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in today's marketplace. Because gross margins are falling, the late 1990s. In those days, aggregation was generally
gross margins per transaction are falling and attrition frowned upon by the card brands. Merchants without
is going up. If you want to control your own destiny, electronic processing accounts would piggyback off of
controlling your own technology is imperative." merchants that had such accounts; for example, a shoe
store owner without an account would go to the bookstore
Shehabi noted how the aggregation does just that. next door to run transactions.
"Merchants are the most slippery customers ever, and
they will leave you in a heartbeat," he said. "When you are In 2002, the card companies developed Internet payment
providing the technology behind it, when you have the service provider rules to regulate the growth of
solution going from you, you have much larger stickiness aggregation. But Ablowitz said the rules were restrictive
with that merchant, and therefore the merchant is not and burdensome. Then Square came along, incorporating
likely to abandon you." in 2009 and rolling out its first products in 2010, and the
landscape changed.
Aggregation is also a big data play. Shehabi said, "If you
are a player and the transactions are coming to you, it Ablowitz thus called Square the "godfather of the
starts to open up in terms of the loyalty, the couponing, renaissance of the aggregator" and it confronted the
the incentive programs and all the statistical BI [business industry with a fundamental question. "Why we are
intelligence] information you can pick up. So there is a lot asking all these tiny little merchants so many questions?"
of additional juice that you can now extract out of those Ablowitz said. "Why do we have 250 fields on an application
transactions." versus Suare asking 14? If they can do it, and they believe
that the risk is manageable, why can't we?"
Ablowitz put it bluntly. "I don't think you can succeed in
the years to come without taking an aggregation model or But Square ran into problems in 2013. Merchants
a model that uses some of the hallmarks of aggregation, complained that lengthy holds were being placed on their
like frictionless boarding," he said. funds, resulting in Square eliminating those holds. Square
has also gained a reputation for poor customer service,
Using aggregation to climb the ladder with merchants only able to get help from Square via
Ablowitz pointed out that Square was not the originator email.
of aggregation, as PayPal Inc. had been aggregating since
It should not be lost on the establishment that the very
processes Square has trouble managing are the hallmarks
of traditional ISOs. "There is no rule that says you
cannot answer the phone," Ablowitz said. "And that's
the differentiator that the people in our industry have.
That's exactly what makes us the right place to serve small
merchants and take a page out of these other guys' book."
Square has even taken a page out of the ISO's book and
focused on getting a toehold in the old fashioned brick-
and-mortar world. The San Francisco-based company
launched its own POS service, Square Register, in 2011,
and enhanced it with Square Stand in 2013. Square also
partnered with Starbucks Corp. in 2012 to allow customers
to pay for coffee and pastries with Square's mobile wallet.
Square is looking more and more like a typical payment
provider, and its original dongle-based service looks less
important to its future. "[The dongle] was a great way
for them to market themselves as something different,
whether it was profitable or not," Alarakhia said. "It was
a way of getting them into the marketplace, and now they
are actually offering products and services that are the
typical products and services that are in the ISO market
right now."
ISOs can use aggregation in a similar fashion, as a jumping
off point for climbing the payment value chain. "Whole
new [possibilities] open up in front of an organization
when it converts itself from an ISO to an aggregator, from
an aggregator to a gateway, from a gateway to a processor,"
Shehabi said. "And we keep going."
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40
in today's marketplace. Because gross margins are falling, the late 1990s. In those days, aggregation was generally
gross margins per transaction are falling and attrition frowned upon by the card brands. Merchants without
is going up. If you want to control your own destiny, electronic processing accounts would piggyback off of
controlling your own technology is imperative." merchants that had such accounts; for example, a shoe
store owner without an account would go to the bookstore
Shehabi noted how the aggregation does just that. next door to run transactions.
"Merchants are the most slippery customers ever, and
they will leave you in a heartbeat," he said. "When you are In 2002, the card companies developed Internet payment
providing the technology behind it, when you have the service provider rules to regulate the growth of
solution going from you, you have much larger stickiness aggregation. But Ablowitz said the rules were restrictive
with that merchant, and therefore the merchant is not and burdensome. Then Square came along, incorporating
likely to abandon you." in 2009 and rolling out its first products in 2010, and the
landscape changed.
Aggregation is also a big data play. Shehabi said, "If you
are a player and the transactions are coming to you, it Ablowitz thus called Square the "godfather of the
starts to open up in terms of the loyalty, the couponing, renaissance of the aggregator" and it confronted the
the incentive programs and all the statistical BI [business industry with a fundamental question. "Why we are
intelligence] information you can pick up. So there is a lot asking all these tiny little merchants so many questions?"
of additional juice that you can now extract out of those Ablowitz said. "Why do we have 250 fields on an application
transactions." versus Suare asking 14? If they can do it, and they believe
that the risk is manageable, why can't we?"
Ablowitz put it bluntly. "I don't think you can succeed in
the years to come without taking an aggregation model or But Square ran into problems in 2013. Merchants
a model that uses some of the hallmarks of aggregation, complained that lengthy holds were being placed on their
like frictionless boarding," he said. funds, resulting in Square eliminating those holds. Square
has also gained a reputation for poor customer service,
Using aggregation to climb the ladder with merchants only able to get help from Square via
Ablowitz pointed out that Square was not the originator email.
of aggregation, as PayPal Inc. had been aggregating since
It should not be lost on the establishment that the very
processes Square has trouble managing are the hallmarks
of traditional ISOs. "There is no rule that says you
cannot answer the phone," Ablowitz said. "And that's
the differentiator that the people in our industry have.
That's exactly what makes us the right place to serve small
merchants and take a page out of these other guys' book."
Square has even taken a page out of the ISO's book and
focused on getting a toehold in the old fashioned brick-
and-mortar world. The San Francisco-based company
launched its own POS service, Square Register, in 2011,
and enhanced it with Square Stand in 2013. Square also
partnered with Starbucks Corp. in 2012 to allow customers
to pay for coffee and pastries with Square's mobile wallet.
Square is looking more and more like a typical payment
provider, and its original dongle-based service looks less
important to its future. "[The dongle] was a great way
for them to market themselves as something different,
whether it was profitable or not," Alarakhia said. "It was
a way of getting them into the marketplace, and now they
are actually offering products and services that are the
typical products and services that are in the ISO market
right now."
ISOs can use aggregation in a similar fashion, as a jumping
off point for climbing the payment value chain. "Whole
new [possibilities] open up in front of an organization
when it converts itself from an ISO to an aggregator, from
an aggregator to a gateway, from a gateway to a processor,"
Shehabi said. "And we keep going."
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40
