The Recession? (Part I)
 ome organizations in the payment services industry are feeling the pain of a tight economy, while others seem to be saying their businesses are continuing to grow as much as ever. Some have told us that they are feeling a slowdown in their ability to recruit sales talent - a slowdown they have not previously experienced - while others simply have found a new way to recruit.
Without question, there has been a significant pullback in advertising dollars in the second half of the year. However, many expect their budgets to be better in 2003.
As The Green Sheet gathers information for our January 2003 GSQ, which will address the largest bankcard acquirers, we already are seeing that 2002 will reflect a growth in overall bankcard acquiring volume, just not as large as in previous years. With this said, it is also true that "some acquirers" still will count 2002 as an excellent growth year.
Our industry's ISOs, a vast army of sales professionals, are facing a very different marketplace. Sluggish sales, consolidation, regulation and investigation all are making an unpredictable impact and might make business projections for 2003 more difficult to make than in years past.
With this reality in mind, we asked our Advisory Board the following questions:
- Do you believe that the marketplace is slowing down, and, if so, how long do you see the current sluggishness lasting?
- If you view the sales opportunities from your perspective pretty much as status quo, do you think others that you compete with are currently feeling an economic pinch?
Here is what some of them had to say on the record:
Stacy Bell
Advanced Payment Technologies
"The economy might be slowing down, but that doesn't mean that business needs to slow down. I like to follow the saying, 'Perception is reality,' and all you need to do is change your perspective. Because of the current economy, businesses are receiving more bad checks than normal. Therefore, we talk to our clients about implementing a check service to protect them. Or perhaps this is the perfect time to talk to them about cutting some expenses, such as their bankcard processing rates.
"I think there are just as many customers needing our services; it's understanding how to position yourself in this market that some may find difficult. You need to change the way you think, and that is not easy for everyone."
Audrey Blackmon
POS Portal
"Yes, I do believe the marketplace has slowed down. According to some ISOs, their sales are off 10-30% from last year.
"This year has differed from years past - the peaks and valleys have been inconsistent. If that is a good indicator, I believe we will experience a more condensed spike this Christmas season.
"Yes, I do believe it is industrywide. Besides my competitors, I have heard others in the industry (leasing and processors) complain it is much slower thus far this season than years past."
Clinton Baller
PayNet Merchant Services
"I don't see a slowdown at all, at least not in our industry. ETA was quiet, I think, because Seattle is so far away from most of us and because it was a short meeting. One of the reasons I love this industry is because it is virtually recession-proof. When times are good, people are spending money, and they're using plastic liberally. When times are bad, they may be spending less, but they're putting a higher percentage of what they are spending on plastic and financing their purchases.
"Our market is merchants. When times are bad, they want to increase sales and save money more than ever. Our opening sales pitch has always been about increasing sales and cutting costs.
"We don't see a slowdown in the availability of sales talent. Quite the contrary: We are building a first-class sales team, and as word spreads that for experienced salespeople we are a great place to work, we just keep growing. Of course, we operate more like a bank (with base salaries, commissions, full benefits, etc.) than an ISO (with 1099'd independent reps), and so we are very attractive to experienced pros looking for a stable workplace with like-minded people.
"As for consolidation, it only helps us, giving us a competitive edge. Every consolidation opens up a whole new market of merchants. We still service every account we sign. To us, consolidation just means a bunch of merchants who are no longer serviced by the guys who signed them. Consolidation = attrition = opportunity.
"As for regulation and investigation, all I can say is: It's about time. Of course, the slime in our industry only makes the good guys appear better. But there's a significant detrimental effect on all of us. The garbage tends to stink beyond its bounds. All in all, it's probably best to get rid of it.
"I can't speak for my competitors. Our business is great - as good as ever."
Robert Carr
Heartland Payment Systems
"Same-store sales growth turned negative in the last quarter of '01 but has come back to be moderately positive for all of '02. Offline debit growth is significant but is almost being offset by declining credit card usage for the first three quarters of '02 with a net growth of 4% compared to double-digit growth for the prior 10 years.
"The big players seem to be faltering, but the little guys continue to be as aggressive as ever. This is not a good environment for companies that sell on price only."
Steve Christianson
TransPay Processing
"The marketplace HAS slowed down compared to 12 months ago and before. The volume is coming back slowly, but the nation has not reached last year's numbers yet except for new business. Sluggishness will continue for several years because we have to absorb the billions lost in the markets in the last 24 months. New business and its volume will be the main area of growth - it has no history to refer to.
"Everybody has to be feeling it. Again, the only real growth is in new accounts and their volume. Companies with large debt service are feeling the pinch if their real growth is flat. Our reps are writing new business every day, and that keeps us moving forward. I just wish we had more luck in recruiting sales personnel. There have to be a few honest salespeople out there who want to make the big bucks."
