After a year of pushing EMV full-throttle, many ISOs are shifting gears to focus on other products and services. They're now seeing chip card-related revenue take a backseat, as sales associated to point of sale systems, consumer financing, business advice and mobile payment acceptance gain traction with merchants.
"We would rather talk about something that is going to help their business than putting the fear into customers about EMV," says Derek DePuydt, president and chief executive of Apogee Payment Systems LLC, an ISO in Mukwonago, Wisconsin. "EMV isn't part of the main discussion anymore like it was a year ago."
Apogee is one of a number of ISOs across the country changing course after spending the latter part of 2015 and early 2016 heavily pushing EMV to merchants. Apogee still supplies an EMV solution for new customers that aren't already accepting payment cards, but DePuydt finds that most merchants it seeks to poach from other ISOs are already on board with EMV, so it's not the sales draw it once was.
Instead, Apogee is spending its time talking to businesses about switching to a point of sale system that can do more than just credit card processing.
To be sure, EMV terminal sales haven't completely ground to a halt industrywide. Nonetheless, earnings reports from terminal manufacturers as well as anecdotal data from ISOs indicate that the pace of sales has slowed significantly from its peak.
Indeed, Paul Ganci, a payments industry veteran, says he doubts terminal sales will ever be as hot as they were back in October 2015 when the credit card networks' EMV liability shift took effect and his phone was ringing off the hook.
"From October to December 2015 it was a mad rush for people to get equipment and then it just died off at the beginning of the year," he says.
More ISOs changing their approach
As the need to supply merchants with EMV hardware has waned, DePuydt says Apogee Payments has seen more small and midsize merchants expressing an interest in switching from basic terminals to POS systems. Not all of these systems are even EMV-compliant, he notes.
"It's not that merchants don't want chip compliance. They do. It's just that they want other things more," he says.
Nick Bencivenga, chief operating officer of Dharma Merchant Services, an ISO in San Francisco, predicts that EMV will rear its head again in the form of chip and PIN upgrades in the next few years. But for now, his ISO is also more heavily focused on meeting growing demand from small and midsize businesses for POS systems that are searching for ways to run their operations more effectively. "There's a lot of value in finding a product that's going to meet [a merchant's] needs for the next 10 years," he says.
For some merchants, a full-fledged POS system is too expensive, so ISOs are touting less expensive options that offer more bells and whistles than a traditional terminal. To meet this need, some agents have begun offering tablet-based solutions like Clover Mini for under $400, giving merchants the ability to accept multiple types of credit and debit payments and manage tips and pre-authorized tabs and cards. Clover Mini also has a built-in printer, offers on-screen signature capture and has bar code and QR code reading ability.
It's a cost-effective solution if you want more soup and nuts than a traditional terminal for only a little more money, says Vlad Sadovskiy, president of Merchant Services at TOT Payments, subsidiary of TOT Group in North Miami Beach, Florida.
Sadovskiy says his agents have seen demand for tablet-based solutions that are somewhere in between traditional terminals and a full-fledged POS system, which are bigger and costlier than a terminal and offers functionality that smaller merchants don't always need.
"To some merchants, a POS system is a waste of money," he says.
Merchant demand rises for consumer finance, mobile payments
While POS systems are becoming more popular, they aren't they only focus for ISOs looking to boost revenue beyond EMV. Some ISOs, for instance, are branching out into other areas like consulting, consumer finance and mobile payments.
Dharma, for example, is on the cusp of offering merchants tax and business advice on demand.
The ISO has recognized that many small businesses have an increasing need for easy-to-use business services and professional advice. Accordingly, the ISO has partnered with a third party to provide real-time advice on its website for existing or prospective clients. Merchants would receive an hour's worth of services for free by visiting Dharma's website and requesting to initiate a real-time chat session with a licensed CPA. The service is expected to launch in the fourth quarter, according to Bencivenga, adding that details of the arrangement are still being ironed out.
PayProTec, an ISO in Warsaw, Indiana, has a relationship with Loanhero.com where it can offer lending to merchant customers in all 50 states. Agents earn a residual on every loan they bring in that's funded, and the availability of this service has helped PayProTec sign up a lot of independent agents, says Marc Beauchamp, the ISO's president.
"Finance is becoming a key component for business owners, especially in the medical space, as well as home improvement and auto repair," Beauchamp says.
Drew Freeman, president of Freeman Consulting, a payments consulting firm in Fort Lauderdale, Florida, also knows of a number of ISOs trying to help merchants drive mobile sales. There's not a single solution, but ISOs are starting to focus more attention on mobile technology.
"The future of all commerce is mobile so ISOs should be aware of the different solutions that are in the marketplace. They should be able to provide solutions to merchant portfolios and be ready to embrace third-party applications," he says.
