The Green Sheet Online Edition
March 3, 2025 • 25:03:02
Green Sheet Advisory Board:
Secrets of payments industry resilience - Part 1
Through the years, the payments industry has faced numerous curve balls—recessions, disruptive startups and technologies, data breaches, major lawsuits, and onerous legislation, for example. Every time, we've collectively risen to the challenges to not merely stay afloat but to adapt, innovate and thrive.
With this in mind, we asked members of The Green Sheet Advisory Board: Why are we so good at this? And what plans should payments enterprises have in place to surmount curve balls we might face in the next 12 months?
Following is a portion of the responses we received. Additional perspectives will appear in an upcoming issue. Thank you to all experts who participated in this discussion
Benjamin Abel, BAMS
We've all heard the phrase necessity is the mother of invention, and I think merchant services is a perfect example of that in action. Our industry sits at the intersection of commerce, technology and regulation—three forces that never stop evolving. Pair that with fierce competition among ISOs, MLSs, and other key players in the payments ecosystem, and you have an industry that must always stay dynamic, adaptable and looking one step ahead.
When you ask why we are so good at this it's because we've had no choice. Unlike some industries that can afford to resist change, we don't have that luxury; every shift in consumer expectations, security threats and regulatory landscapes has pushed us to innovate or risk falling behind. Those who were not able to respond quickly became obsolete.
But beyond necessity, what also makes this industry so resilient is its collective of problem-solvers—banks, processors, fintech startups and merchants—all working together, often competing, but ultimately driving progress. The constant influx of new technology, from EMV chips to contactless payments to AI-driven fraud detection, keeps us on our toes, and rather than fearing disruption, we have seen the most success when we've embraced it as part of the job.
Looking ahead, our strategy for success remains the same as it has in the past: staying tech-agile by embracing AI, automation, enhanced security measures and whatever else peeks up over the horizon; staying ahead of new laws and regulations—like the Illinois Interchange Fee Prohibition Act—so we're leading the charge rather than playing catch-up; and, most importantly, staying client-centric.
We must keep merchants at the center of everything we do, listening to their needs and providing the appropriate solutions. When our merchants thrive, so does our entire ecosystem.
Mark Dunn, Field Guide Enterprises LLC
We, as a group of dedicated salespeople in payments, have succeeded because of several factors. First, sheer persistence, size of our workforce and being on site. We are an army of salespeople calling, emailing, walking into places of business and meeting owners face to face.
Business owners have been comfortable doing business face to face for years. When faced with a buying decision, being local and physically present works. But there has to be value, transparency, honesty and day-to-day great functionality to make the local, face-to-face sales appeal work.
Second, business owners don't really like to change. When their POS systems, virtual terminals, payments integration, processing and funding are working – and don't cost an arm and a leg, business owners will most likely stay where they are. This means that good retention programs work if we fix what isn't working. Retention is a key factor in valuing merchant services businesses and portfolios.
Third, there are still significant opportunities for good profits in niche markets. Among these niche markets where ISOs are making good money are ISVs and developers, B2B companies, healthcare businesses and hard-to-place merchants (high risk). These niche markets require specialized solutions and specific experience, but there is less competition and more opportunity than retail/restaurant markets. Generally, it is worth the investment of time, money, research and learning.
Fourth, despite all the challenges we have faced so far, there hasn't been a really fundamental challenge to the card brands, the sponsor banks, the ISO programs, the agent networks. There is significant momentum in how things have worked. Nearly every owner of an ISO has made a lot of money in the last 20 years, and the current valuations of merchant services businesses are still high.
But times are changing and we have to adapt. There are storm clouds on the horizon.
First, the agent networks are a bloody ocean. ISOs are paying out 75 to 90 percent residual shares. That means the ISO either makes very little profit for new merchants or pads interchange and their costs to shelter more of the profit. I don't see how the agent model continues to work with these numbers.
Second, younger business owners are making buying decisions in a different way. They are used to taking out their smartphones, doing a quick search, locating a few suppliers or providers, and choosing the one that makes buying easy, seamless and frictionless. These owners buy based on how best to manage their entire business.
