LAS VEGAS–ISOs face internal and external threats that could put most of them out of business in the next few years, speakers said here April 18 at the Electronic Transactions Association Annual Meeting & Expo.
Their numbers could shrink from about 1,200 today to the 1998 level of 300 or so, Henry Helgeson, co-CEO of Merchant Warehouse, a Boston-based ISO, told attendees at a session entitled “What Keeps You Up At Night.”
From the outside, powerful companies that include Square Inc. and PayPal Inc. are encroaching on ISOs’ core business of selling card-acceptance services to merchants, warned another speaker, Marc Gardner, president and CEO of North American Bancard.
Meanwhile, the Great Recession is continuing to bankrupt small merchants, eating away at the ISOs customer base, Gardner said.
That means ISOs no longer can succeed by picking the “low-hanging fruit” represented by technologically naïve merchants, he maintained.
The internal threat lies in continuing to base the ISO business model solely on selling card services at the lowest price and failing to offer the latest payment technology, Helgeson cautioned the packed session room.
“They should be talking innovation,” Helgeson said of ISOs. “If they’re only talking rates, they’re already out of business”
That shift from competing on price to helping merchants choose technology requires a new way of thinking, Gardner acknowledged.
“What got you to the dance isn’t going to keep you there,” he said.
One way ISOs can learn some new dance steps and possibly avoid the threat of extinction is by combining mobile-payment technology with practical options, such as cash drawers, Gardner maintained.
Failing to bring that kind of usefulness to mobile payments makes the technology seem abstract to many in the industry, he said.
The pundits who say mobile payments fill a need that doesn’t exist are missing that practical side of the phenomenon, Gardner said.
After all, some companies are seeing their mobile transactions increase 50% month over month, he said.
At the same time, merchants are taking advantage multiple payment and marketing functions that include electronic coupons and automatic loyalty schemes. Moreover, they’re taking advantage of those features on electronic tablets that cost no more than simple payment terminals, Gardner noted.
Small merchants also are using the technology to mine data on sales patterns that until recently were available only to the biggest chains of stores and restaurants, Gardner maintained.
Besides offering that sort of technology to merchants, ISOs can make themselves more valuable to their customers by developing specialized knowledge of niche markets, such as salons or health care, Helgeson advised the crowd.
Helgeson’s company received a “wakeup call” on merchant attrition in 2010, when the number of merchants in the Merchant Warehouse portfolio remained flat for a time, with the number of new clients barely making up for the number switching to other ISOs or going out of business, he said.
Offering technology has helped reverse that situation, Helgeson noted.
Merchant attrition often begins with signing up the wrong clients–those almost certain to have problems, Gardner said. He recommended automating the process of approving new merchants.