New Technology Entrants Capture ISO and Acquirer Attention at Regional Conference

Recurring revenue from transaction-processing fees has been a staple of independent sales organizations and acquirers for decades. But amid a host of new competitors, the payment-processing industry finds itself wondering what its next steps may be.

ISOs are squeezed on one side by large players, like First Data Corp. and other payment processors, and from the other by companies that eschew the traditional sales-agent model in favor of online and other distribution methods, like Square Inc. and PayPal, Adil Moussa, principal at Omaha, Neb.-based Adil Consulting, said at the Western States Acquirers Association conference Wednesday in Burlingame, Calif.

Each of these competing groups wants to simplify the merchant’s business, Moussa said. “Merchants are not in the payments business. They are in the business of selling their inventory and services,” Moussa said.

ISOs and acquirers should look at ways they can help merchants move products, he said, perhaps by helping them with tools that can attract consumers. “One thing ISOs can do is to help them with marketing,” Moussa said. For example, an ISO could write a blog that has articles about ways to use Facebook to reach consumers, he said.

ISO Total Merchant Services, of Woodland Hills, Calif., debuted in the third quarter Fanminder, a social and mobile marketing tool, to help merchants. Fanminder is an online service that small merchants can use to send offers via text messaging or emails to their customers. “Every merchant knows they need to grow their business,” said Hawkins Siemon, TMS director of business development. “But a lot of them don't necessarily want to incur the cost or possess the knowledge to use many of the products in the marketplace.”

As a starting point, ISOs should conduct a thorough analysis of their strengths, weaknesses, the opportunities before them and the threats they face, says Garima Shah, senior vice president at Chantilly, Va.-based ISO Direct Connect LLC. This will help the merchant services provider understand what it can and can’t do to help merchants, she said.

ISOs and acquirers also are faced with how to compete against new entrants to payment services that use aggregation. That process signs up merchants under one account and often is a quick way to enable payment card acceptance.

Working with an aggregator has a few advantages, said consultant Todd Ablowitz, president of Littleton, Colo.-based Double Diamond Group. The merchant application can be short, he said, potentially removing friction from the boarding process. Square’s version has 14 questions compared with 240 for a typical acquirer. That can make it easier to start merchant processing, especially for larger merchants, he says. It can enable payment acceptance for micro-merchants and individuals.

“The key to aggregation, or frictionless boarding, is you still do the same risk management,” Ablowitz said. Instead of asking up front for scores of pieces of information, the aggregation boarding process relies on using the data captured in the initial application to come back to the merchant for further verification, spreading out the risk management over time, he said.

Typically, merchants that process less than $175,000 to $200,000 annually are ideal for aggregation, said Ryan Oakes, director of product management at ProPay, an acquirer owned by processor Total System Services Inc. (TSYS).

Essential to using aggregation services is reducing the number of times the ISO has to contact the merchant, Oakes said. That can lower the cost of acquiring the merchant, and potentially improve the merchant’s profitability, he said.