HUNTINGTON BEACH, Calif. -- The days are just about gone when ISOs and agents can sign up merchants for transaction services simply by offering a price a few basis points lower than the completion.
Instead, ISOs should develop unique products and services that make them valuable to merchants, panelists said here last week at a trade show.
“It’s my job to put the fear of God into you about a world that is changing,” asserted Pat Ford, senior vice president, TSYS Acquiring Solutions and moderator of a panel last week at the Western States Acquirers Association 2012 conference.
Ford named forces for change that include the partnership between Square Inc. and Starbucks, the working relationship formed by PayPal Inc. and Discover Financial Services, the Durbin amendment to the Dodd-Frank Act, a requirement that ISOs report merchants’ transactions to the Internal Revenue Service, Square’s flat-rate pricing, new acquirer fees from Visa and MasterCard, the Isis mobile wallet test, Visa’s encryption service, and a settlement offer from Visa and MasterCard in a lawsuit merchants brought over interchange rates.
In response to questions from Ford, panelists at a session on “embracing change” analyzed what’s happening in the industry and offered advice on remaining relevant despite those changes
Margins are shrinking on basic transactions, but ISOs can find ways to profit from profit from promoting value-added products and services, such as data analytics and marketing tools, said one of those panelists, Kim Fitzsimmons, CEO of Cynergy Data.
“I’m not scared of change – it’s exciting,” Fitzsimmons told attendees. “The hard part is discerning what will remain shiny.”
Companies new to payments, such as Groupon, want to control every aspect of commerce, including card transactions, noted panelist Greg Cohen, VeriFone Commerce Solutions senior vice president and general manager.
In response, ISOs should defend their relationships with merchants by making themselves more valuable, Cohen asserted.
Dongles that fit into smartphones represent the tip of the iceberg of change, according to panelist Todd Ablowitz, president of Double Diamond Group.
ISOs should defend their position with merchants by offering something special, he urged.
To find that something special, ISOs might consider cloud technology, Ablowitz suggested. The cloud is enabling ISOs to offer merchants technological innovations, such as email and text alerts, for as little as $50 a month, he noted.
Silicon Valley tech companies that are experimenting with payments, not as a profit center but merely as a way to collect data, are filled with Millennials, young adults unafraid of taking a chance, Ford said.
Such companies experiment with dozens of approaches and reject the ones that don’t work, he noted.
Where 10,000 opportunities are brewing, large organizations can “biet off” 100, suggested panelist Eric Barth, TSYS senior director, product and strategy.
“You’ve got to follow you gut and make multiple bets,” Fitzsimmons agreed.
Meanwhile, consumer experience is becoming increasingly important to commerce, creating opportunities for ISOs to cement customer relations with loyalty schemes, Cohen said.
Fitzsimmon told of a Google Inc. executive who said the company modeling its mobile wallet on the executive’s experiences as a consumer.
On the upside, panelists agreed that the U.S. conversion to EMV is coming at an opportune time.
“EMV is the best thing that could happen,” Cohen said. “It keeps the system intact” despite attempts by new entrants’ attempts to chip away at the established order in payments.
The card brands have a strong interest in making EMV work, partly to appease legislators with the visible sign of transaction security that the chip represents and thus head off new laws and regulation, Ablowitz said.
Panelists generally agreed that ISOs should determine their strengths and pursue them, specialize in a just a few vertical markets, find something unique to differentiate themselves and make sure their uniqueness is sustainable.
They also agreed that opportunity abounds for ISOs that keep pace or stay ahead of rapid change.
Illustrating such opportunities, Cohen noted that merchants gladly pay Groupon 50% of their revenue on a deal to increase traffic, while suing Visa and MasterCard for collecting 2%, Cohen said.
“Provide the value, and increase the spend,” he asserted.