Ed Freedman
Total Merchant Services
"With regard to the processing volume of existing accounts, I think we're all seeing lower processing volumes. It's nothing dramatic. However, I'd estimate that processing levels are lower by 5%-10%. We're confident that the holiday season will give all businesses a needed boost, and we're also confident that credit card processing will be back up to 'normal' levels beginning in 2003.
"This type of 'sluggish' economy could translate into lower numbers for new merchant account acquisition. However, I know that this does not have to be the case. With regard to merchant account acquisition, we are not experiencing a slowdown at all. In fact, it's quite the opposite. Our new account acquisition has grown at unprecedented rates. This quarter, we just activated three times the number of new merchants as compared with the first two quarters of the year.
"It's an uphill battle. If you are a company that's not making changes to the way you're doing business, to the way you're paying sales professionals, and to your marketing strategies, then you're probably not having much fun right now."
Alan Gitles
Landmark Merchant Solutions
"It is getting better for us but only because we are working twice as hard - if we put in the same effort, we would be falling behind."
Russ Goebel
Retriever Payment Systems
"Yes, it's slowing down from the torrid pace over the last 10 years, but I believe it's just leveling out. The economy was running at an all-time high. P/E ratios are out of sight; Fortune 500 companies are experiencing accounting discrepancies, personal debt is at an all-time high, the economy is just correcting itself from a big-picture perspective.
"If you take a look at a 30-year span, you will see we are experiencing a correcting period. Companies now face 'back to the basics' decisions: overall value, increased customer service, better operational efficiencies.
"This economic correctness will 'eliminate' those companies that can't or won't run their business the way their customers demand and will be forced out. This is an opportunity for the prudent businesspersons to step up to the plate and create success and position themselves favorably in the marketplace.
"There are still tremendous opportunities to everyone in our industry - find a niche or need and create a value-added solution. Those entities with a business plan that execute the plan will be able to adapt to our dynamic industry and survive."
Tom Haleas
Bridgeview Payment Solutions
"Because of the lackluster economy, the marketplace has stagnated, which affects transaction volume. Most companies are reporting lower sales projections for the holiday season. The stock market woes, the war on terrorism and uncertainty about a U.S. response to the Iraq situation have caused consumers to become more conservative in their spending.
"I believe the economic slowdown will continue through the first quarter of 2003, but many unknown factors could change this forecast.
"Sales opportunities certainly continue to abound in the acquiring industry, but the customers we are soliciting, if they are new businesses, face the dire consequences of a weakened economy. And most existing businesses have seen and will probably continue to see declining sales volume.
"To some degree, everyone in the acquiring industry is impacted negatively by a bad economy; however, the financially weaker entities are impacted to a greater extent."
Jared Isaacman
United Bank Card
"If the marketplace is slowing down, it is because of a saturation of new sales representatives in the industry and wiser merchants thinking twice before they sign a contract. Small minorities of sales representatives have been dragging the services we provide through the mud for the last decade, and as we have seen lately the sham can rise right to the MSP and bank level.
"I personally don't think the industry is on a downward spiral; it's just a time of mediocrity. If anything is going to revitalize the market, it will be new generations of products and services being introduced over the next couple of years.
"The primary market United Bank Card focuses in is the recruitment of Independent Sales Offices. In that respect we are growing steadily with no hurdles. The agents, ISOs, MSPs and banks that are running a solid professional program are successful; the ones out there who conduct business without integrity continue to cycle through a revolution of failure. If anyone is feeling the market's pinch, it would be them."
Robert Joyce
Alliance Payment Systems
"Only to the extent that the economy affects the number of new businesses opened for those ISOs who market primarily to new businesses. For those who market to existing businesses, yes, because of the cancellation restrictions imposed by most processors, particularly Heartland."
Allen Kopelman
Nationwide Payment Systems
"There are businesses opening every day, and we have to work harder to get the business. In some states there might be less businesses opening than in others. The economy is slowing down, but what I see is a shift. People are still spending but differently. Our less expensive restaurants' sales are up and they are taking more credit cards, and our more expensive restaurants' sales are down. People are still going out to eat; they're just spending less.
"In this market you had better get creative. We have been putting on our thinking caps and are currently testing a few ideas to see how the merchants are going to be reacting. One thing we have found is that more people are buying terminals rather than leasing."
Vaden Landers
Global Payments
"In terms of consumer spending, I believe the statistics show that the numbers may be off pace a bit from previous years, but I do not believe there is any significant slowdown occurring within our marketplace at this time.
"Our experiences have been positive with regard to the continuing interest shown in our program from both an agent and ISO perspective. I think certain key players in today's competitive marketplace are simply becoming more selective in terms of whom they choose to do business with.
