By Brandes Elitch
CrossCheck Inc.
I attended my first Electronic Transactions Association meeting at the Palmer House in Chicago in the early 1990s. The vendor space was a few folding tables set up in the hallway outside the meeting room. The major card brands were conspicuous by their absence.
How things have changed! The 2011 ETA Annual Meeting & Expo had over 3,000 attendees, and the vendor area had so many exhibitors that, if you attended the sessions and had some meetings, it was overwhelming.
A show this size takes a whole year to plan, and the logistics are formidable - just ask anyone who had to put up and take down a booth. Following are highlights from what I observed at the event this year.
First, here are excerpts from a presentation by Robert O. Carr, Heartland Payment Systems Inc.'s Chief Executive Officer:
In addition, Bob compared 1994's top processors with today's reigning processors: of the former top 36, only 7 are left. He named 14 that are now owned by First Data Corp. and said this kind of consolidation will continue. I found this sobering.
Second, former Sen. Chris Dodd (sponsor of the Dodd-Frank Reform and Consumer Protection Act of 2010) told the back story to the legislation's Durbin Amendment. I went into the talk prepared to dislike what I heard, and I was wrong. You would expect him to be a good speaker, and he is.
He brought the reality of what happened into the room. Back on Jan. 7, 2008, the large financial institutions were saying, "If you don't deregulate, we're going elsewhere," and that mentality was pervasive.
While a financial services reform bill had been talked about for decades, there were 75 hearings on the mortgage crisis, but little or no appreciation of the growing systemic problem. March 2008 brought the Bear Stearns crisis; if this had not been solved, the next day (Monday) would have become a bank holiday, Dodd said.
He described Sept. 18, 2008, as the most incredible evening in his more than 30 years in the Congress: the Federal Reserve Chairman told the 14 people in the room that unless they acted immediately, the entire financial system would melt down. Two days later, $700 billion was allocated to bail out the financial institutions (FIs) that had created the mess in the first place.
Dodd said this was the right action, and I think most economists agree. His point was that in our society, major issues have a shelf life of about one week and are then forgotten. Certain factors needed to be addressed: the idea that large FIs were too big to fail; the need for transparency on exotic instruments (derivatives became a $600 trillion market); and oversight so problems can be fixed before, not after, the fact. Historically, the Fed had a supervisory role in monetary policy but never exercised it.
Another piece to address was consumer financial protection, and the opposition to that was "stunning," Dodd said. The goal was to craft a legislative framework for a fair regulatory environment that fosters freedom and innovation. As Dodd said, "You don't have the luxury of dreaming; you have to fashion something that would move us off the dime to stabilize the financial markets."
Regarding the Durbin Amendment's cap on debit fees, Dodd predicted the Fed will raise the number from 12 cents to 40 cents; he predicted the Debit Interchange Fee Study Act introduced by a bipartisan group of senators in March 2011 will not be adopted, but that modifications to Durbin are likely.
He said most members of Congress don't understand financial services. "This is an obscure subject matter for Congress, compared with other issues," he said.
He pointed out that partisanship built this country and it is critical, but in the end, you have to negotiate to settle the issues and not believe in "my way or the highway" governing, which, unfortunately, seems all too common today. He also noted that in the 1990s, the debate was over the Community Reinvestment Act, not Glass-Steagall reform, which nobody was interested in at the time.
There has been much noise about the Durbin Amendment in our industry, but my opinion is that the real "affected parties" are the large debit issuers (such as Bank of America Corp., which could take an annual hit of $2 billion on interchange revenues) and the card brands, which will lose switch revenues.
Lost in all the hoopla is that merchants, particularly large merchants, will reap significant benefits, as will merchant-funded rewards networks and alternative payment networks.
Third, here are other ideas gleaned from presentations I attended.
But certification is here, and I predict the large processors will eventually mandate that their salespeople take the exam, just as the banks did. I also predict this will be good for the industry.
Like all good conferences, the ETA was so packed with interesting presentations, vendor booths and new products that you could absorb only a small portion of what was offered.
Given the speed of change in the industry, maybe the ETA should return to more than one expo per year.
Brandes Elitch, Director of Partner Acquisition for CrossCheck Inc., has been a cash management practitioner for several Fortune 500 companies, sold cash management services for major banks and served as a consultant to bankcard acquirers. A Certified Cash Manager and Accredited ACH Professional, Brandes has a Master's in Business Administration from New York University and a Juris Doctor from Santa Clara University. He can be reached at brandese@cross-check.com.
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