HUNTINGTON BEACH, Calif. -- Some new entrants to the acquiring business got a full report Wednesday on the perils that lie ahead in their chosen field.

About half the crowd at the Field Guide for ISOs sessions at the Western States Acquirers Association 2012 Conference raised their hands when asked if they were attending their first industry meeting.

Having established much of the audience’s rookie status, the session’s speakers proceeded to explain how the rapid pace of change in payments will drive most of their companies out of the industry in the next few years.

“I used to tell sales agents that if they weren’t millionaires in five years they were doing something wrong,” Matt Clyne, president of Chantilly, Va.-based Direct Connect LLC, told attendees. “Now I tell them that if they don’t change their ways they won’t be around in five years.”

The end many come even more quickly for many, warned Mark Dunn, president of Hartland, Wis.-based Field Guide Enterprises LLC and organizer of the Wednesday sessions.

“In 2013 and 2014, we’re going to see the biggest changes in the industry’s 40-year history,” Dunn said.

New players are entering the industry, including Square inc., Google Inc. and, disrupting the established order and taking market share from independent sales organizations, the speakers agreed.

Square is offering flat-fee pricing that cuts through the complexity of interchange rates and also uses a sales model that eliminates in-person contact, Clyne said. Both changes undercut the role of ISOs and sales agents, he maintained.

Clyne compared the new players to rabid dogs that “look at us like meat.”

Meanwhile, many of the industry’s action-oriented ISOs and agents will find themselves out of step with the new technocratic acquiring industry as shifts occur to EMV and mobile payments, he cautioned.

Until now, acquiring has been a forgiving business with low cost of entry, low overhead and high margins that have allowed players to make mistakes and still make a profit, Clyne said.

But profits will shrivel in the face of increasing regulation, unfavorable court rulings and more pressure from new entrants, he predicted.

On the brighter side, ISOs and agents will make money selling or leasing terminals made obsolete by EMV, Clyne said. Meanwhile, mobile payments provide the industry with opportunities to sell loyalty programs to merchants, he predicted.

Loyalty schemes seem especially important because they bring consumers into the equation, Clyne says, noting that PayPal Inc. built its business by making itself important to the public.

“Whoever controls the consumer, will control the merchant,” he contends.

ISOs can defend themselves in the new world of payments by finding the right consultants and processors, according to Clyne.

Acquirers also can “climb the ladder,” moving from mom-and-pop retailers to merchants with multiple locations, he advises. From there, they can progress to business-to-business commerce, regional retailers and units of government.

Opportunities abound higher up the ladder, especially in B2B, but climbing requires new ways of recruiting and training sales agents, Clyne said.

Focusing on profits instead of volume also helps, Clyne said, noting that 80% of revenue typically comes from 20% of accounts. Nurture the big ones, he advised.

ISOs also should find ways to make value-added products and services profitable, Clyne said. Using them solely as differentiators won’t work, he asserted.

When Clyne finished his spiel, Dunn took to the stage and continued to advise ISOs and agents on meeting the requirements of the immediate future.

The forces that have compressed prices and profits for merchant processing in recent years include court cases, the decision to take MasterCard and Visa public, the Dodd-Frank Act and interchange-plus pricing, Dunn said.

They’ve resulted in “negative margin substitution,” which translates to “more work for less result,” he noted.

To overcome the mistake of continuing to do the same things in a changing marketplace, Dunn advised concentrating on a portfolio’s most profitable merchants, pricing to balance merchant retention and profits, and executing a retention plan.

ISOs should inventory their use of time to determine the most profitable activities and eliminate less-productive actions, he said, noting that computer apps can help.

Select partners wisely, including processors, investors, platforms, suppliers, attorneys, and consultants, Dunn told attendees.

Each ISO should create a two-year plan and devote an hour a week during the fourth quarter of this year to thinking about markets, resources and transformation, he advised.


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