From the April 2010 issue of ISO&Agent magazine.

The weak economy, margin compression and a saturated market in the United States are making it difficult for some ISOs and their sales agents to earn revenue at the same levels they did a few years ago. As the U.S. market continues to become more challenging, some service providers are looking outside its borders at opportunities to grow their businesses.

Expanding into regions beyond the U.S. can help payment-service providers diversify and stabilize their revenue streams, though the tactic is not suitable for all companies, observers note.

With the industry becoming more global overall and service providers and merchants alike expanding across borders, the impulse for some companies may be to expand too far, too fast. Taking on international expansion prior to building a solid business foundation and preparing a growth strategy can lead to failure.

Successful expansion with thoughtful planning, however, can yield many benefits.

Diversifying geographically not only may help a merchant-service provider grow, it also may help differentiate itself further from the competition, says Giuseppe Caltabiano, president of Nxgen International, a Whitefish, Mont.-based merchant-service provider. Nxgen in March announced it is opening operations in the United Kingdom and in Italy as part of a European expansion strategy.

Many expansion opportunities are available in international locations, says Todd Ablowitz, president of Double Diamond Group, a Centennial, Colo.-based consulting firm. ISOs largely have been successful at finding smaller merchants in the U.S. and selling payment services to them, and it is likely they can replicate that success with smaller merchants "around the world," he says.

Though global expansion will not serve every company, there is "real truth" to the financial benefits of diversifying business geographically, says Cliff Gray, an associate and merchant-processing and product-services expert with The Strawhecker Group, an Omaha, Neb.-based consulting firm. "As the global marketplace matures, it will become more and more common," he says.

Though benefits exist in international expansion, payment-service providers should consider how such a move may affect their business and if they have enough scale to expand successfully before launching an international growth strategy, note observers.



Nxgen's strategy is "act local and think global," says Caltabiano. The company looks for local partners in regions into which it wants to expand that would benefit from partnering with Nxgen so the two companies together can offer a full range of payment products and services, he says.

Nxgen intends to begin boarding UK merchants in late March and begin operations in Italy two to three months after that, says Caltabiano. Nxgen has incorporated Nxgen UK and Nxgen Italia and will have office locations in Chesham in the UK and likely in Milan and Rome in Italy, he says.

The company intends to work with local partners in both regions and use local salespeople to reach merchants. Nxgen is working with UK-based payment-service provider SilverPay and an undisclosed partner in Italy that is a "major vendor of payments systems" in the market, says Caltabiano.

Nxgen first began its international expansion in Canada in 2006 with Nxgen Canada.

Payments companies should "think globally" but also "execute at a level they can support," says Ablowitz. "To really be successful in payments, you have to be global," he says.

Clients also are becoming more global, says Caltabiano. Having an international presence "is a major advantage when dealing with large merchants or Web-based merchants" because they typically also operate in multiple countries, he says.

Expanding into multiple geographic markets also can benefit a company by spreading its revenue among different currencies and regions, says Caltabiano. "If all of a sudden a country goes into a [economic] crisis, hopefully another country isn't going into the same crisis at the same time," says Caltabiano. "And if a currency goes lower, hopefully another will go higher."

There is "more stability and diversity of revenue" in international operations, agrees Ablowitz. "One area might get hot for your niche, and another might be stagnant for a while," he says, noting for example that Near Field Communication technology is growing faster in some regions than it is in others. NFC technology enables communication between devices, such as an NFC-enabled mobile phone and a reader.

Many service providers that have expanded beyond the U.S. also are operating in Canada, Ablowitz says.

Companies can "access a higher rate of growth than [they] might otherwise get in a single market," says Paul Stanley, general manager and senior vice president of international integrated networks and ATM at Atlanta-based First Data Corp. The merchant-service provider is present in 36 countries, he says.

"If you suffer a slowdown in the U.S., other markets in the world still are growing rapidly," says Stanley. Many additional product and transaction possibilities also exist internationally, he says.

The U.S. merchant market also is quite saturated with card services, and some providers may look internationally to find untapped areas, says Gray. "A lot of people have to be thinking there is more business out there on the other side of the pond," he says. "In the U.S. especially, it's very saturated."

Because of the saturated U.S. market, "it stands to reason that increasing competition around the world would be a better way to go," says Ablowitz.



International expansion will not benefit every company, and merchant-service providers that want to expand outside the U.S. should evaluate their business models carefully 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, notes Ablowitz. 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 Stanley. 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 Caltabiano. "Every time you touch a different country you need to humbly accept that they are an entity on their own," he says.

It can help if U.S.-based companies have existing relationships through business partnerships or local employees in the areas where they wish to expand, says Ablowitz.

Hiring local employees is essential, he says. "If you are a Chinese company and you want to sell in the payments industry in the U.S., you best hire U.S. resources," Ablowitz says. The same holds true for U.S. companies expanding into other countries.

Indeed, cultural and linguistic issues are important to overcome and a company "can only do that with strong local leadership," agrees Stanley. Local employees can help a company avoid pitfalls, he says.

While many benefits exist for companies that expand beyond U.S. borders, every merchant- service provider should examine its business and global markets before launching a global expansion strategy.

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