John Mayleben, senior vice president of technology and product development at the Michigan Retailers Association, an ISO in Lansing Michigan, says he has seen some traction in the contactless payments space. All the merchants that upgraded to EMV through his ISO have the potential to accept contactless payments. Interest in this feature varies by the type of business a merchant operates and the demographics of its customers, Mayleben notes.
For instance, he works with merchants around Ann Arbor, near the University of Michigan. Because of the large number of college kids in the area, merchants that serve this market have to support mobile payments because it's what the younger generation expects.
"A certain number of consumers will still purchase from you initially, but they might choose to go somewhere else [where contactless technology is offered]. The premise that consumers are going to shop with you, no matter what, is not the best business model to operate under. As a merchant you have to be accommodating to the consumers and how they want to pay," he says.
E-commerce tech gaining popularity with merchants
With the rise of e-commerce, ISOs have also been offering more products that help customers transact in an online world. For example, many merchants are now doing more business in multiple currencies and are looking for applicable solutions from ISOs.
One feature within the Pivotal Payments platform that has been popular over the last few years is multi-currency pricing, which has been a selling point for e-commence merchants that sell across the world, according to Frank LoSchiavo, senior vice-president of sales and marketing at the ISO based in Plano, Texas. Pivotal's merchants can sell their products and services in over 60 foreign currencies and receive payments directly in U.S. dollars.
Some ISOs are also trying to help retailers fight the battle against card-not-present fraud as they shift more business online.
ISOs that deal with online merchants should be looking at this as an opportunity, given that card-not-present fraud is going up, according to Freeman, the industry consultant. It's a relatively new and fresh opportunity for ISOs to help merchants mitigate online fraud. Bigger ISOs can establish third-party relationships to offer tokenization, encryption, and authentication services to merchants, while smaller ISOs will be more reliant on their processors to offer these services. "ISOs need to be educated on what solutions are available and how they can get those solutions to the merchants," Freeman says.
Beyond e-commerce, ISOs have an opportunity to help merchants accept business payments via credit as opposed to paper checks. "When merchants are dealing in paper processes, it costs them more than they realize. Time is money. The faster they can get paid the better," Freeman says.
At present, checks represent about half of B-to-B payments to merchants, whereas commercial cards represent less than 10 percent, according to data from First Annapolis Consulting in Annapolis, Maryland.
While paper checks have their downsides, it can be a hard sell to convince merchants to accept B-to-B payments via credit card.
First off, checks are seen as an easy and time-tested form of payment. Secondly, transactions via ACH, another popular form of payment, are significantly less expensive than sales processed with commercial cards. "That's certainly one of the challenges that B-to-B ISOs come across," says Frank Martien, a partner with First Annapolis Consulting.
Some ISOs are also having luck signing merchants up to use products that can make the customer experience safer, such as point-to-point encryption technology.
Within the past year, iStream Financial Services Inc., a payments solution provider in Brookfield, Wisconsin, has been actively marketing point-to-point encryption technology, primarily to its customers in the health care space.
With point-to-point encryption technology, credit card data is encrypted after it is swiped or keyed in by an employee. This means that unencrypted data never resides on the merchant's network, says Katie Robinson, director of payment services at iStream. The particular device that iStream sells is designed so that employees can't accidentally use their own keyboard to enter the data, she adds.
Health care providers tend to take a lot of payments over the phone, and this technology makes these transactions more secure, she says. An added bonus is that it helps customers significantly decrease their PCI compliance burden. "There are many different industries out there that could benefit from this solution," she says.
EMV still drives revenue for ISOs
Of course, even as many ISOs are branching out beyond EMV, some continue to heavily pursue opportunities in this area and expect it to remain a large part of their revenue for the foreseeable future.
"Nine-nine percent of my day is talking to people about EMV," says David Leppek, president of Transaction Services, a full-service ISO in Omaha, Nebraska. He says merchants are still calling him to upgrade their systems, especially those who delayed implementation and changed their minds after getting hit with significant chargebacks.
Ken Musante, president of Eureka Payments in Eureka, California, says his firm continues to buy a hundred EMV terminals at a time, mostly for new customers. At one point the ISO was placing orders more frequently, but that has slowed as most of its existing customer base has already made the switch.
Even so, EMV remains a large part of the ISO's business. "EMV is still in the forefront of our customer's minds," he says.
Certainly, there are still a large number of businesses that have not yet made the switch to EMV, which suggests the doors for EMV sales are not completely closed. The Strawhecker Group (TSG), a management consulting firm focused on the global payments industry, released survey results in September showing that 56 percent of card-accepting merchants in the U.S. don't even have EMV terminals. Also, gas stations and restaurants present a future opportunity for many ISOs, particularly because gas stations were given an extra two years to put EMV in place before facing a fraud liability shift.
Even so, several ISOs say they recognize the need to diversify their revenue beyond EMV. For many ISOs, including his own, EMV is still a big revenue driver, according to PayProTec's Beauchamp. "It's just not what it used to be," he says.