f data security breaches, merchant lawsuits, mergers and acquisitions, and a "free" terminal program frenzy were the headline-grabbers in 2005, you have to wonder what 2006 holds for the payments industry. We asked The Green Sheet Advisory Board (AB) to provide their thoughts and strategies for the year ahead:

• How have the events of the past year shaped your plans for 2006?
• Will you make any major changes to the way you do business? If so, what? If not, why?
• What do you most look forward to in the coming year? What obstacles do you foresee?
• And finally, what words of wisdom do you have for merchant level salespeople (MLSs) as they start a new year?

Their responses, listed in alphabetical order, follow:

Adam Atlas,Attorney at Law

"The piece of the merchant acquiring pie that is left for the small ISO or MLS is getting smaller. Free terminal programs and deep discounts in rates for merchants are being financed, in part, by agent residuals. This means that agents need to be that much more focused on protecting the residuals they are being promised.

"As legal counsel to ISOs, my plans for 2006 are to work even harder to solidify the relationships of my ISO clients with their processors and sponsoring banks. I think it is becoming harder for ISOs to enter the business, so each ISO deal made is that much more significant.

"For older ISOs, I am seeing some processors and banks not honor the promises they made years ago as to residuals and buyouts. This raises legal issues that will likely occupy time in 2006.

"While I always add more than just legal counsel to the businesses of my clients, I feel that in this [increasingly] competitive market, clients are looking to me more and more for advice as to which processor or bank is better than the others. I intend to offer more of this kind of business consulting help to my clients as I believe that it can be as valuable.

"In 2006 I will also key up the emphasis on privacy laws. All parties involved in this business need to make sure they are collecting the bare minimum of personal information (i.e., cardholder information or agent information), and that that information is adequately secured. Security breaches are bad for everyone in this business but especially those responsible.

"The best piece of wisdom I have this year is to invest your time where you see the greatest return. If you have an old processor relationship with 20 merchants that is taking all your time ... just to get paid ... and in the right amount, consider investing your energy in another relationship.

"Make sure you put on paper all the relationships you have. Some MLSs have long standing material (e.g., $20K/month) relationships on a hand shake.

"While these old relationships evidence great trust and friendship, it helps to put them in writing sooner than later. Management may change, people may change, etc. The reasons why a written contract is useful are obvious."

"Being creatures of habit, there is a tendency to do the same things over and over because they are comfortable, even if they are not working as well as they once did. You have to be willing to reinvent yourself and always be open to trying new things. Get out of your comfort zone ... Always be willing to take calculated risks, fail, learn from those mistakes and try again.

"We have abandoned certain distribution channels and opened up new ones. I think the process is called creative destruction. We are soliciting larger merchants and signing up more partners.

"The business seems tougher each year of the last 11 years I have been in merchant processing, with smaller margins and more competition, but that means we have to be smarter about how we do things."

"I think the security breaches of 2005 will be the driving force behind the major events on the horizon for 2006. With the scrutiny of the card Associations and our industry as a whole by Congress, the news media and the general public, I feel we are entering an unprecedented era.

"The card Associations are going to be forced to be accountable ... to know who they are doing business with (ISOs and agents) and who is selling their product and services. This scrutiny is going to lead to the Associations levying huge fines, and in some cases, terminating ISOs from doing business for having unregistered offices and agents.

"Knowing this is on the horizon and thus protecting us and our agents from huge fines by ensuring they remain in compliance will be one of our main focuses for the upcoming year. One major fine from the Associations from one single noncompliant ISO or agent could be enough to bring an entire ISO down. "One of the downsides of having to spend time on this ongoing vigilant watch-dogging of our ISOs and agents is that it takes away time and energy to come up with new products and offerings to keep our existing agents happy and to encourage new agents to sign with us.

"We feel the free terminal program in one variation or another is here to stay, and if you want to remain competitive in the agent recruitment field you will need to offer [these types of] incentives.

"We are extremely excited about the opportunities the merchant funding product offers. ... We think normal 1099 independent agents will love this product since they can make upfront payouts on the merchant funding program and sometimes build a big residual income from selling merchant credit card services.

