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The International Marketplace |
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With the value of the dollar on the decline, foreign companies have stepped up their investing in the United States. Are American businesses having as much luck in grabbing a piece of the global pie? In the electronic payment processing industry, that pie appears to be out of reach for many acquirers and ISOs.
“Part of the problem is that acquirers and ISOs don’t know a lot about the international marketplace,” says O.B. Rawls, a former senior vice president of International Sales for Hypercom and now head of his own international consulting firm, Transmark Advisory Services. “It is mysterious, and therein lies its appeal.” Rawls cites the current economic downturn as a catalyst for domestic operations looking outside American borders for growth. However, he is quick to point out that most small to mid-sized businesses look at the international market with naiveté.
“Many companies don’t understand the complexity of doing business offshore,” says Rawls. “They’re confronted with unfamiliar tax bases and employment bases. Labor may be cheap but social costs are high. An acquirer can end up paying 50 percent to 60 percent of someone’s salary in social costs, travel and meal vouchers as well as retirement plans. The cost of doing business internationally is quite high. Even more challenging is the nearly monopolistic environment controlled by financial institutions.”
In many international markets, the sales process, card issuance, bank deposit and lending functions, as well as the acquiring process, are related through a limited number of financial institutions, leaving no room for outsiders like American acquirers to come in and reduce established margins.
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Strategic Thinking: The 2007 Strategic Leadership & Networking Forum |
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An ancient Japanese swordsman once said that “in strategy, it is important to see distant things as if they were close and to take a distanced view of close things.”
With that insight, he might well have been one of the 330-plus payment industry executives who gathered in Palm Beach, Fla., in late September for the 2007 Strategic Leadership & Networking Forum organized by the Electronic Transactions
Association.
Over three days, forum attendeeslooked closely at the future of the acquiring industry and put their closeup everyday business experiences into a wider, longer-term context. And they did all that surrounded by partners and colleagues from around the country. As one participant put it, “Everyone I want to see or talk to is here.”
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ISO Corner: ISO Globalization Hits Snags |
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ISO leaders who thought the grass was greener on the other side of U.S. borders have discovered parched revenue prospects there. While long-term opportunities remain promising and a few ISOs make some headway abroad, those with experience concede that the ISO model that has worked so well in the United States is not ready for export. Markets outside the United States are relatively small. Entrenched players have tied up much of the business; merchant contracts are much less lucrative; foreign customs, regulations, currencies and languages present obstacles; and knowledgeable salespeople are hard to find.
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Back to Basics: Dynamic Currency Conversion |
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Card issuers have long played a pivotal role in currency conversion at the point of sale (POS), assessing a conversion fee for each foreign transaction settled and reaping the resulting healthy revenues. However, the advent of solutions for dynamic currency conversion (DCC) is altering the balance of foreign currency acceptance for ISOs and their merchant customers, opening new revenue opportunities for both parties.
“DCC is not a new thing; in fact, it has been available in Europe for at least 10 years,” says Michelle Graff, vice president of marketing at NOVA Information Systems. “But the increasing number of applications being made available in the U.S.,” coupled with a growing desire among merchants to sharpen their competitive edge with an ever-broader range of customer services, is creating a heightened demand for DCC on U.S. soil.
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Vertical Markets: Winning the B2B Gold |
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In the merchant acquiring world, business-to-business (B2B) transactions represent a “blue ocean of opportunity,” insists John Hayes, CEO of FTRANS Corp., an Atlanta A/R solutions provider. “Annual trade credit transactions, at more than $18 trillion in volume, are more than 10 times the total dollar value of credit card transactions,” he notes. It’s a huge market with very low credit card penetration. Moreover, acquirers have a powerful ally in selling supplier card acceptance: large procurement organizations are asking—or telling—suppliers to start taking card payments.
Checks still dominate B2B settlement with a 74 percent share, down from 81 percent in 2004, but ACH transactions are growing faster than card transactions for B2B settlement. To expand their toehold in B2B payments, card players have revived EIPP (electronic invoice presentment and payment) ventures that seek to marry payments to electronic communication networks. MasterCard introduced a new B2B payments gateway in October, an electronic network that connects trading partners for settlement and settlementrelated communication. First Data Corp. and Wells Fargo Bank quickly signed on as participants. American Express bought Harbor Payments and is using it as a foundation for the payments part of its new S2S (source-tosettlement) service, and JPMorgan Chase bought Xign, which now supports its B2B order-to-pay solution.
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