Who Controls Merchant Bankcard Acceptance in the U.S.?
Like many complex subjects, the answer to this question depends, to some extent, on your vantage point. The obvious answer is U.S. banks, since they are the owner/members of Visa USA and MasterCard International. In another sense it may well be non-bank sales and service organizations (ISOs), who among other things, sell the program, service the accounts, program terminals, provide credit scoring, manage risk, and settle bankcard transactions on behalf of themselves and their "Sponsoring Financial Institution."
This really means then, that all of these functions remain controlled by banks and the bankcard associations, since they bear all the risk and make all the rules. . . well, not completely.
Non-bank organizations (ISOs), also called Member Service Providers (MSPs) or Bankcard Service Providers (BSPs), come in all shapes and sizes, and control more of today's marketplace than most realize. For the purposes of this article I will refer to all of these organizations as ISOs (Independent Sales/Service Organizations). According to a report prepared by First Annapolis Consulting, on behalf of First Data Corporation (FDC), today 5% of all bankcard acquirers in the United States are using the services of ISOs, but this hardly scratches the surface of actual ISO control in the marketplace.
Bearing the Risk:
In today's environment sometimes ISOs are responsible for risk management, which means that a bank could lose its member status and be contractually called upon to cure the ills of the ISO, if the ISO becomes financially unable to handle any prospective fraud loss. But no bank working with an ISO wants to think about that.
In this regard, we still have examples of "rent-a-banks" (although some argue that they no longer exist) permitting the ISO to do basically everything from deciding who to do business with, to watching the daily numbers for signs of merchant fraud, to handling daily customer service. Short of applying to Visa and MasterCard for the BIN number, some ISOs out there are doing it all.
Making the Rules:
Sure, Visa and MasterCard make the "big rules," such as establishing interchange and settlement which creates the playing field; however, many of the factors which qualify a merchant as a bankcard acceptor are in the hands of ISOs. In fact, a fundamental element is the price, which the ISO often controls.
How many ISOs are there and how much do they control?
ISOs come in all sizes and types. We have confirmed at least 3,700 organizations in the marketplace, and this is only on the acquiring side of the bankcard business. We all know the familiar names, First Data Resource (FDC), National Data Corporation, and PMT, to name a few.
Today, nearly 33% of all merchant locations are controlled directly by these ISOs, and when you include the eleven banks and non-banks that First Data has taken a 50% or better ownership interest in, plus the recent investment in Cardservice International (an additional 650,000 locations for this group), the number of merchant locations controlled by ISOs in the U.S. may well exceed 50% of all retail locations.
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Banc One Payment Services, Columbus, Ohio Bank of Hawaii, Honolulu, Hawaii Barnett Merchant Services, Jacksonville, Florida Boatmen's Bancshares, St. Louis, Missouri Cardservice International, Agoura Hills, California Huntington National, Columbus, Ohio Old Kent Bank, Grand Rapids, Michigan (see story page "Another One Bites the Dust") PNC Merchant Services, Pittsburgh, Pennsylvania Unified Merchant Services, Atlanta, Georgia U.S. Bancorp, Portland, Oregon Wachovia, Atlanta, Georgia Wells Fargo, Walnut Creek, California |
And the Beat Goes On:
In this country, everyday one more individual decides for the first time to enter the Financial Services marketplace as an ISO, and at least two sales employees of an existing organization decide to go solo, beginning the search for their own direct relationship with a bank, leasing company, or check service provider.
The ISO dream is still very much alive today, fueled by monthly acquisitions of revenue streams and the promise of riches. Given the control that ISOs now have in the bankcard marketplace, is it any wonder that more than a hundred new ISOs come into existence every week in this country?
