By Lane Gordon
MerchantPortfolios.com
Lately, ISOs and merchant level salespeople (MLSs) sound a lot like gamblers just back from Las Vegas boasting of how much they won, not how much they lost. So it is hard to gauge the economic state of U.S. and foreign-based payment professionals. Some claim they are signing more merchants than ever; others tell me they are adding accounts, but that average tickets and processing volumes are down.
Nevertheless, one thing is clear to me in 2009: Growth areas both domestically and worldwide need to be investigated by ISOs interested in long-term growth. Promising areas include e-commerce, direct debit and the Single Euro Payments Area (SEPA). But it takes broad-mindedness and vision to think outside the traditional brick-and-mortar payment model.
If you've been in the business a few years, you've had it drilled into your head you should be pursuing brick-and-mortar merchants. And if you're really conservative, you may focus exclusively on such merchants in the belief that they enhance portfolio revenues and stability. When it comes time to sell, said portfolios get maximum return on investment, the thinking goes.
If you concur with this line of thinking, then I ask you:
What I'm getting at is that traditional, brick-and-mortar merchants may not be the portfolio backbones they once were.
One of the few segments that appear to be growing is e-commerce. You may argue that e-commerce merchants are undesirable for one reason or another. You may look at them as high-risk, fly-by-night, nonprocessing accounts with low ticket counts and revenues.
But I would argue that while Circuit City Stores Inc. is liquidating and other brick-and-mortar retailers are soon to follow, e-commerce enterprises are surviving and, in many instances, thriving.
Do you have what it takes to enter the e-commerce arena? Do you offer global merchant services that can charge and settle in multiple currencies? Do you feel that companies like PayPal Inc. have you beat? It's time to take a look at these issues - if you want to grow and thrive.
Another area of interest is direct debit. We used to say the payments industry was recession-proof because, during a recession, consumers pile more money on credit cards. But this is a recession like no other in recent memory.
Card issuers are trimming and closing consumer credit lines. Additionally, a general sense of panic is creating an atmosphere in which even creditworthy consumers are opting to reduce their credit card purchases. In many parts of the world, interest rates on credit cards are so exorbitant consumers are finding less-expensive ways to pay for goods and services.
So there has been a resurgence of direct debit opportunities where consumers worldwide avoid using credit cards and make certain recurring and nonrecurring payments directly from bank accounts.
This reflects a conservative mentality, but paying with debit cards enables consumers to easily track how much money they have in demand deposit accounts and determine the amount of each purchase accordingly. This gives consumers a sense of greater control than when they make purchases based on credit card limits.
Are you servicing the direct debit marketplace? Have you looked at opportunities to remarket direct debit products and services to your existing merchant accounts as an additional way for them to accept payments?
Here's another radical idea for you: Look beyond the United States. Since we live in an "America centric" culture, the average person living in the United States, regardless of his or her economic or social status, seems to have a limited worldview and an equally limited notion that business opportunities are limited to our national borders.
I speak daily with ISOs that throw away non-U.S. merchant inquiries and applications because they "don't handle that."
Well, if you're such an ISO or MLS, maybe you should reconsider. Maybe you can get an edge on your competition by finding a solution for foreign-based businesses. Has anyone noticed the amount of gateway and card-not-present companies popping up that handle multicurrency transactions all over the world?
These companies may have seemed insignificant in the past, but I assure you they are not only here to stay, but in many cases are experiencing faster growth and bigger margins than so-called bread-and-butter, brick-and-mortar merchants.
The European Union has embarked on the SEPA initiative. It's big. It affects the way credit and debit payments will be handled in 31 countries throughout Europe. What the euro did to consumers' and merchants' ability to conduct business, SEPA will do for merchant processors, gateways, ISOs and anyone else involved in the payments space globally or overseas.
Whereas certain ISOs may have had a lock on merchants in Belgium or France, they now will be able to go head-to-head with each other throughout all the countries in the SEPA, resulting in a tremendous opportunity. Instead of limiting yourself to 300 million consumers in the United States, why not broaden your horizons to take advantage of servicing payments from a base of billions of consumers?
The macroeconomics of the situation make sense in today's climate. The issues at hand for U.S.-based ISOs are how to enter this market profitably, how to find the right partners and how to structure appropriate agreements. Tackling this may appear daunting, but no one said running a competitive business would be easy.
So take a chance. Investigate these opportunities - and others - and find out which ones are suitable to your business models and areas of expertise. And then take action. Problems in the domestic and global economies have forced this action-taking mode upon the payments industry. If you find yourself relying on reaction, change course before it's too late.
Lane Gordon is Managing Partner at MerchantPortfolios.com, a company specializing in marketing ISOs and portfolios for sale. Prior to MerchantPortfolios.com, he spent a number of years working in the payments industry. Gordon holds degrees from the Massachusetts Institute of Technology and Carnegie Mellon University. He can be reached at 866-448-1885, ext. 301; lane@merchantportfolios.com; or by fax at 508-638-6444.
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