In the past few years, the payments industry has experienced a flood of new offerings, from consumer-facing giants like PayPal and Google to Silicon Valley startups such as Square.
The influx has left independent sales organizations wondering whether the new entrants regard them as competitors or potential allies.
The risk of displacement was the main concern reported by established payment companies a 2013 survey by the Electronic Transactions Association and Goldman Sachs.
Meanwhile, new entrants may regard ISOs as dinosaurs on the verge of extinction. But some startups understand the advantages ISOs bring to the business, says Steve Eazell, president of the Western States Acquirers Association and vice president of sales and marketing for Secure Payment Systems Inc., a San Diego-based merchant services provider.
"We have the relationships," Ezell says of ISOs. "We have the distribution network. We have the players on the street. Without us, they're not going to be able to go to the next level."
That's why ISOs are setting aside their concerns about displacement, according to another ETA-Goldman Sachs survey.
That study, called the "Annual Merchant Acquirer and ISO Survey" was released in April and indicates 90% of ISOs say new entrants represent only 25% of attrition. Only 10% of respondents say new entrants will negatively affect ISOs' pricing for small and medium-sized merchants.
New entrants often bring new technology that can seem impressive until someone has to distribute it to merchants, industry veterans observe.
Startups are often finding that if they want to keep growing among merchants they can't reach directly, they have to find distribution partners such as ISOs and acquirers, says Linda Perry, an independent consultant and former head of acquirer and processor relations for Visa Inc.
"We know how to get in and sign up people for payments," Perry says of ISOs. "That's what we do."
Many newcomers consider ISOs potential partners instead of direct competitors, says payments analyst Gil Luria of Wedbush Securities, a Los Angeles-based financial services firm.
"They want to move very fast. And to move fast, they would much rather go through the existing infrastructure as much as they possibly can," Luria says.
Companies don't want to start from scratch, but they will do exactly that if they have no alternative, Luria says.
"If acquirers don't want to cooperate with themwhich some would rather notthey'll find a way to get around them," Luria says.
Still some newcomers seem like friends and others don't.
Square seems firmly planted in the competitor category, while Google and its Google Wallet offering are positioned as potential allies to ISOs, Luria says. And PayPal has taken more of what Luria calls a "co-opetition" approach.
Last spring, PayPal made some members of the acquiring community nervous when it launched a deal with Discover Financial Services to handle PayPal payments at brick-and-mortar stores that accept Discover.
Afterwards, PayPal made a move that signaled it wants to work with acquirers on the new venture. To enable the in-store system at more locations, PayPal contracted with 50 merchant acquirers just after the launch.
Among those merchant acquirers was EVO Merchant Services of Melville, N.Y.
"PayPal realizes that it's best to work with processors rather than try to challenge them," says Jeff Rosenblatt, EVO's president.
EVO and other ISOs should form partnerships with some of the new entrants, Rosenblatt says. EVO has been in talks to create other alliances with mobile payments providers LevelUp and Isis, he says. Isis is a venture of AT&T, Verizon Wireless and T-Mobile.
Luria also sees opportunities for incumbents to work with Isis, which might need ISOs and acquirers to convince retailers to buy the terminals necessary to accept contactless Isis payments. He also expects ISOs could work on the acceptance of Google Wallet, which uses similar Near Field Communication technology.
Square still isn't embracing ISOs as an ally, Eazell says. Instead, it relies on social media and its own network for reaching the masses.