As the acquiring business becomes increasingly complex, its more important than ever for ISOs to recruit, nurture and retain the best independent sales agents, a new study shows.
Thats how ISOs can see success, said Rick Oglesby, who conducted the study as head of Double Diamond Payments Research LLC, a new enterprise thats associated with the established Double Diamond Group consulting firm. The ones that dont figure that out are going to be left holding the bag.
The Agents of Change surveywhich centered on independent agents who run their own businesses and do not work as regular ISO employeesindicated ISOs cant afford to squander time on nonperforming salespeople, Oglesby said.
If you go with the basic mass-market strategycome one, come allyoull end up with a lot of nonperforming agents, he maintained. A lot of effort goes into recruiting agents, and often theres not much return on it.
In fact, one of the studys most surprising findings was how much the top agents outperform average agents, Oglesby said.
ISOs that take a mass market approach to hiring independent agents can expect an average of 42.5 new merchants per year per agent, the study showed. Selective ISOs can attract independent agents that sign up 60 to 100 merchants annually, with some independent agents corralling as many as 8,000 to 9,000 merchants yearly.
A selective ISO with 50% average independent agents, 40% strong performers and 10% top achievers should earn about $30,000 a year per agent, three times the earning per agent of a mass market ISO, according to the study.
Moreover, only the best independent agents can handle the changes that are roiling the acquiring business, Oglesby said.
The changes include the spread of mobile payments and the transition to EMV, combined with the proliferation of value-added point-of-sale products intended as competitive differentiators, he contended.
There is a lot of concern over whether ISOs and agents will be able to make the transition, Oglesby said.
The turmoil is causing turnover of independent agents, forcing ISOs to concentrate on recruiting a new type of agent capable of selling products and emphasizing value as opposed to selling on price, he said.
Often, ISOs poach those top-performing independent agents from competitors, Oglesby said.
Recruiting and retaining the top agents requires that ISOs offer effective training, infrastructure and products, a proposition thats becoming increasingly expensive.
Thats really not easy to do, Oglesby said of the costs ISOs face. It takes a lot of upfront investment in technology.
Its become so capital-intensive that some interviewees discouraged startups from entering the market.
A lot get into the agent channel with the expectation that its cost-efficient because youre working with third-party small businesses on a pay-for-performance basis, but the reality is that its changed, he said.
Double Diamond Researchs study, the first undertaken by the firm, focused on interviews with ISOs. Subsequent studies will concentrate on ISOs and online acquisition of merchants for transaction services, he said.
Projecting from the ISO interviews, Oglesby reckons the nations 5,000 or so agents are responsible for merchant services at 1.1 million merchant locations, about 10% of the nations total. Merchants in that segment operate an average of 1.2 locations, Oglesby noted.
Those merchants generate about $192 billion in transaction volume annually, accounting for a healthy portion of the business that flows through ISOs.
How much additional business ISOs realize through the sales people that they employ directly should become clear when Double Diamond surveys acquiring banks for the anticipated report on ISOs.
To compile the data, Oglesby interviewed 21 ISOs of all sizes24% were among the five largest ISOs, another 33% were not in the top five but were from the 10 biggest, 19% came from the biggest 11 to 20, and 24% were from the group smaller than the top 20.
So we had close to a quarter in each size segment, Oglesby said.
He used three methods of determining the size of the agent channel based on the interviews, and all produced similar estimates.
Sources agree the nation has about 5,000 active agents, defined as those who signed at least one merchant for transaction services each month.
Simple arithmetic would yield the average agents merchant count and transaction volume, but Oglesby cautioned that 75% of the nations agents perform below average and 25% above.
Growth in the independent agent channel slowed significantly in 2011 and 2012, but recovered last year, according to the report.
Double Diamond Research is working on six or seven more reports but hasnt announced when it will release them.