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GS Advisory Board:Quantifying Payment Processing

Crafting a business plan on the acquiring side of the payment processing industry is more art than science. In any business, it's important to know who your customers are, where they are located and how many of them you hope to reach. You need to be able to understand the big picture. But in this industry, your marketing plan, ad campaign and cost-of-sale must all be calculated on personal knowledge, intuition and SWAG.

Trying to pull real numbers together for a comprehensive business plan, if you happen to be targeting acquirers, is a lesson in frustration. Nobody seems to want anyone else knowing anything about their business.

The Green Sheet has been asked to size this market many, many times over the past 20 years; we get several phone calls every week from people inquiring about all aspects of the industry:

  • What is U.S. bankcard acquiring volume?
  • Who are the major players?
  • Is growth still possible?
  • How many ISOs/MLSs are there in the United States?
  • Which terminals are the merchants buying?
  • What are the average merchant attrition figures?
  • What is the profit potential in this market?
It's not just The Green Sheet that's having difficulty gathering this information. Several other publications and organizations also attempt to answer these questions, but unfortunately, no single clearinghouse for these statistics exists. Unlike other industries (such as the manufacturing, pharmaceutical or investment markets), in financial services there is a prominence of privately held corporations.

This means that information contained in the Securities and Exchange Commission filings required of public companies (which tell only a fraction of the story anyway) doesn't exist here.

When larger public companies refuse to share information with us, we can often search out data through other channels. But most of the time, we are not able to get the information we need on a granular level in order to provide an accurate picture of what's going on in all segments.

We ask, and they don't tell.

Another important factor: the acquiring side of bankcard processing comprises only a rounding-error on the bankcard associations' bottom line. Even Visa USA and MasterCard International spend little time analyzing the market.

Survey Attempt

Robert Carr, Founder, CEO and Chairman of Heartland Payment Systems and a highly respected member of The Green Sheet Advisory Board, developed a method for us to use in quantifying the acquiring market.

His thought was to get industry leaders to participate because they would be more willing to share information. Following his suggestion, we submitted this query to the more than 60 members of The Green Sheet Advisory Board.

We asked our team of industry experts to comment on the following:

  • Would you be willing to share same-store sales results each quarter?
  • What other market-size measurements would you be willing to share to increase the knowledge and transparency of the industry?
For instance, would you share:
  • Which equipment/service(s) are selling most often?
  • What is your selling price for equipment (by model)?
  • Do you primarily lease or sell equipment?
  • How are you pricing individual services?
  • What is your average profit per merchant?
  • What is your average monthly/quarterly merchant attrition?
  • What are your target SIC code(s)?

Survey Response

We received a 10% response to the survey-for a general survey that would be a fabulous response. However, the GS Advisory Board consists of a group of industry experts who have agreed to answer our queries in order to strengthen the industry. Six out of sixty is a dismal response.

To further complicate our attempt to size the market, only two of the six responded in the affirmative and were willing to share their sales data; one of the respondents was the survey's author.

Here are some of the comments we received:

"It is important that this information never be distributed to your current mailing list or any other entity."

"Why would I want to give this information to my competitors?" "Why does Bob Carr want this information?"

Why Did it Fail?

Setting licensing and certification requirements in our industry would make counting MLSs easier, but most likely would not provide a completely accurate picture. There are many layers and levels comprising this industry, and the landscape is often in a state of flux with agents changing offices, portfolios being purchased and companies being absorbed by others.

In 1998, our premier issue of GSQ was the industry's first benchmark report on transaction terminals-some players refused to cooperate, others threatened to litigate. After all was said and done, however, that particular GSQ issue was held in high esteem.

The following year's report, in 1999, as well as subsequent reports every year since, have also garnered the industry's respect and participation.

Each year we also conduct a review of acquirers with more than $1 billion in annual processing volume. Compiling that research is a lot like pulling hens' teeth. For the past four years our market forecasts have been based on painstakingly gathered market data.

There has been an interesting phenomenon repeated with each of our research reports. Without fail, the events go something like this:

  1. GS sends a survey out to the targeted industry players
  2. A few immediately return the requested data
  3. After much cajoling, we collect some additional data
  4. Some companies refuse to participate
  5. We publish our report
  6. Some of those who refused to participate complain for having been left out
  7. The following year, more companies participate in the follow-up survey
The Green Sheet is a dedicated supporter of the capitalist free market. We truly believe this industry can continue to grow and provide many people with successful careers. Why do we want the market data? We want to continue to support your success with solid information and actionable advice.

If you would like to address the survey questions above, we would like to hear from you. Please send your comments to paul@greensheet.com.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.
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