hope that you enjoyed the first part of this story (in our last issue) and the various comments from The Green Sheet Advisory Board in response to our previous questions.

In reviewing the current mindset in the industry, I wanted to not only look at the question of tightening budgets but also to ask about the problems and opportunities that exist at this time, as seen through the lens of current marketing realties.

In my view, the likely impact of the current economic situation is in direct correlation to the mindset of the people working in our industry, particularly the sales professionals.

A lot of rhetoric has addressed the question of whether we are on the brink of a recession. A search for "recession" returned articles written by prominent sources, suggesting a recession was around the corner. The first one was dated 1996, the second 1998 and so on ... hmm, what year are we in?

Many would suggest that we are in a recession, others would argue that it is just around the corner, while others are still living it up. We can only know that a recession eventually will be caused by macro factors far outside of any individual, corporate or government intervention.

It is true that a loss of economic momentum has resulted in a flood of corporate earnings disappointments from bellwethers Intel, Home Depot and IBM. Several top analysts have even revised (downwardly) their corporate-profit forecasts for this year and next. Of note, Merrill Lynch predicts earnings growth in the high-tech sector will drop from the mid-30% range this year to a low-20% level next year. Still not too shabby, in my view.

Many financial analysts would say that an economy is as healthy as its banking system. While a recent study showed that the level of concentration of banking assets was dangerously in the hands of a few banks, the banks themselves are healthier than they have been in many years, and I would add that in good times or bad there always has been an opportunity to make money in the financial services sector.

For the second part of this story, we asked the following question of our Advisory Board:

What are the most NEGATIVE and the most POSITIVE things happening in our industry today that impact the ISO/agent?

The answers we received really define both the financial services industry today and the way the ISO/MSPs actually think - that is, to see every adversity as a sales opportunity.

Here is what some of the Advisory Board members had to say:

Clinton Baller

PayNet Merchant Services

"I'm not sure how much this impacts ISO/agents, but the antitrust litigation and class action can't be good for business. That's the most timely thing I can think of. A perennial problem - with all due respect to The Green Sheet, which attempts to mitigate the problem - is the general lack of definitive resources for education, and the associations' refusal to fully include ISOs in the dissemination of information and promulgation of regs.

"There's a lot to be excited about. Online debit is finally coming into its own. Gift/loyalty is a big new opportunity. Check conversion might eventually make sense, too. There's opportunity in equipment sales because the new services require better terminals. Verified by Visa and SPA are huge. It's not only an awesome development from a risk standpoint, but it's going to mean a whole new revenue stream for anyone who services Internet merchants. ETA is also making some great strides in bringing more and more people into the fold."

Heartland Payment Systems

"The most negative thing is that Wall Street has figured out that the large players in our sector have not figured out the marketplace. The plunging stock prices for three of our industry's premier leaders have depressed values of portfolios, and it is not clear when this will come back in the near term.

"The most positive aspect of the current climate is the increase in viable new products and processing options for non-credit card services to merchants. We have entered a new era for our industry where the credit card terminal is truly becoming a multiple 'business services' device in a viable way."

TransPay Processing

"On a national basis, it has to be the memory and threat of terrorism. Coupled with the Iraq situation, people are wary of overseas travel, of spending what savings they have, and the general uncertainty of the immediate future. Local economies vary across the land. Those industries dependent on air travel-related businesses have to feel the slowdown most.

"One good thing is they have not yet outlawed credit cards. As long as we can continue to do our business uninterrupted by regulation and investigation, do our business honestly and with integrity, keep our costs in line and eliminate debt, we will survive. It will all come back eventually. The question is: How long will it take? Following the above guidelines, we can more than survive and have a good bottom line for a long time.

"People are still eating and shopping. Low auto financing means more people are buying cars. Dealership accounts and auto repair are busy because those who are not buying cars are fixing theirs. More people are traveling in the United States instead of going overseas. Therefore, they're spending more money locally."

Total Merchant Services

"If you do not have the financial resources to compete with this type of offering - a program that protects the salesperson with the right agreement, a program that pays money up front every month with 'production bonus payments' and 'conversion bonus payments,' a program that provides an unbelievably lucrative residual income, and a program that continues to provide everything else salespeople need done for FREE - then you're going to have a difficult time competing in this coming year.

"Some companies will succeed in this marketplace. However, they will need to be well capitalized and well managed. They will need to be willing to pay sales professionals more and more money. And, they will need to provide more and more critical services to these valuable sales professionals for FREE.

"The most positive thing that's happening right now is that ISOs are realizing that smart, professional merchant bankcards salespeople are an extremely valuable asset. These salespeople are now getting offered even more lucrative compensation programs than ever before. The 'red carpet' is being rolled out for these special people.

"To continue to succeed, our company has been forced to commit more and more resources to this sales channel. Our 'red carpet' treatment starts with offering sales professionals an agreement that protects them from ever losing their monthly residual compensation - which is the key to their survival in this business.

