ISOs and agents seem ready to withstand the changes rocking the payment industry.
Their entrepreneurial spirit and their relationships with the nation’s mom-and-pop shopkeepers will help them adjust and even prosper in the face of disruption, industry players agree.
That doesn’t mean, however, that ISOs and agents can sit back and enjoy a smooth transition to a new era. Giant companies and consortiums, including Google Inc., Isis, PayPal Inc. and Square Inc., are invading an already crowded and competitive market. Mobile-payment technology is making marketing an even more important product for ISOs and agents to sell. EMV appears likely to arrive in the United States after years of delay. The struggle to combat online fraud continues. The era of legislation and regulation has begun.
But those challenges do not mean any new technology or new approach to acquiring will displace ISOs any time soon, insiders say.
“ISOs are a critical distribution channel in this industry,” John Barrett, senior vice president of the First Data Corp. independent sales arm. “They’re not going away.”
First Data, an Atlanta-based processor, uses a mix of ISOs, agents, acquiring banks and in-house salespeople to contact merchants, Barrett says. The company chooses the sales channel that makes the most sense for each situation and anticipates no major shifts in which channels will gain or lose importance, he says.
“The beauty of the ISOs is they’re very entrepreneurial, they have different niches in the marketplace and they can adapt to the market very quickly,” Barrett notes.
Like First Data, most other processors have made no major shift in recent years toward larger in-house sales staffs and smaller rosters of ISOs and agents, but that could change, says Drew Freeman, president of Merchant Data Systems Inc., a Miami Beach, Fla.-based ISO.
An improving economy could free up funds to enlarge in-house sales teams, Freeman notes.
Although Freeman maintains that processors with their own sales forces are competing with their ISO partners, many industry experts also cite processors’ firm relationships with ISOs.
For example, Vantiv LLC, formerly Fifth Third Processing Solutions LLC, bought bought National Processing and made a major commitment to the ISO market, says Eric Grover, a principal at Minden, Nev.-based Intrepid Ventures.
First Data remains committed to ISOs, and Global Payments Inc. receives 60% to 70% of its U.S. business through ISOs, Grover says. Meanwhile, TSYS Merchant Solutions was created when Total System Services Inc., or TSYS, bought First National Merchant Solutions from First National Bank of Omaha, he notes.
As an exception, Grover points to Heartland Payment Systems Inc., which does not work with ISOs. “They have a direct sales force and want to control the merchant relationship,” he says of Heartland. “That’s part of Bob Carr’s philosophy,” he says, referring to Robert O. Carr, the company’s chairman and CEO.
Overall, processors are using ISOs and agents for about the same percentage of business these days as in the recent past, observers say.
ISOs and agents are holding their own because they have come a long way since the days they were referred to with the derogatory phrase “trunk slammer,” according to Paul Martaus, of Mountain Home, Ark.-based Martaus & Associates.
Gone are the days when agents, some of them “less than honest,” popped open a car trunk, grabbed a payment terminal and dashed into a store to do some fast talking to an unsuspecting merchant, he says.
Today, well-trained agents exude an air of professionalism as they consultant with business owners, Martaus maintains.
What lingers from the past is the necessity for agents to walk into a store and become the merchant’s best friend in 30 seconds, capturing the shopkeeper’s card-acceptance business and elevating sales to an art form, Martaus, says.