, Conrad says, "Merchants here don't seem to be interested in Debit or Check Guarantee."
New players who are just coming into the ISO arena like Maurice Walker, of Executive Business Development Group (EBD), with two offices -- one in Arizona, and another in Maryland -- see the Epitaph coming true.
"I am going to focus my efforts on Check Guarantee, and I want to have a service provider that is different from everyone else, which is what I like about CrossCheck. I have heard horror stories about the greediness of some people and the cut-throat tactics of the past," says Maurice. "Coming from a very successful insurance background, I know the value of residual based income. I tell the people that I am training to think about the fact that when they brush their teeth in the morning, someone is writing them a check for doing that," notes Maurice.
"I am very excited about CrossCheck, and who else has a thirteen year history of residual payments?" says Maurice.
Gino Kauzlarich, President of Merchant Service of Seattle, Inc., in Seattle, believes, "It's an ever changing marketplace."
Gino notes, "We don't want to be a run of the mill ISO and we believe the key to success will be in becoming a Processing Service company. We want to represent merchants in the arena of transaction processing, whatever that becomes, as the marketplace continues to change."
Gino, who has had some difficulty finding the right people who will make sales calls from a consultative selling approach, says he requires "Integrity, Full Disclosure and Great Service."
Gino continued by noting that his office has more than one bank program. Included are ATM Debit, Check Guarantee, Internet Design and Hosting Services, POS Equipment and his office will soon be providing Public Service Seminars to tell merchants how they can have 21st Century Solutions, now.
"We believe that as this dynamic market matures, a natural shakeout will occur. It's our hope to be one of those survivors," says Gino.
While everyone that we interviewed was optimistic about their future as an ISO, Joe Boaz of Midwest Bankcard, in Hazelwood, MO, believes Bankcard sales are here to stay, and he does not agree with any part of the Bankcard ISO epitaph.
Joe, who has been an ISO for over three years notes, "The only reason anyone does anything is because they have to. Most merchants don't want to buy equipment or Visa or Mastercard, but they must because their customers ask for it."
Joe, unlike many ISOs, is having no trouble whatsoever finding new Visa and Mastercard customers, and in earning 25 to 30 basis points on his sales.
Like other ISOs, Joe notes, "My bankcard income is probably 75% equipment and 25% rebates, because you must do equipment to keep your doors open."
In fact, Joe is finding no competition yet from banks in his marketplace, although he is aware that many other ISO's are.
Joe says, "Debit is not happening in Missouri, but I am extremely excited about selling ATM's. If you're looking for a prediction of the future, Joe says, "ISOs have been so successful selling Discover, that Discover will not have anyone other than ISOs selling for them a year from now."
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