By Adam Atlas
Attorney at Law
So the technology world has discovered payments. Specifically, the new world of electronic entrepreneurship, commerce and mobile services is knocking at the door of traditional and alternative merchant acquiring solutions. From the perspective of a lawyer advising ISOs and merchant level salespeople (MLS), here are a few ideas to assist your business strategy now as the marketplace evolves.
Any provider may have what appears to be a near-perfect solution for a given payment channel, such as gift cards or mobile payments. Yet one must question the cost of being exclusive to a provider for a given product. With the right terms, of course, exclusivity is a good bargain for both parties.
However, granting exclusivity to a vendor - without adequate consideration - may ultimately frustrate your business as new sales opportunities come along. For better or for worse, merchants are as fickle as consumers, if not more so. They are apt to switch to the latest gimmick in payments. ISOs should have the flexibility in their supplier agreements to indulge merchants' desire to try new options.
Customer information is the currency of our time. Naturally, under most acquiring sales relationships, the merchant information belongs to the acquiring processor or bank. That said, it is possible to negotiate terms by which an ISO takes some title in merchant information as it relates to products or services. Consider the value of that information and whether you can negotiate some rights in it.
Once you obtain those rights, consider how you may use that information to improve revenue from your portfolio. Obviously, dealing in merchant information requires express consent of the merchants in question. With that consent, an ISO may leverage value in its portfolio that might otherwise go unused.
Together with the increased value of information, ISOs and their suppliers have a corresponding obligation to protect that information. In negotiating contractual terms with all suppliers - from agents, to employees, to information technology service providers - ISOs should consider what obligations suppliers are taking on for securing the information they hold.
Naturally, the Payment Card Industry Data Security Standard applies, as it must. But ISOs and MLSs care about more than just cardholder data. They also care about merchant information, merchant applications, pricing, sales figures and residual reports, which - like a physical inventory in the old world - is the inventory of the new ISO world.
Supplier terms should contain protection for information security. Of course, payment businesses should also secure their own data, whether it resides on laptops and servers or in filing cabinets.
Regarding agreements and applications, ISOs should foresee the transition from paper to paperless documents. When instructing legal counsel on the development of new business agreements, have counsel draft the electronic version of all documents. The cost should be marginal. As electronic documents become the norm rather than the exception, ISOs can hit the ground running when boarding agents, referral sources and merchants without the troublesome paperwork. We must plan for paperless documentation to come to banking, as hard as that is for the old world bankers to fathom.
When ISOs sign new agents, they should recognize that MLSs can solicit for a variety of products beyond merchant services. The drafting of an agent agreement should take this flexibility into consideration. Without running up against the rigorous rules that apply to merchant acquiring, an agent agreement should be flexible enough to allow the ISO to give agents tools to sell products and services other than bankcard acquiring.
The last thing you want is to be educated on a new payment system by your merchant clients. Having a direct connection to millions of merchants, ISOs and MLSs should follow all the twists and turns of new payment products. This enables them to advise merchants on the products' pluses and minuses while competing to be the trusted payments adviser that so many payment professionals are to their merchants.
When new products emerge, try them out. This doesn't mean you need to buy all the latest terminals. But having test accounts on various payment systems online is a good way to stay in touch with trends in the payments space.
ISOs and MLSs are very well placed to create their own disruptive payment technologies. Indeed, few startups in payments have payments industry veterans' years of experience in understanding merchant needs.
Such experience is a potentially fertile source of payments business innovation. That said, remember that most great payments ideas go nowhere. So don't waste your time on one unless you are confident it's a winner.
People will always need ways to pay. New ways come along every day. As payment professionals, ISOs and MLSs have front-row seats on the evolution of payments and are well positioned to profit from it.
In publishing The Green Sheet, neither the author nor the publisher is engaged in rendering legal, accounting or other professional services. If you require legal advice or other expert assistance, seek the services of a competent professional. For further information on this article, email Adam Atlas, Attorney at Law, at atlas@adamatlas.com or call him at 514-842 0886.
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