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Article published in Issue Number: 070102

Street SmartsSM:
2006: The year in review

By Michael Nardy, Electronic Payments Inc. (EPI)

Another year has passed. Looking back at my columns from last year, I noticed I wrote about a few changes that did materialize and some that did not.

One of the technologies I felt would not catch on was biometrics, but three other hot technologies I thought were going somewhere were contactless processing, software plug-ins - such as those integrating with QuickBooks - and wireless.

We also saw a huge change in how free terminals were offered, as well as new bonus structures, consolidations, and lots of talk on the GS Online MLS Forum on the subject of registration and working with super-ISOs, ISOs and merchant level salespeople (MLSs).

How best to protect residuals was another hot topic. Indeed, I might venture to say this was the year of the MLS, especially with all the bonuses and free equipment programs being offered. Without further delay, here is my summation of the events of 2006.

Free equipment continues on

Major ISOs that have been offering free terminals for the past two years (most of the mainstream free-terminal programs began in late 2004) have continued their offerings and even upped the ante.

Some have added Internet-protocol terminals to their ISO programs. Others have continued to drive the free-equipment game to new heights by offering wireless terminals, as well.

Still, while free terminals started out as a proprietary solution - something that could not be reprogrammed - many are now seeing free terminals that ISOs or MLSs can sell, lease or place. This has opened up the market of merchant acquiring and removed many obstacles to bringing on new merchants.

Before, when a merchant owned a terminal, a simple thing would be to swap out the merchant's machine with a "free placement" terminal. Unfortunately, in this scenario, ISOs or MLSs may have been giving up potential revenue earned through selling or leasing terminals.

What free-terminal programs do now is really keep all three doors of merchant acquiring open: Sell, lease or place the terminal; let the choice be up to MLSs.

But if we have learned anything from the competitive nature of this business, we have also seen that there are two sides to any sales approach.

To present the argument against leasing and selling of so-called free terminals, we can look at proprietary machines as a method to reduce merchant attrition.

Unlocked or nonproprietary machines can easily be reprogrammed with little regard for the terminal's origins.

And while the sales rep might pocket a few quick bucks, the processor sometimes is left to potentially lose this merchant to competition.

Plug-in or plug-out

Another major development was the creation of many competing software plug-ins that integrate with various POS and accounting programs, including QuickBooks and Peachtree.

Not only have gateways been developing these solutions for some time, but other processors also have begun developing software plug-ins that impinge directly on marketing efforts for Intuit Inc.'s Innovative Merchant Solutions and QuickBooks offerings.

The ability to create software that integrates with these various POS and accounting software programs is a positive thing for this industry and can only work to strengthen it.

Competition is always a driving force of innovation. Keeping an open and fair market is how the strongest companies survive and thrive in any industry, not just merchant services.

Mergers and acquisitions

It's easy to see there have been numerous mergers, partnerships and acquisitions in the past year, each for its own reasons.

While I will not speculate as to the causes, we've seen the purchase of NPC from Bank of America Corp. by Iron Triangle Payment Systems (now named NPC), the owner of Retriever Payment Systems.

In addition, Total Merchant Services Inc. bought Electronic Exchange Systems, and United Cash Solutions purchased a portfolio of ATM processing that includes the Shaw's Supermarkets Inc. account.

These consolidations have further gone to prove that there is strength in numbers, and there are advantageous reasons to merge forces to create stronger organizations.

My prediction for the new year is that we will continue to see more strategic acquisitions and mergers, both to make companies more attractive to potential buyers and to make stronger, more powerful ISOs and acquiring organizations.

To register or not to register

Among the various posts on the Forum, one common topic has been whether ISOs or MLSs should register to achieve the following goals:

  • Secure residuals
  • Gain portability
  • Make more money
  • Reach new heights in the industry.

Responses on the subject have been varied, some advocating registering and others explaining that it is not necessary.

Realistically, the act of registering doesn't necessarily secure anyone's residuals or make agents more money, though it usually shows a commitment that will earn agents more residual income from sponsoring organizations.

This industry will see a natural progression toward people getting registered, just as real estate or insurance brokers are licensed.

While registration might not be the equivalent of a license, it still shows a strong financial commitment to the industry. It brings organizations to a new level, where marketing under their own names is the best direction for business growth.

The year of the MLS

I truly think 2006 was the year of the MLS. We have seen so many programs advertised in The Green Sheet. Even the Forum has brought to the fore some details about the costs of acquiring new accounts: One ISO revealed its cost to acquire an account is over $700.

I don't want to use this column to criticize or praise any certain type of business plan. Each company is operating according to the model it has set up for soliciting new business.

Nonetheless, I am seeing more and more MLSs taking advantage of the great programs out there. This coming year will be no different.

Despite thinning margins, we will see better ISO programs, more residuals and bonuses, and MLSs who are really reaping the benefits in a crowded and competitive market.

Michael Nardy is Chief Executive Officer of Electronic Payments Inc. (EPI), a founding sponsor of the National Association of Payment Professionals and one of The Green Sheet magazine's Industry Leaders. EPI is one of the nation's fastest growing privately held payment processing companies offering ISOs and MLSs profitable partnership programs and cutting-edge tools to help their portfolios grow. To learn more about partnering with EPI, visit www.epiprogram.com or e-mail Michael at mike@elecpayments.com

Article published in issue number 070102

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