"Next, we've decided to dedicate more money to attract and retain these key sales partners. We've set aside more than $1 million to pay salespeople upfront money for simply writing an account on our program. Unlike some of our competitors that use this strategy to attract people on their first 10-50 deals, our program pays $100-$250 per account. We pay a 'conversion bonus' like most of our competitors. In addition, we pay a 'production bonus' of $100 per deal for processing and non-processing accounts. This is paid up front as a bonus to our sales partners for building their portfolio with us.

"We're not just trying to attract people with short-term incentives. There is no limit to how much upfront money they can earn with our program. Our sales partners can count on this money every month. In addition, we've improved our residual compensation programs to make sure they remain among the most lucrative in the industry.

"Specifically, we've improved our buy-rate program. And we continue to give our sales partners the ability to choose between our revenue-sharing and buy-rate compensation program on a merchant-by-merchant basis. In this way, they are always able to maximize their earnings by having this choice.

"And we're still offering the following FREE services: conversion assistance and merchant training; PIN pad swapout (including shipping expenses); PIN pad encryption; wireless activation fee; a dedicated sales agent support team; Internet gateway software from Authorize.net and Plug 'n Pay; Web site, including our partner portal and affiliate management program; marketing materials and color brochures; online service so your merchants can view their processing activity and statements online; and sales-training events, including payment for your airfare, hotel and meals!"

Landmark Merchant Solutions

"The economy in general is a cloud that dampens optimism and sales. Some of the efforts to weed out poor or unscrupulous sales techniques are a positive - it should go further. Leasing companies are tightening their credit standards, and it is requiring everyone to focus on good business - not just any business."

Retriever Payment Systems

"The most positive thing happening in our industry today is the possibility of additional federal intervention and regulation within our industry. This will force everyone to operate at a higher level and benefit the honest businessperson in the long run. There need to be additional barriers to entry into our industry so we can change the perception of our business and thus be able to create value to the merchant that will increase our margins. This will create an opportunity for mergers and acquisitions that in return will clean up the industry. When this occurs, more opportunities will surface for everyone in the marketplace."

Bridgeview Payment Solutions

"Intense competition has resulted in weaker margins, particularly on the equipment/software front. While good from a merchant perspective, this has been very harmful to ISO/agent profitability.

"Technology in its many forms is the most positive factor in our industry today. The ISO/agent benefits because of the ability to resell new, more sophisticated products that greatly benefit merchants. Merchants are able to physically process a wider variety of transactions and derive more information from those transactions than ever before."

United Bank Card

"One of the big cautions right now for the ISOs and agents is the large amount of registered ISOs and MSPs popping up looking to take on new sales offices and agents. If you don't know who you are doing business with, then all the horror stories of the past - with people not getting paid residuals and portfolios getting sold out from underneath you - will start to surface all over again.

"I think the development and launch of several new products will be one of the highlights of the next few years in this industry. Further deployment of smart card-enabled equipment and integrated check, debit, credit and signature-capture systems will provide a new sales market and revenue streams for the ISOs and agents in the field. I think you will see Hypercom leading the pack in this arena since they have undertaken projects before their competition, such as this year's introduction of terminals like the ICE 5700Plus."

Alliance Payment Systems

"There are still a lot of undertrained, misinformed and unethical people out there. I believe our industry needs a licensing program and regulation with strict enforcement of established rules. ISOs have more credibility than ever before, which makes the selling process easier."

Nationwide Payment Systems

"There is no educational information out there for agents; there is a need for an agent association. There are too many people in this business who have no clue, and it is not fair to the merchant who gets told something that is not true. There needs to be an agent association and a test and certification process. Chefs have an association; it's voluntary and not everyone is a member, but that's what this business needs. We collect the same info as a realtor, mortgage broker/agent or insurance agent, and they take a test. This industry needs something to help the agents and educate them."

Global Payments

"The fact that there is such a low barrier to entry in today's marketplace is working both for and against us. It is a positive in that educated people who desire to make an honest and lucrative living can take advantage of a capitalistic environment at its finest in the bankcard industry. Conversely, the lack of any regulatory body to certify and appropriately 'let in' qualified businesspeople remains a gap.

"This is not an easy business to learn and take hold of. Ask anyone who has been involved in our business for five-plus years if they are still learning something new every day, and they will say yes if they answer honestly and are actively involved in managing an acquiring organization. There is so much to know and understand, and the distance that has been created by at least one of the card associations, between the ISOs and themselves, only lends to the confusion.

"I think the most significant thing that is happening to the benefit of ISOs and agents is the fact that there is a heightened sense of awareness with regard to how one operates a daily business - more people are focused on their code of ethics in an effort to solidify their long-term staying power in this business. Granted, this is not indicative of the entire industry, but I do believe it has forced some of those who have strayed from the path to walk a much tighter line."

VeriFone

"A small but growing number of merchants are buying terminals directly from the Web, from sites such as eBay, cutting out an important source of revenue for ISOs. ISOs now are challenged with offering applications and services to build value and make up for the shortfall in terminal revenue.

"Fortunately, solutions that securely run payment and value-added applications solve both problems: (1) newer terminals, such as the Omni 3750, aren't available on the used market, so they represent new terminal revenue; and (2) the newer solutions can generate ongoing revenue from applications beyond payment.

