ISOs and acquirers faced many challenges in 2009 largely because of the ongoing difficult economy that altered the business landscape, according to some of ISO&Agent Weekly’s editorial board members. The publication has assembled year-end thoughts from some of its board members.
Decreased average ticket sizes and lower transaction volume have led many companies to alter their business plans and pursue new clients in areas they had not explored previously.
Despite the ongoing hardships, some ISOs are beginning to see signs of economic growth, and they are optimistic about the New Year.
ISO: What was the most significant development to affect ISOs and acquirers in 2009?
Ayala: Cynergy Data’s bankruptcy filing and the financial difficulties of other acquirers. This highlights the potentially fatal business flaw in many [merchant level salespersons’] business plans, which is not thoroughly evaluating the financial stability of a processor or acquirer. Salespeople usually never question it.
Going forward, salespeople need to ensure they know the financial stability of the company with which they are contracting. I highly recommend agents and ISOs confer with their legal counsel for their professional guidance and advice before engaging with a new processing partner.
Shipley: Obviously the economy was the number one issue in 2009. We have seen more merchant closures and less new-business starts. Retailers typically who would have upgraded hardware in 2009 opted to refresh their old installed base.
Perry: It had to be the economy. Not only did it affect sales volumes but consumers moved many transactions from credit to debit, changing our traditional revenue streams. There were ramifications on all sides of the business, from merchants closing stores to internal loss of talent due to layoffs to the reduced resources for innovation. Add that to the unstable banking environment, and it made for an interesting year.
Hamilton: I believe the overall economic downturn had the most significant impact on the overall market. The environment impacted ISOs’ and acquirers’ ability to continue to maintain steady growth and initiated a higher-then-expected consolidation of several players and, in some cases, the exit of small- to medium-size players.
Petitti: The new transaction-reporting requirements for merchant-acquiring entities mandating the reporting of the gross amount of their merchant customers’ payment card transactions to the Internal Revenue Service. Even though the IRS passed this in 2008, it will require some resource allocation for the next year.
McWeeney: As money tightened, it was attempting to survive and grow in a cash-limited economy. Now, as the economy is making a mild turnaround, we see some aggressive growth plans for next year but caution is still key.
ISO: Which factor will have the largest effect among ISOs and acquirers in 2010? For example, security mandates, consumer behavior or merchant attrition, to name a few.
Ayala: Visa Inc. and MasterCard Worldwide fee increases. In additional to the widening interchange-fee categories, noninterchange-fee increases were enormous in 2009. The four-fold increase in the Visa/MasterCard per-authorization/transaction fee combined with the radical cross-boarder fee increase are huge burdens on merchants that already are paying high fees. Increasing these fees only exacerbate an already frustrated constituent in the payments chain.
Shipley: The Payment Card Industry PIN-Entry Device requirement is an obvious factor, but consumer behavior is more important now. People are using charge cards less and debit more. Average ticket size is down, and so are transactions.
Perry: The situation with the financial stability of banks could have a big effect on ISOs in 2010. Will banks focus on businesses that create higher profit margins than acquiring? Will they merge with others and collapse the number of bank sponsors available? I think we might see some banks lose interest in acquiring. This could also be a challenge for the card brands.
Hamilton: Other than the economy, I believe that the PCI requirements and security will still be a primary concern throughout the year, and for those organizations that have been impacted by a breach the final resolution could impact the overall market and how we move forward.
Petitti: The security mandates will have the greatest impact. In general, that all merchants, regardless of acceptance channel, transaction volume, etc., must be compliant with the PCI Data Security Standard ensures that ISOs take action. Visa set the deadline of July 1, 2010, a few years ago.
McWeeney: No question the compliance demands of 2010 are on the front burner. However, new and innovative methods of processing are bombarding the acquiring industry, and there will have to be a sorting out of who is capable to do what all in a secure/compliant environment.
ISO: What is your outlook for 2010? Do you see an economic rebound? Stabilization? Continued weakening?
Ayala: Economic stabilization. The jobs report is improving marginally, housing prices are stabilizing and companies are operating with continued excess capacity. Those combined with the enormous federal stimulus will lead to economic stabilization in 2010.
Shipley: Possible continued weakness as we enter the New Year because the first quarter is normally a slow quarter in the acquiring industry. Consumers buckle down to pay for holiday gift-giving and businesses control spending. Attrition at most processors is outpacing new growth. Tough times still are ahead.
Perry: I am not an economist, but I am optimistic by nature and think we will have a better year. I hope ISOs and acquirers spent time becoming more efficient and when recovery comes they will be ready for volume rebounds and revenue opportunities. The transaction-processing business is very viable and has tremendous growth potential, but we must not depend on traditional thinking.
We still have ISOs and other innovative companies with some cash to acquire, new products ready for market and the need to update technology. At ISTS we see more interest in updating legacy systems, prepaid platforms and innovation like Visa’s Real Time On Line Financial product [a transaction alert system launched in November]. I have a positive outlook because of the entrepreneurial nature of our business and the creativity of the people in it.
Hamilton: I see a slow recovery in the economy in 2010 but do not believe it will not reach prior levels, at least until well into 2011. This will continue to have an impact on the players in the market, and we may see the sale and consolidation of players beyond those that have already announced their desire or need to exit the business.
Petitti: The most likely scenario is for continued stabilization without much improvement, at least until the middle of the year. Banks still are not lending, and businesses will not return soon to a rate of hiring conducive to contribute to substantial economic growth. Confidence, both business and consumer, will improve over the next year moderately.
McWeeney: I see continued consolidation in the industry and an increased demand for security limiting many ISOs’ ability to grow. Also, mobile payments will be making its move in 2010. It is going to open up a new merchant category that contains more than a million members. Merchant attrition will be washed out by the growth of the mobile merchant.