David Leppek, president of Transaction Services LLC, has an opportunity that many in the ISO and acquiring business encounter infrequently in their careers. He has the chance to design his ISO without having to use years-old legacy technology.

ISOs usually have a couple of choices when determining how to develop technology to make back-office functions more efficient and less costly. They either can hire a development staff or use outside developers.

Many ISOs rely on a combination of the two, and those that find the right balance often benefit from making the best use of their money and their employees' time.

Newark, Del.-based Transaction Services chose the first option. It hired an in-house staff to develop its processing and operations technology.

Leppek, whose ISO will go live processing merchant transactions in June, realized it was only natural when creating the Transaction Services online payment gateway that he also build in other electronic business processes, such as a system to sign up merchants for accounts. As such, the gateway will include access to its boarding tool and another tool to manage residual splits. (Boarding is the process of entering a merchant's information to set up a card-processing account. Residuals are the recurring revenue ISOs and agents make from merchant transactions, often split between the ISO and its sales agents.)

The system also manages lead generation and creates scanned versions of documents that sales agents fax in, Leppek says. "We have lower costs because we can handle all this in-house," Leppek tells ISO&Agent. All of this automation requires fewer support staff and increases his ISO's ability to work with more sales agents, he says.



For those ISOs considering third-party technology, innovation may lurk in unexpected corners.

One issue ISOs constantly face is managing paper documents. POS Portal Inc., a Sacramento, Calif.-based point-of-sale equipment distributor, has another side of the business that provides back-office software for ISOs

The newest such software it offers is Agent Portal, a document-management system. Agent Portal tracks faxes, such as merchant-account applications, and enables sales agents to track the status of the applications online. Agents receive a fax number they use to track the applications each agent submits.

Agents can see whether a signature or other information is missing from the application, or the ISO can write notes for the agent to review, says Nicolas Alezeau, POS Portal business development manager.

Though other fax-management software is available, Agent Portal has a level of customization unseen in many other programs, Alezeau says. For example, the software, which ISOs access via a website, enables organizations to set up user accounts and create workflows-processes for how to handle documents and merchant-related activity-specific to how they want them set up, he says. ISOs also can add their own brands and logos to their specific Agent Portal log-on page.

"This solves a very specific need for many ISOs in their offices today," Alezeau says. Its development, as with the other software products POS Portal offers, often originates from discussions with ISO clients, he says.

The unusual nature of the acquiring industry drives some ISOs to develop their own software, as Leppek is doing at Transaction Services.

Fast Transact Inc., now part of FrontStream Payments Inc., a Brentwood, Tenn.-based merchant-services provider, also has developed its own automated technology. For the past three years, Fast Transact has used a residual-tracking application it designed, says Josh Hulbert, the company's information technology director.

FrontStream's technology merges data from various sources, such as processors and banks, into its database, Hulbert says. FrontStream can aggregate the data into one source for the ISO and its sales agents to use, he says.

Being able to track residual revenue "reduces staff time and reduces the number of staff necessary for it," Hulbert says.

Online residual tracking and merchant-transaction reporting-a feature under development- represent another move to paperless business processes, he says. Eventually, Hulbert will automate other FrontStream services, such as data on a merchant's automated clearinghouse transactions.

Hulbert also has tied the reporting technology into the company's online payment gateway, which captures transactions as they cross the gateway. "If it's on our gateway, we get onto our database," he says.



Newtek Business Services Inc. is another merchant-services company that has written customized software for its resellers to use. New York-based Newtek offers its resellers and referral partners a website containing links to the multitude of products it offers, such as small-business lending, accounts-receivable financing, and credit and debit card processing.

Newtek brands the site with the reseller's logo. Clients range from a certified public accountant to enterprises such as Navy Federal Credit Union and Morgan Stanley & Co. Inc., Sloane says.

Newtek tracks all of the website's activity and links it to the company's database, where Newtek and resellers can follow the customer's actions, says Barry Sloane, Newtek CEO. "It creates a complete audit and compliance trail," he says.

The data can reveal information such as a reseller's close ratio for a particular type of merchant, "if they're good at closing gas stations or not good at closing e-commerce merchants," Sloane says. The technology also enables Newtek to know the amount of time that passes between when a merchant referral arrives and when the reseller calls back the potential client, he says.

Newtek's branded-referral website is a cost-effective way for Newtek to acquire customers, Sloane says. "The likelihood of us putting more than one product with a customer has increased," he says.

Newtek's cost of acquiring a merchant is less than what Sloane says is the industry average of between 60% and 80% of the expected residual income, Sloane says.

Tying a customized website closely to sales agents lowers merchant-acquisition costs because the website may provide some of the same functions a sales agent would handle when initially contacting a merchant. For example, a merchant may just want one place to see all available services, which can eliminate the need for a visit or to mail several brochures to the prospective client.

Newtek also benefits from an increased ability to measure quality control, Sloane says. A Newtek manager and the reseller can monitor the progress of a referral.



Not every ISO or acquirer wants or needs to develop every piece of back-office software in-house.

Because in-house developers have direct access to the ISO's business processes and the workers who oversee them, they have an advantage over third-party software developers, Hulbert says.

The payoff is that in-house developers see how everything fits together, or should fit together, he says. That could mean having the ability to share not only transaction information but also data on a merchant's security status and which sales agent last talked to the merchant and when, Hulbert says.

Transaction Services' Leppek, himself a computer programmer, hired a staff of five developers to get his ISO ready. Leppek's task is to design the back-office automation technology.

"We realized we needed the infrastructure of a gateway," he says. With the gateway in place, Leppek's staff is able to see what happens with each transaction that passes through it.

Transaction Services' automation includes processes for enrolling merchants, tracking their applications for processing services, housing lead resources for sales agents and managing residual splits. "Everything is being routed through our back-office tool," Leppek says.

The residual management is vital because the ISO will rely on referrals, and Transaction Services will compensate many referring entities through residual revenue, Leppek says. The system also will give agents reports on what their residual revenue should be, he says.

Agents will be able to log on to the Transaction Services system and see any information about their merchants, Leppek says.

"We can even get into an individual transaction and see which interchange category it fell into," Leppek says, noting this ability does not reveal sensitive cardholder data.

Having its own customized technology also enables Transaction Services to remake merchant statements into friendlier documents, Leppek says.

Transaction Services takes the daily files from its backend processor and puts the data into the back-office tool to create an easier-to-read merchant statement. Merchants often complain about complicated statements, and Leppek hopes his ISO's statement will be a distinguishing factor among his competitors.

But in-house staff may not be able to develop everything. FrontStream, for example, often will hire outside developers on a selective basis, Hulbert says.

"We're not a software-development company, so it's hard to justify developing everything internally," Hulbert says. FrontStream chooses which projects to outsource based on various factors, such as the importance of applying the in-house staff's knowledge to the final product, he says.

The ultimate goal of any technology used by an ISO or acquirer is to help increase profits. The right balance in the development of that technology will yield the best results.

From the May/June 2010 issue of ISO&Agent magazine.

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