"In my estimations, everyone is feeling the pinch to some degree, as merchants have become increasingly more astute in relation to the operating costs of our business, including interchange, and margins are being forced downward."
Javier Ledesma
VeriFone
"The market could be viewed as sluggish, primarily because of a slower economy. As a result, there is a higher rate of re-programming occurring (versus new terminal sales). But this has improved in the past couple of months, and the market is getting ready to heat up.
"The combination of aging terminals (like Tranz) and new value-added application drivers such as gift card, prepaid Telco and age verification will spawn a re-terminalization in the industry and result in new revenue opportunities for acquirers, ISOs and service providers. Additionally, as standards such as EMV and 3DES security become requirements, many of the installed terminal bases will need to be replaced.
"VeriFone anticipated changes in the market and developed solution platforms to help ISOs differentiate themselves through unique branding opportunities as well as through new services and applications to sell. We introduced a whole new line of terminals with enough power, flexibility and memory to support the new market demands and partnered with leading value-added service providers to develop applications for the new point of profit.
"We now have traction with our Omni 3750 and the value-added applications that it runs. Plus, the Omni 3200 continues to be the terminal of choice in our industry, while competitors have had delays and quality problems with their 'refreshed line' of older-generation terminals.
"We have run our business profitably quarter-over-quarter for the past year, which is more than some of our competitors can claim. We're healthy, our terminals are in demand, and we've got the right platforms to help ISOs succeed."
Dan Lewis
ABANCO International
"Yes, the marketplace is slowing down, evidenced by lower numbers on behalf of all acquirers. This is not a belief but a reality. Business start-ups are down, business bankruptcies are up and consumer net worths are down substantially.
"Consumer spending is up only slightly but less than the actual income increases. In my opinion, this is likely to last into the second quarter of '03 and not change then unless some positive data emerges to show an economic expansion.
"The economy has definitely affected our industry. The positives to this current landscape are the recruiting opportunities for the many displaced salespeople and management levels, thus supporting our expansion plans and, I would assume, those of many colleagues in our industries. Additionally, the merchants must be prudent and selective in re-evaluating their costs and opportunity for marketshare. The one-stop shop and 'single-source solution' will fill the needs of many of these merchants."
Douglas Mack
Card Payment Systems
"We actually have noticed an increase in sales. After all, this is generally the busiest time of the year. There seem to be many more new businesses opening each month than there were two to four months ago. So our new-business market is doing well. Likewise, we have noticed an increase in processing volumes, too. Therefore, I have to believe established businesses are feeling a little more secure."
Bill Pittman
RichSolutions
"I believe the economy is continuing to be weak, and consequently the number of new businesses starting up is slowing. People who are selling non-differentiated traditional terminal and software solutions are hurting.
"I also believe the economy has at least another year of excesses and uncertainty to work off before we start to move forward in a consistent manner. However, I believe credit card usage is continuing to grow and new industries like quick service, electronic bill payment and electronic check processing are starting to get momentum, thus creating new opportunities.
"Our business and technology is relatively new and non-traditional, so it is hard for me to answer this question directly. I believe people who have been selling the same old terminals and software solutions for the last five to 10 years are having a harder time differentiating themselves and consequently increasing profit margins.
"The market is changing, and people who view change as a threat will have a hard time while people who view change as an opportunity will thrive. It is all about providing value; the people who provide the most value win."
Stuart Rosenbaum
U.S. Merchant Systems
"Slowing down a little - I think it will last until next spring. I had a fortune cookie that said so! I think many will feel a pinch - many sales rep prospects are looking for jobs with security (i.e., base salary)."
Dave Siembieda
CrossCheck
"Slowdown? No. We don't see it as a slowdown as much as a cautious trepidation. The marketplace is going through growing pains; it's like a teen-ager on the verge of adulthood, faced with so many different directions and choices that it becomes overwhelmed and reluctant to get up off the couch.
"There is a lot of confusion over payments today - so many options and so much new technology that merchants are nervous and need a lot of handholding and direction. This means sales are slower to come and may be more 'labor-intensive' as we become problem-solvers for our merchants and not just a quick card or check sale. Over the next couple of years, we're going to see a lot of big changes in payment-processing technology, and until that settles down and stabilizes, we should expect this to be a challenging marketplace.
"This is the time to have a wide range of offerings for your merchants. If you don't have the latest and greatest, you are going to lose sales to those who do; we've seen this happen with some of our competitors, especially the smaller providers. This is not the time to be inflexible regarding programs and pricing."
Scott Wagner
Hypercom
"Yes, I do. However, I don't believe it is completely because of our current economic doldrums. I think oversaturation in the payment industry plays a role. Our sales campaigns, either in person, on the phone or via mailings, are becoming quite common and even pedestrian. We have become just another solicitor. We must find a way to break through that. With a little ingenuity coupled with a break in the economy, we'll be just fine."
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