This article appears in the June 25, 2009, edition of ISO&Agent Weekly.

Before 2007, North American Bancard's sales agents saw little incentive to mention Discover card acceptance to merchants.

That changed when Discover that year opened its network to third-party acquirers and enabled them to bundle Visa Inc., MasterCard Worldwide and Discover transactions into one rate for the merchant, Marc Gardner, president of Troy, Mich.-based North American Bancard, tells ISO&Agent Weekly.

As of April, Discover had 94 third-party acquirer deals accounting for 98% of its U.S. bankcard sales volume, a Discover executive said at the Electronic Transactions Association Meeting and Expo in Las Vegas in April. Before opening its network, Discover Financial Services required each merchant to have a direct contract, and the brand used ISOs only as referral generators.

American Express Co. also has third-party acquiring deals, but it retains control over pricing.

"There really was no advantage for us to push other brands other than Visa and MasterCard if our income opportunity was greatly reduced," Gardner says.

That is not the case today. Now sales agents routinely tell merchants they can accept all three brands at one rate and receive information in one statement for all three card brands.

In five years, the percentage of U.S. merchants able to accept Discover card transactions will increase from 77% at the end of 2005 to 97% by the end of the first quarter of 2010, Discover projects.

If consumers can use more cards at the point of sale, an ISO has a better chance at increasing its residual revenue.

Discover Acceptance Growing

Similarly at First National Merchant Solutions, 2007 was a pivotal year for merchants accepting Discover cards. The processor's first merchant to accept all three brands as a bundled rate was signed in July 2007, says Vic Susman, chief operating officer of the Omaha, Neb.-based company.

More than 90% of First National's new merchants accept Discover as well as Visa and MasterCard because of the bundled rate and statements, says Diana Mehochko, First National president. Among existing merchants, more than 50% have signed up for the bundled service, she says.

"Some areas, depending on the sales channel, are much higher than 50%," Mehochko tells ISO&Agent Weekly. She would not disclose which sales channels had the higher acceptance rates.

Besides the approximately 200 directly employed salespeople, First National also works with scores of third-party ISOs and shares with them as much of the Discover acceptance sales material as possible.

Discover realized quickly that increasing its card acceptance meant opening the revenue stream to ISOs and their sales agents.

Indeed, making Discover acceptance financially worthwhile was essential, North American's Gardner says.

Matt Johanson, Discover vice president of acquirer relations, understands that. "Sales agents with our new acquiring scheme are going to earn money off their like transactions," Johanson tells ISO&Agent Weekly. "We are being included in nearly every new sale our statistics show."

Merchant Activation

The issue for Discover and its acquirers is getting merchants to activate their Discover acceptance.

Improving the activation rate and getting merchants to post signs indicating the Discover card is accepted is "critical" for cardholders to see the payment method can be used for transactions at the point of sale, Johanson says.

"We realize merchant perceptions aren't easy to change," he says. "We want to come behind and do a lot of the heavy lifting and change the 20-plus years of how we've done business."

That means trying different communication methods, including visits to merchants. The plan is to visit 1 million new Discover merchants by the end of 2009, using Discover employees and third-party companies, Johanson says.

ISO sales agents are interested in selling accounts and are not as interested in the follow up, aside from a few acquirers, Johanson says. "It's a role we can take and do effectively," he says.

During a merchant visit, the Discover representative will provide card-acceptance signs to post at entrances and at countertops.

The effort appears to be working, according to Johanson.
"Overall we are seeing activation rates that are stronger than what our historical rates were when we had referral programs with these same ISOs and sales agents," he says. Johanson would not disclose the activation rates.

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