This article appears in the Oct. 1, 2009, edition of ISO&Agent Weekly.
Economic forces and fraudsters with malicious intent continue to create challenges and opportunities for the merchant-acquiring industry.
In this second part of a question-and-answer series with Carla Balakgie, CEO of the Electronic Transactions Association, ISO&Agent Weekly asks about these challenges, opportunities and the Washington, D.C.-based association's role.
ISO: What are the top-three challenges facing the industry today and why?
Carla Balakgie: The economy is the most immediate challenge. Tighter credit, changing consumer-spending patterns, slow retail sales and other negative effects of the recession have created a climate in which ISOs and others on the acquiring side have to focus on every aspect of business, from risk management and pricing to diversification of markets, products and services.
The challenge is magnified because the recession recovery may be slower than usual, and consumer spending may not be as economically powerful as it once was, because consumers will be less willing to take on debt and lenders less likely to extend credit.
Along with adjusting to economic changes, the ETA's members are dealing with a business climate in which the pricing of card acceptance no longer offers much in the way of a competitive advantage. The question members face is how to differentiate themselves in the eyes of merchants. Some are looking at more and better service or consultative selling. Others are in search of the next product or service that is profitable and that every merchant will want.
The answer is probably all of the above.
Staying ahead in the data-security race also is important for the industry. I am sure that there is a bright computer programmer or fraudster who has found what may be the next weak link in the payments infrastructure and is ready to exploit it. It is like counterfeiting in the cash world and forgery with checks. Fraud is a problem that is going to be a permanent part of the landscape and will continue to grow and become more sophisticated.
The industry's challenge is to uncover threats quickly, mitigate them, and most importantly, make sure the industry deploys successful mitigation strategies. It also is important when data breaches occur that merchants and acquirers have a clear set of uniform rules to follow in dealing with the aftermath of an attack on their systems.
ISO: What are the top three opportunities facing the industry today and why?
Balakgie: It is difficult to pick the "top" opportunities. The payments industry is wonderful because although it is a maturing business, it still is expanding and there is a lot of innovation in the industry. What qualifies as a great opportunity will depend on what part of the industry people are in and the resources they can apply to the opportunities they uncover.
To pick out three that may be important, I will start with alternative-payment systems, by which I mean those that do not flow through the traditional credit/debit networks.
It is not clear which of these alternatives will take hold and become important to consumers or merchants, but the payments companies who are in a position to take advantage when the winners emerge likely will be tomorrow's industry leaders.
Another important opportunity is the community of value-added resellers that package transaction processing with equipment and software sales as a bundled offering to merchants.
While the practice is not widespread now, except perhaps for the hospitality industry, value-added resellers represent a new business model for the industry and may have a significant effect on the way acceptance is sold in the future.
Given what is happening in the United States, health-care payments represent a large opportunity but require some nontraditional expertise. Whether health-savings accounts, payments within the insurance-service-provider universe or government-to-service-provider payments, health care is an area poised for rapid and widespread payments growth.
The difference is that electronic medical payments will be tied to and intermingled with electronic medical records, which raises a lot of questions around privacy, accuracy and ethics. Those who develop the necessary expertise will, like those who master alternative payments, be among the industry leaders in the not-too-distant future.
ISO: How does the ETA see its role evolving over the next three-to-five years?
Balakgie: The ETA exists to serve its members and make them more successful. That role will not change. How we do that is a moving target. What the ETA does for its members may look very different in five years, but it always will be about helping them be in an informed position to capitalize on the next opportunity and avoid legal, regulatory and legislative burdens.
For example, the association is in the early stages of developing a Certified Payments Professional program. Those who pass a rigorous test will be able to use the designation to demonstrate their competence to employers and customers.
As the financial-services industry remains in the legislative and regulatory spotlight, the ETA likely will be more active in representing the interests of our members and the industry.
Both of these programs emerged in the past few years to meet the growing needs of ETA members. As their needs continue to evolve, so will the ETA's programs and services.
One thing however will not change—the ETA's role in bringing together the biggest and most diverse universe of companies to foster business development and growth in the payments industry.