In years past, Independent Sales Organizations (ISO) and merchant level salespeople (MLS) presented themselves as one-stop shops for processing and boasted about a wide list of clients across many industries. Many ISOs, particularly very small shops, still use this as their core business model. Yet, industry observers note that many
offices are seeing the advantage of positioning themselves as specialty boutiques by catering to merchants in specific
industry segments. These ISOs present themselves as processors that know an industry inside and out and, as
a result, anticipate problems and create solutions unique to that industry.
While some analysts predict that we will see more ISOs and processors marketing themselves as experts in narrowly
defined vertical markets rather than as generalists, there are still many in the industry who are not convinced that this is the right business strategy. Neil L. Randel, president and CEO of First American Payment Systems in Fort Worth, Texas, states that, “Whenever you specialize in a certain industry segment, you immediately limit your universe. Larger ISOs need to spread their merchant base over a wide geographic area so that a regional economic downturn does not affect
them too seriously.” Randel goes on to compare an ISO’s merchant base to a personal investment strategy: Most
financial advisors recommend investing in a wide range of industries as a risk-avoidance mechanism. He adds that, “We don’t like to see portfolios that are concentrated in a handful of SIC codes.”
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At the start of 2007, the writers and editors of Transaction Trends gazed into our crystal ball and surveyed the road ahead. From that vantage point, 2007 promised to bring changes on many fronts and progress on many more. No disappointments there. Here are some of the stories we covered during the year.
Even before the year got started, Morgan Stanley announced it was spinning off Discover to shareholders in a deal that took much of the rest of the year to consummate. The move comes after Visa declared it would become a public company and it gave momentum to Discover’s shift to a new acquiring model that promises to increase the brand’s ties to the payments industry. It also set the tone for other big news with widespread industry impact.
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It’s clear that the ISO business is changing in ways that aren’t always obvious, but one things is clear: To survive
and thrive, today’s ISO must find a way to stand out in an increasingly homogenous industry and must make merchant retention a fundamental focus of its business strategy.
While some companies are turning to new technology, squeezing margins or selling ancillary products to differentiate
themselves and hang on to existing clients, one area that’s easy to overlook but can put an ISO over the top is great
customer service.
ISOs often lament that merchants aren’t loyal. That’s probably true, but what if that lack of loyalty were viewed not as a fact you have to live with, but as a symptom, like a fever? Is it a symptom worth treating? Will that treatment cure the disloyalty?
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In an interview in the September issue of Transaction Trends, Benjamin Ling of Google laid out the company’s plans for Checkout, Google’s alternative payment system for online merchants and their customers. While alternative payments are a hot topic for discussion and debate in the electronic payments industry, the topic isn’t always greeted cheerfully. Many companies, in fact, see alternative systems as a potential threat to their business.
Since 1996, Authorize.Net has been a leading provider of payment gateway services, managing the submission of payment transactions to the processing networks on behalf of merchant customers. On Nov. 1, 2007, CyberSource Corporation acquired Authorize.Net. Collectively, the companies processed approximately 1.1 billion transactions in 2006 for more than 195,000 merchants, representing $65 billion of e-commerce. The issue of alternative payments directly impacts any provider of payment gateway solutions, and Authorize.Net has valid concerns about that impact.
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The holiday season may bring increased sales volume for merchants and growing revenues for independent sales organizations (ISO), but it also will bestow another gift in the form of heightened fraudulent activity.
“Between the lackluster economy tempting people to commit fraud to fund their shopping and the growing ease of access to massive volumes of credit card information, there’s no question” that industry players “must prepare for more hits,” says Randy Lobban, director of risk management at North American Bancard. E-commerce is expected to take a particularly hard hit, according to a survey by CyberSource, a provider of electronic payment and risk management solutions.
The survey indicates that dollar losses from e-commerce fraud continue to grow, with fraudsters expected to divert approximately $3.6 billion from U.S. e-commerce in 2007, a 20 percent increase over 2006. Not surprisingly, the period from Black Friday (the day after Thanksgiving) to December 25 is the most significant hotbed of such activity.
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