"The ability to replace aging terminals with new terminals that support payment and value-added applications helps ISOs differentiate their services in the market, improves merchant retention by building more value into the overall solution and generates new revenue streams from new service offerings such as prepaid gift and phone cards."

ABANCO International

"The most negative aspect is the compliance issues and concerns (and gray areas) dragging on our industry and the probable fees needed to be imposed on the many agents who never have faced exposure in the past. This development will temporarily add challenges to the independent sales marketing efforts but certainly will be better in the long run.

"The industry, like so many others, has experienced the loss of sales from the Internet boom. Many ISOs changed their marketing methodology and dove into Internet marketing, which in turn made a huge gain in market share of low or non-processing accounts where income was essentially fee-based. The positive side of this scenario is the realization that we need to focus on traditional and fundamental marketing, which means hitting the storefronts at street level.

"I remember an economy that was far worse but similar in many ways in the early '90s. That gave our industry a huge burst in gaining independent salespeople. This was because of an unemployment hike and the need for young professionals to create their own destiny. I think we all witnessed the success of individuals who got into this business at that time.

"This is a perfect opportunity to build a large direct-sales force with new blood, as so many companies did in the early '90s. Always go back to fundamentals! What has worked before will work again: street salespeople hitting it hard."

Card Payment Systems

"Pricing! As the industry has grown and more reps have become agents, the prices and therefore PROFITS have continued to decline. As much as I hate to admit it, I'm guilty of it myself. When I left the agent I was representing and established my own lease agreement, equipment vendor and bank, I realized that I had two choices: I could continue selling at the same price and make twice or three times as much money, or I could sell at half the price and sell more accounts. This shameful mentality still continues today ... only on a much larger scale.

"Even worse, it's not only affecting profits on equipment, but it is also affecting the fees we charge to process cards - and again, the PROFITS associated with such. The way I see it, everyone is going to continue to outprice one another until there is no profit left. There is this whole 'air' about what's 'fair' for the merchant.

"Correct me if I'm wrong, but don't we as the sellers determine what's fair? You certainly don't see the major retailers ruining their industry. How much could you possibly save buying a pair of Levi's at one retailer vs. the next? And, more important, is one retailer making less profit, or unlike our industry, do they have a lower cost because of higher volume and therefore are equally profitable?

"Regardless of any ISO/agent's deal count, interchange is interchange, equipment cost may vary by a few bucks, and transaction fees may be a couple pennies lower if you own the front and/or back end.

"My rant here isn't about competitiveness or the lack thereof. It's about PROFITABILITY! Those of us who have been around for some time used to sell at 1.59%-1.69%, and there were 20-30+ basis points profit. And even though interchange and other costs to process cards have gone up ... we still sell at 1.59%! There is something SERIOUSLY wrong with that!"

RichSolutions

"A lot of ISO/agents resist change and don't understand technology. Our nontraditional solutions require people to embrace new technology and change. We have gone to extremes to make our solutions as easy as possible to sell and use, but it requires people to think outside the box.

"I talked with a number of ISO/agents who understand they are in the transaction business rather then the terminal reseller business. Traditionally, businesses want complementary products to cost as little as possible. For example, if you look at the cell phone business, they give away the phones in order to get the cell phone service orders.

"The electronic payment business has been unusual in that people charge high prices for the terminals, yet they still sell the payment services at a premium. I believe this is going to change; I talked with a number of ISO/agents who said they would give away the enabling technology - i.e., terminals, software, services, etc. - to get the merchant account. This bodes well for nontraditional, high-value, added-service companies like ours."

U.S. Merchant Systems

"Slowdown of new businesses, alternative payment providers such as PayPal. But there also are opportunities to consolidate with others."

CrossCheck

"Over-regulation is going to hurt everyone, from the large, national sales organization to the single agent on the street and on down to the merchant.

"The increase of partnerships and alliances in our industry is of great benefit and makes good business sense all around. Alliances can encourage development of technology, take advantage of strengths and provide a depth of offerings that is increasingly important today.

"We've found that partnerships translate into increased profits, with more focus on sales and less redundancy on many fronts. There is much more open conversation among the leaders in our industry today, and this will, in the long run, benefit us all."

Hypercom

"In my view, this question still has the same answer, covering the past several years, and it is unethical selling - the slam, not disclosing the complete fee set, overpromising and underdelivering, just to mention a few. And, as usual, it seems as if a few bad apples leave a really bad taste.

"But, on the other hand, this has also served as a wakeup call to merchants to be more vigilant, to make themselves more aware of how our industry works. And that is good. Better-prepared customers should (and usually does) mean better-prepared salespeople. So while we have been on this winding road for a while, I do believe (and I hope) that there is light at the end of the tunnel for every organization looking to prosper in this industry - if they want to do it the right way.

"The fact that our industry is constantly changing and evolving is good. Change usually represents opportunity for new sales. Be it new association rules, new types of gear, new additional services, it doesn't matter - they all are reasons to be out talking to current and prospective merchants."

Thanks to all of our Advisory Board members. If you agree or disagree with the thoughts presented in this two-part story, drop me a line (on or off the record) at paul@greensheet.com.