With fierce competition for merchants and slim margins in the U.S. acquiring market, more ISOs are expressing interest in penetrating the largely unsaturated Canadian market, according to Federated Payments, an independent sales organization with operations in the U.S. and Canada.

ISOs potentially can earn greater revenue in Canada than they can in the U.S. because Canadian merchants typically lease equipment and have higher transaction volumes than do their U.S. counterparts, says Scott Avery, senior vice president of sales at Federated, which has offices in Melville, N.Y., and St. Catharines, Ontario.

“It’s going to be lucrative” in Canada for ISOs, agrees Adil Moussa, an analyst with Boston-based Aite Group LLC. “It is a market that is opening up right now to different alternatives,” and opportunities exist for smaller ISO operations to move into the market.

The Canadian acquiring market is “like the U.S. was 10 to 12 years ago, when the banks controlled the market,” says Evan Schweitzer, Federated chief financial officer. U.S.-based ISOs “see opportunity in Canada,” he says, noting Federated encountered “a lot of interest” from ISOs at the Electronic Transactions Association annual meeting and expo in Las Vegas in April.

Many ISOs are “frustrated with the U.S. market. They are looking for a refreshing start and a new opportunity,” says Schweitzer.

If merchants want to accept card transactions in Canada, they must go to a bank and sign up for a merchant account. “They pay an application fee, and six to eight weeks later they get an account and not know in most cases what their fees are,” says Avery. Few merchants negotiate their rates with the banks.

Typically, banks charge merchants higher rates than ISOs charge because they have higher overhead costs, says Moussa.

Canadian merchants are “looking for someone who is not a bank clerk behind a counter” and who will explain the options available to them and offer better rates, says Jim Levitt, Federated CEO. “They are aware of changes in the industry and now are looking for people to explain what that means for them,” he says.

Most merchants also lease their point-of-sale equipment, with less than 5% purchasing terminals, says Avery, noting this is a potentially lucrative situation for incoming U.S.-based ISOs.

ISOs also can earn greater revenue from Canadian merchants because their processing volumes are “two to three times higher than the average portfolio in the U.S. market,” says Avery, explaining there are fewer businesses per capita in Canada. “Instead of 18,000 businesses there might be 6,000. There are not 20 hair salons in a 20-block radius.”

Overall, the Canadian market is attractive because “rates are not cut so skinny. There’s no free-terminal programs,” Avery says. “The choices are so multiple [in the U.S. that merchants] are signing up with the person who can save them a nickel.”

Federated offers an ISO partner program that enables U.S.-based ISOs to sell services in Canada. An ISO working with Federated receives training and information about the Canadian market and access to tools that help them sell to Canadian merchants.

The sub-ISOs sign revenue-share agreements with Federated, says Avery, who declined to reveal specific revenue information. Avery also declined to name the ISOs with which Federated is in agreement talks.

Many expansion opportunities are available in international locations, says Todd Ablowitz, president of Double Diamond Group, a Centennial, Colo.-based consulting firm. ISOs largely have had success finding smaller merchants in the U.S. and selling payment services to them, and it is likely they can replicate that success with smaller merchants “around the world,” he says (see story). http://www.paymentssource.com/news/isos-without-borders-finding-global-merchants-3001267-1.html

The U.S. merchant market also is saturated with card services, and some providers may look internationally to find untapped areas, says Cliff Gray, an associate and merchant-processing and product-services expert with The Strawhecker Group, an Omaha, Neb.-based consulting firm.

“A lot of people have to be thinking there is more business out there on the other side of the pond,” he says. “In the U.S. especially, it’s very saturated.”

Because of the saturated U.S. market, “it stands to reason that increasing competition around the world would be a better way to go,” says Ablowitz.

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