ISOs are preaching specialization as they brace for a shakeup caused by giant consumer-facing companies angling for positions in the payments industry.
Finding a niche makes sense to ISOs coping with the uncertainty of search engine giant Google Inc. and mobile joint venture Isis making plans to introduce e-wallets.
Those wallets seem certain to take transactions and the resulting residual payments away from legacy acquiring channels.
Meanwhile, PayPal Inc. is plotting to expand its service to brick-and-mortar retailers, further reducing ISOs’ transactions and residuals.
Still, ISOs have a way of seeing an upside. While some in the acquiring business perceive these new players as a threat, the big outsiders should bring ample opportunities for ISOs to customize sales for merchants, says Steve McRae, CEO of Merchant360 Inc., a Medford, Ore.-based merchant-services company specializing in mobile, contactless and Near Field Communication.
By serving as consultants, ISOs can leverage the new technology to tailor payment services to meet merchants’ needs, McRae says.
“Right now, those big players are not opening their arms and saying welcome to the ISOs,” he says. “But the ISOs are the ones closest to the merchants. They can provide a [service] that can make the Google or PayPal wallet work, but also make their own [service], such as a coupon or loyalty application, work as well.”
The mobile wallet represents just another value-added service ISOs can add to card-acceptance services to remain competitive, says Alan Kleinman, a principal of Meritus Payment Solutions, an ISO based in Santa Ana, Calif.
“The payments landscape is dynamic, and you need to transform yourself to make sure you’re staying at the forefront of technology,” Kleinman says. “Mobile just reinforces that.”
ISOs have time on their side, too, sources say. Mobile wallets remain in the initial or testing stages.
In addition, the NFC technology to support many wallets has yet to gain widespread acceptance, which is more than a year away, industry sources say.
And consumer-facing companies with a clear strategy for payments have not reached critical mass.
“There are so many unknowns in that space,” says James Diel, president of Gravity Payments, a Seattle-based ISO. “Yes, the players getting in will have an impact. The impact is still up in the air because it depends on what they want to do and how they want to do it.”
Kleinman puts it this way: “The whole shakeout is going to take a little while to occur. With that, the merchants are really going to rely on the ISOs to help educate them on this.”
In September, Google launched Google Wallet, its NFC-based mobile-payment offering, with partners Citigroup, MasterCard and Sprint.
So far, Google remains the only big new player that has completed a soft launch, with the service available only to consumers with a Citibank MasterCard and a Nexus S 4G phone from Sprint. Some 140,000 merchants are accepting Google Wallet, including Best Buy, CVS and The Home Depot.
AT&T Mobility, T-Mobile USA and Verizon Wireless in November unveiled their mobile payments joint venture, called Isis, which also could rely on NFC.
However, Isis remains about a year away from launching its mobile-payments application and is conducting field tests in Salt Lake City and Austin, Texas.
PayPal plans to apply its online payments model to the offline realm with PayPal Wallet, which will not require an NFC-enabled phone and instead will rely on a cloud-based digital platform that enables users to make in-store and online mobile payments.
Other players also are working to secure their spots in the industry. Amazon.com Inc., for example, has established a payments presence, and Visa plans to launch its own digital wallet service, V.me, later this year.
Still absent are Apple Inc. and Facebook, although both are eyeing the space, observers say. However, the U.S. Patent and Trademark Office on Nov. 15 published 31 patents granted to Apple related to NFC technology and what appears to be a new location service that uses the global positioning system.
So the payments industry is attracting players that know little about the business and have few contacts with retailers.
“A lot of these people who are trying to get closer to merchants really don’t understand the merchants,” McRae says.
That leaves openings for ISOs and agents who present themselves as consultants ready and able to solve merchants’ payments problems, he notes.