Merchant acquirers can learn a lot from their new competitors about how to stand out in a crowd where everybody appears to be the same.

"There are literally hundreds of companies for payments services," said Jason Oxman, CEO of the Electronic Transaction Association, a trade group that represents payments and technology companies. "The challenge in the [merchant acquiring] space is competitive differentiation."

Bank of America Merchant Services recently made an unusual play by teaming with the Dallas Cowboys to market payments to businesses that have an existing relationship with the football team, or are located in the team's area. It's a move that combines two threats to traditional ISOs—a buzzworthy brand and innovative mobile payments technology.

"It's an ingenious move. It's really forward-looking," said Paul Martaus, a merchant acquisition consultant and researcher, who also said it suggests Bank of America is broadening its approach to working with independent sales organizations to create differentiation in the marketplace. "It's atypical for B of A to do this sort of thing with an ISO." (Bank of America did not provide an executive for an interview for this story.)

The resulting company is Blue Star, which is operating as a subsidiary of the Cowboys and is distinct from other elements of the team's marketing such as affinity payment cards. For Blue Star, the more closely it can link itself to the Cowboys, the better, said Tim Sloane, a director at Mercator Advisory Services.

"Throw in free Super Bowl tickets and I bet they get a real deluge of orders from the greater Dallas sole proprietor merchants," Sloane said. "But I doubt that would be sustainable (or possible)."

The Cowboys' move is yet another alarm for ISOs, which are already under threat by newer rivals such as Square and LevelUp that entice merchants with low-cost marketing and payment acceptance.

"There are many sports teams out there, and just because nobody has done this before, there's no reason that it can't work," Oxman said. "That's a reason that this marketing opportunity should be watched by others."

ISOs and other traditional merchant acquirers in the past have relied on pricing, basic service and existing relationships to compete, Oxman said. But that is relic of a time when the ISOs sold a product that was fairly basic. "They offered card acceptance, literally plastic," Oxman said. "And today's market is very different."

Even basic affinity marketing would provide a new chance to put a literal face on the sale of payment terminals, inventory management and other products that tend to be similar from one acquirer to another.

While the Cowboys' merchant services business is grabbing attention, Square is and its peers are an even greater threat to traditional ISOs. These companies are part of a broad and rapidly growing industry that's using mobile phones and tablets to bite at acquirers' heels, and they are aggressively adding services to generate new revenue.

These companies are chasing a large market—Oxman estimates there are 8 million merchants in the U.S. alone that accept electronic payments. But those 8 million merchants may be a deceptively large market that's only open to companies that combine the latest technology with a compelling reason to sign up, whether that reason is a service or a familiar brand.

ISOs are frequently chided for being slow to embracing automation, and they are more prone to see technology as a threat than an opportunity.

So it's no small thing that almost hidden in the buzz around the Cowboys and BofA's Blue Star is Clover Station—First Data's mobile point of sale solution and one of the major elements of Blue Star's pitch to merchants that's not related to football. 

Clover Station has added a number of capabilities over the past year to improve its appeal, and makes a powerful product to complement the Cowboys' brand, Oxman said.

Mobile's threat to traditional merchant acquiring also goes beyond automating the actual transaction and providing Web-enabled CRM or inventory management at a discount. The technology also makes it easier for merchants to do business with the acquirer.

"E-commerce and mobile technologies have been very transformational for acquiring in recent years, and it's had a huge effect on how acquirers and ISOs find and sign new customers," said Rick Oglesby, a senior analyst and consultant at Double Diamond Payments Research. "Online merchant acquisition was rare just a few years back, and now a merchant can download an app and begin processing within a few minutes, or pick up a merchant account while walking through Walmart, almost like the account is just another product on the shelf."

These changes make branding far more important, Oglesby said, adding that when merchants have lots of choices and where the friction associated with making a choice is low, the emotional aspects of the decision become more important.

"This is why companies such as Square have invested so much in building a brand identity," Oglesby said. "I think we'll see more of this type of thing moving forward since technology has made the industry even more competitive by … making it so easy and convenient to choose and/or switch service providers."

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