"My advice to the merchant level sales agent for 2006 is to be well prepared and well armed with an arsenal of products, services and mostly knowledge. As the profit margins become thinner and thinner, the agents are going to need to be more creative and offer ancillary products and services that may generate additional income for them to offset the loss from the thin margins on the credit card processing.

"The smart sales agent will be prepared to offer gift & loyalty cards, ATM services, credit card receivables/funding etc.

"The other area a good agent will recognize is the importance of maintaining a relationship with their merchants and look at it as a long-term investment.

"A merchant that knows his sales agent on a personal level and trusts that sales agent is looking out for their best interest is going to be much less willing to leave them when another sales agent walks in competing on price alone.

"The agent's relationship with the merchant plus tying them into you with additional products will keep that merchant in your portfolio for a longer period. To the sales agent, I would also advise them to closely look at who they are submitting deals to, are they people or just a number in a huge corporate structure?

"Again it's about relationships. Are they able to reach the principals in the organization? Do they have the principals' direct phone numbers, e-mail addresses and cell phone numbers, and do they get responses if they reach out to the principals?"

"This has been a year of upheaval for the card business. Not only have we become visible to the governmental bodies but the public is suddenly acutely aware of us and our industry. Also, our own industry continues to commoditize our product through gimmicks, empty promises and smoke and mirrors.

"The only way to combat the ongoing economic, political and business threats is to watch the [profit & loss] P&L, control growth and expenses; don't put all of your income eggs in one basket; and be prepared to make changes to adjust to the eventual evolution of our industry.

"With change comes opportunity, and companies with traction and experience can adjust and prosper in the new processing vistas. So there will be, with adjustments, futures for all the financially strong and independent thinkers.

"For the MLSs it is very important that they pick the right processing partner. Make sure that your partner has the experience, the longevity and credibility to insure your investment in the processing business."

"[It] was truly an interesting year. As I am sure everyone has done, we took a hard look at security, data and service. We have boosted security in our storage data and the methods we send and receive data.

"Changes we are making are based on quality, improving turnaround times and accuracy. We are reviewing our processes from top to bottom to ensure that we are doing it the right way. We are asking our customers what they see as the optimal leasing program.

"We are working more in partnership so our customers are faster and their transactions are smoother. The free terminal programs are great for some but have had little impact on our business. Leasing continues to drive the ability of small ISOs to grow into big ones.

"Words of wisdom for MLSs: If someone tells you the reason to do something is 'This is the way we have always done it,' run the other way.

"Find your own niche and your own method of success. Innovation has charged the growth of our industry, never status quo."

"The winners of 2006 will be those individuals ready to embrace technological change.

"The payments industry is rapidly evolving, and all people at all levels within the different industry segments need to embrace the change. The winners in 2005 were those that changed their business models to meet the demands of the new, savvier merchants.

"Technology will play a huge part in the success of 2006. Battling an industry with what has historically been a zero-growth business, technology can offer a whole new opportunity for growth with the replacement of older equipment and the emergence of [Internet protocol] IP, new value-add applications, etc. The time is now. Throw out the old and bring on the new."

"As a company that deals with thousands of merchants and millions of merchant transactions annually, CrossCheck continues to upgrade its internal security procedures to maintain the highest level of security and customer service available in the industry. Being privately held, we pride ourselves on our responsiveness to changes in the business environment that impact our ISOs, partners and merchants. Our advice to MLSs in 2006 is to focus on [offering] value-added services/products to their portfolio of merchants to increase total compensation and/or residual streams."

"There seems to be constant change, upheaval and restructuring in our business, but doesn't that make it fun and exciting? Nonetheless, it does appear the wind of change is in the air.

"Are the [card] Associations ducking for cover? Are the 800-pound-gorilla processors losing their grip? Will there be more forms of litigation planned for 2006?

"From my acquiring perspective it sure does feel like the merchants are ... not happy that the slice they pay for processing credit cards seems to get bigger every year. Merchants, especially those from [similar] industries, are talking, even brainstorming.

"Our little slice of heaven known as the credit card world is making headlines. ... [This] may be the year of utter chaos, or maybe these winds of potential change take time and the process happens slowly.

"I humbly suggest the following: Keep your head down. Be forthright and honest. Be positive. And, keep on top of news, events and industry trends. ... [E]verything else will take care of itself."