Payment processing is a built-in feature that's part of the overall package but not a leading factor. (Think about how spell check used to be a stand-alone application from word processing.) These owners don't care to talk to or meet with salespeople. This a fundamental sea change that has broad implications for the status quo in merchant services sales.
Third, when payments are integrated into the central functionality that a business uses to manage its people, suppliers, inventories, sales and operations, there isn't a lot of thought or analysis about what it's costing to process payments. It's really tough to get business owners to focus on making changes to this central system to save 50 basis points.
Fourth, cash discount and dual pricing are one of many initiatives to shift the cost of payment processing to someone else. Owners of restaurants have embraced it whole-heartedly. Other types of businesses may be moving that direction but this cost shifting will inevitably cause an upheaval in the balance of the card brand – bank – payments processor – ISO system.
Add to that the rampant tip excesses in face-to-face payment applications and you soon have a cardholder revolt. This might precipitate a fundamental challenge to the way things work in payments. Legislation, regulations, lawsuits, disrupting competition may result.
Fifth, AI has the power to change almost everything when employed properly. That may not benefit the existing structure of merchant services. It may not take long.
Here's my bottom line: ISO owners better be looking for other sales channels and competitive solutions in order to keep selling. AI should be built into any new sales channels or solutions. As an ISO owner, if you don't see your future clearly and aren't ready to pivot and adapt, you better be thinking about finding an exit and getting the most value for your portfolio while you can.
Allen Kopelman, Nationwide Payment Systems Inc.
What kind of curve balls are we going to face in the next 12 months? I wish I had a crystal ball to look into the future.
The reason payment professionals are good at dealing with monkey wrenches getting tossed into the mix. Senator Dick Durbin is trying to get the CCCA back in front of Congress again. This is one of the worst pieces of legislation that would affect consumers and businesses both in a negative way,
In fact, while Biden was still in office – that hearing shows one thing that congress people have NO CLUE how the payments industry works. When I was watching the hearing the questions being asked were all wrong.
Even after an expert tried to explain how payments works, the Congress people were still asking the wrong questions. It looked more like: let's have Visa and Mastercard come in, and let's grandstand so the public can feel good that we bring in these companies and slap them around. Both republicans and democrats do not understand the business.
The government usually gives enough notices for businesses to figure out how they are going to deal with regulation. Bigger companies move slower than agents and small ISOs.
Regarding changes in VAMP Rules with reduced chargeback ratios and new rules for high risk merchants, processors are working hard to make sure that merchants remain compliant.
For changes with Level 2 and 3 where pre-filled data is rumored to not allow the pre-filled fields any longer, and the card brands will use AI to detect that the data is basically all the same, I am sure that the gateways are all scrambling to fix that.
Ken Musante,Napa Payments and Consulting
We are so good at this because payments is a meritocracy. We don't recall all the takeovers and failures that have been swallowed up and written down. Instead, we remember the successes, the thrivers and the innovators.
For every VizyPay there were a dozen Powa Technologies. We celebrate the longevity of the stalwarts and the rise of the innovators. Those survivors and thrivers, however, had to adapt or they would have been written off or bought up too. Companies are similar to individuals. Both have a lifespan, but a company could theoretically live forever.
We are good at this because we have innovative individuals like Jarad Isaacman and James Sheppard who step in when industry luminaries like Chuck Bertzloff and Joe Kaplan pass the torch. We thrive because we embrace innovation in the face of regulation and to avert risk. As the bad guys seek to launder money and thieve, we will persevere with better technology and AI to identify and avoid their overtures while not inconveniencing the rest of us.
We payment folk, too, have a recency bias. We forget the tribulations and peril to achieve what we have. I've been in payments over three and a half decades, and I'll be here 12 months from now. My advice: don't worry about the curve balls; it's the bean balls that getcha.
Whether you want to upgrade your POS offerings, find a payment gateway partner, bone up on fintech regs or PCI requirements, find an upcoming trade show, read about faster payments, or discover the latest innovations in merchant acquiring, The Green Sheet is the resource for you. Since 1983, we've helped empower and connect payments professionals, starting with the merchant level salespeople who bring tailored payment acceptance and digital commerce tools, along with a host of other business services to merchants across the globe. The Green Sheet Inc. is also a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals.
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