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Now, you don't have to be a JPP to see the parallels in the all of these involve legitimate businesses, mature clients
payments industry. There is an enormous amount of noise and large volume. My conclusion, after spending time on
out there right now about the Next Big Thing in payments. a number of these opportunities, is that the regulatory
A lot of it revolves around new products and, of course, climate is not only oppressive, it is also out of control.
the patents associated with them. I would like to make
three main points about this, from the perspective of what A simple comment by the regulator such as, "we don’t like
I'd do if I were an ISO. this business" or "does your board understand the liabilities
of this business?" is enough for most banks to abandon a
Study your merchants customer, who will have a difficult time finding another
First, focus on the retailer. Get to know your merchant bank depository. Now we have a regulatory apparatus
really well and find out what their needs and concerns that is functioning as a restraint of trade.
are. The retailers' primary goal is not to replace all their Clarify protection incentives
existing POS equipment. They are concerned about
increasing their store traffic and their margins, and in Third, there is a lot of emphasis on the patents behind
some cases, just surviving. Find a way to help them do this. new products, particularly software patents. But here is
This is not just about explaining current developments, what you need to know about this, from an article by Eric
such as payment processing on mobile devices, prepaid Goldman in the Spring 2013 edition of the Santa Clara Law
mobile, virtual currencies, social media environments as Review.
payment platforms, digital currencies, and loyalty. You
will be expected to be knowledgeable about all of these • Most software programs have an effective
when your customer asks you about them, but you must commercial life of only a few years before they
go beyond them, as well. become obsolete.
• Software innovators have significant "first mover
Know your acquirer's challenges advantages" – enough to motivate software
Second, get to know your acquirer or acquiring bank. research and development without any patent
The biggest issue in the payment system right now is not protection.
transitioning to next-generation products. It is government • Software life cycles end before the patents issue
regulation, specifically, federal regulatory and enforcement (usually four or more years).
initiatives, compliance obligations, and fraud risks and • Software vendors can provide substantial lock-in
schemes. effects without a patent, due to proprietary file
formats, valuable apps created by the developer
community for the software, and user investments
There are new expectations from the large and pervasive
regulatory community, including third-party oversight in their own proprietary customizations.
and third-party payment processor considerations. Bank
exams now extend all the way to program managers, I see a great deal of work and emphasis on the so-called
as does bank liability. Right now, a compelling need for unique, and presumably patentable, advantages of
financial institutions is creating best practices for working next-generation payment products, but it turns out that
with regulators to determine how best to meet compliance copyrights and trade secrets provide adequate protection
obligations. incentives.

Each regulatory agency – Consumer Financial Protection As an ISO, don't focus on the product; focus on providing
Bureau, Financial Crimes Enforcement Network, Office of what your customer needs. And make sure that your
the Comptroller of the Currency, Federal Deposit Insurance financial institution (acquirer, reconverting bank,
Corp., etc. – has its own emphasis. Now regulators have and automated clearing house originator) has a clear
extended their scope to include "ethics," "consumer understanding of you, your company and your customers.
fairness," and even how a bank markets its products. That way, when their regulators ask them about you and
your business, they will be prepared with a clear and
authoritative answer about why you are a good client for
Then, there are the states' regulations, including their own
consumer protection laws and licensing requirements. the bank.
The bank will even have to determine whether federal
laws subsume state laws. The scope of this regulatory Brandes Elitch, Director of Partner Acquisition for CrossCheck Inc.,
oversight goes far beyond the traditional focus on proper has been a cash management practitioner for several Fortune
disclosures, unsafe and deceptive practices, consumer 500 companies, sold cash management services for major banks
protection and anti-money laundering. Now, the vast and served as a consultant to bankcard acquirers. A Certified
federal and state regulatory apparatus is focused on what Cash Manager and Accredited ACH Professional, Brandes has a
constitutes fairness and transparency. Master's in Business Administration from New York University and
a Juris Doctor from Santa Clara University. He can be reached at
My colleagues and I receive calls every week from ISOs brandese@cross-check.com.
looking to place business with a bank or acquirer. Almost
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