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January 2009 Issue
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Cover Story: Outlook 2009 |
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It’s batten down the hatches time for electronic payments professionals as they prepare for 2009. Most experts agree consumers, merchants, ISOs, merchant processors, value-added resellers (VARs), and acquiring banks face a tough 12 months. That said, there are a few bright spots, and times of great challenge also bring great opportunities to those with the foresight and resources to seize them.
In an industry that has enjoyed double-digit growth rates for at least 15 years, slower growth is a “shock to the system,” says Kurt Strawhecker, managing partner of the Strawhecker Group, Omaha, Nebraska. “That rising tide had pretty much lifted all boats. This is the first time in memory, even for us veterans, that growth has slowed.” Some processors have reported that both transaction volume and dollar value in October 2008 were down from October 2007 levels.
“It’s different now than it has ever been,” agrees Donna Embry, senior vice president for business and product development for Payment Alliance International, Louisville, Kentucky. ISOs, acquirers, and processors are “redoing their budgets for next year to reflect lower expectations. Some players may fall off the cart, but they will be the ones who are closest to the edge.”
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In the not-too-distant past, relationships between ISOs/MSPs and value-added resellers (VARs) were competitive, if not downright adversarial. However, the wall between these entities is tumbling down as they form mutually beneficial partnerships.
Chalk it up in part to the demands of today’s new generation of merchants, many of whom are corporate refugees, highly computer literate, or both. “These end users are unwilling to reconcile disparate systems; rather, they insist on deploying integrated solutions from a single source,” says J. Michael Nicholson, a principal of VAR POSitive Technology in Germantown, Maryland. An increasing number of ISOs/MSPs and VARs recognize that partnering, in one form or another, is the best means of satisfying such demand, as well as the key to cultivating and maintaining a merchant clientele, Nicholson observes.
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According to some statistics, October credit card sales are down more than 10 percent, but ISOs and processors don’t need economists to provide them with such statistics. They have only to look at their own processing volumes to see what is happening. Sales are down.
And when sales are down, so are merchant revenues and the revenues that flow through to acquirers, processors, and ISOs. This hit to volume and income comes at a time when unemployment is rising rapidly, when bankruptcy filings are increasing, and when further cutbacks in already weak consumer spending are likely to bring even deeper drops in merchant volume and revenue. This grim scenario means that serious belt-tightening lies ahead for an industry that lives on ongoing residuals from ongoing sales.
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ISO Corner: Bringing RDC to Market |
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Remote deposit capture (RDC) ranks among new methods of automating the check deposit process that have proliferated since the Check Clearing Act for the 21st Century went into effect. While many have questioned whether it will truly catch on among small- to medium-size businesses (SMBs), ISOs should be poised to take advantage of its opportunities.
The increasing availability of RDC solutions geared toward SMBs—and vendors’ heightened interest in selling these systems through channels other than financial institutions—makes distributed capture a course ISOs would do well to chart, according to John Leekley, CEO of RemoteDepositCapture.com, an independent, Web-based authority on RDC.
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One of the trends most likely to affect the card industry in 2009 is the prospect of additional regulation. In fact, given the magnitude of the U.S. economic meltdown and credit crisis, many observers expect that a financial institutions regulatory reform bill bill—which will likely include reforms aimed squarely at the card industry—will be proposed this year.
In general, 2008 was a year to remember—or perhaps forget—for the U.S. economy and, specifically, the financial services industry. The failure of Lehman Brothers, the bailout of iconic financial institutions such as AIG, and the succeeding liquidity injections from the Treasury Department and Federal Reserve—events that would have been difficult to imagine just a few months before—all occurred in rapid succession, marking what is most likely the worst economic downturn since the Great Depression.
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