International expansion will not benefit every company, and merchant-service providers that want to expand outside the United States should carefully evaluate their business models to determine whether such a strategy is feasible, some observers note.
Though potential benefits from international expansion exist, “the number of ISOs doing it is very small” because many merchant-services providers find it inappropriate because of their size, says Todd Ablowitz, president of Double Diamond Group, a Centennial, Colo.-based consulting firm. It makes sense “if you have the scale to be thinking that way,” he says. “Just deciding to do it, if you are on the smaller scale, it’s not enough.”
Midsize companies should not stretch themselves “too far too fast,” cautions Paul Stanley, general manager and senior vice president of international integrated networks and ATM at Atlanta-based First Data Corp. They first should “get a strong foundation and build a solid business before spreading too thin,” he says, adding it is a “big task” to expand outside the U.S., and the decision should be “analytically driven.”
When choosing where to expand, companies should look at population density, urbanization, amount of mobile-phone ownership and computer accessibility, says Stanley. “You’re looking at shifts in the way people transact, typically from cash to debit,” he says. When multiple factors converge in one area, it suggests a reasonable market opportunity exists, says Stanley.
First Data grew internationally primarily through acquisitions, which can give a business an easy point of entry into a market and access to customers and revenue, says Stanley. “We would find a foothold in a country by acquiring a business with scale and local presence,” he says. The acquisitions also provided First Data with existing teams of local employees, he notes.
Multiple aspects of international expansion, including cultural and time differences, can make conducting business challenging, says Stanley. Additionally, legal and regulatory differences in other countries can be a “hidden bear trap if you don’t get it right,” he says.
Service providers cannot “assume everything works the same way as at home,” Stanley says.
Some U.S. businesses go to other countries and expect foreign merchants to transact in U.S. dollars, which is not an appropriate approach, says Giuseppe Caltabiano, president of Nxgen International, a Whitefish, Mont.-based merchant-service provider. “Every time you touch a different country you need to humbly accept that they are an entity on their own,” he says.
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