San Francisco-based Visa Inc. debuted March 19, 2008, on the New York Stock Exchange, offering an initial 406 million shares at $59.50 each. It was the largest IPO in U.S. history. We wanted input from industry experts on this event, so we asked our Advisory Board the following questions just before the IPO occurred:
What impact do you see this event having on the economy? Will this impact your own business? If not, why? If so, how? Will this change the way the payments industry overall does business, or will it be status quo?
We divided this story into two parts. Part one appeared in The Green Sheet March 24, 2008, issue 08:03:02. Here is the second set of responses:

Jerry M. Julien
Equity Commerce LP
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The actual Visa member banks, which have been impacted by the subprime credit crunch, will be the biggest beneficiaries of this IPO.
The funds raised by this IPO will allow these financial institutions to possibly relax some of the refinancing and mortgage restrictions that came about as a result of the subprime crunch and allow the housing market to see some improvement, which will have an overall positive impact on the economy.

Even with the economy teetering on recession, the increased use of check cards and movement away from cash will allow Visa and its member banks to raise much needed capital.
With the publishing of interchange rates and the IPO of both MasterCard Worldwide and now Visa, some of the mystery of who and what these associations are, who are the members, and what are their purposes and costs to merchants and the general public are now out in the open.
This has helped us in explaining to our merchants where we as ISOs fit into the life cycle of the payment process, and also how our fees and interchange rate increases can be driven by the card Associations - not by us driving new interchange categories or rates. The Visa IPO and the continued effort of both Associations to demystify who they are will have an overall positive impact.
The openness and publishing of information will have an impact on our business and force ISOs and merchant level salespeople (MLSs) to be able to explain and justify their fees now that this information is readily available.
Douglas Mack
Card Payment Systems
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Frankly … I see this having absolutely no impact on the industry.
Biff Mathews
Cardware International
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It’s important to note that while a U.S. corporation, Visa’s stock will be for an international company. If Visa meets its $42 per share target, it bodes well for the global economy, though a much lower per share price would indicate world credit is not in good shape.

In the short term, Visa going public will not impact our business or our plans. Our underlying success is tied to the growth in merchant acceptance locations along with an increase in overall numbers of transactions. As long as the card corporations emphasize on those fronts, we’ll ride that wave.

I’m always reminded of what I was told 30 years ago:The only constant in the credit card industry is change. Status quo, no way.
For over a decade I have predicted the acquiring business will sever from the issuing business, as it is no longer mutually inclusive. I anticipate a spinoff of the acquiring business to those that already control it: the processors or an entity outside the industry more nimble and better versed in the transaction processing business. I expect more direct arrangements by the processors.

I expect to see a fracturing of the acquiring business along different business and economic lines. To capture the two ends of the spectrum of micro and larger ticket transactions, I expect tiered pricing based on the actual cost of processing.

What we now term the card transaction or payments industry will be like the Chinese symbol for change: opportunity and chaos. Seize the opportunity while managing the chaos. As a friend at Visa once told me, If you don’t like the way things are going, don’t worry; it will change.

Steve Norell
U.S. Merchant Services
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None.

No. The merchant does not know or care what Visa does unless it involves lowering interchange.

In the beginning it will be status quo. However, down the road I believe that becoming a public company will change the way Visa handles lawsuits regarding interchange.
Charles W. Salyer
LADCO Leasing
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The largest IPO in U.S. history - trying to determine the actual impact on the economy is difficult at best.
An IPO this big could drive investors back into the market. The stock is relatively inexpensive, and the offering is big enough that pretty much anyone who wants to invest will be able.

The stock should not be as volatile as smaller IPOs, permitting strong but measured growth in the early days of the offering, allowing most investors time to get on board.

The impact? Investors need widespread success. After the continual hits to businesses, banks and equipment providers, investors need the boost of a success. This could be it. It cannot solve the mortgage issues or housing value decrease, but it can present a ray of light in an otherwise dark financial period.

The impact on our business depends on hope versus absolute knowledge. If people see a little light in the economy brought on by small investor success, they may decide to add that second store or restaurant location. Investors looking for a sign may pony up the funds for that new business venture or development.

Each positive step leads to another. Investors with little relief may spend a few more dollars on products, food, vacations and cars. This new business generates more hope, and the economy strengthens. All of this leads to the need for more processing, more machines and more equipment. That is good for our industry.

It will change the way Visa does business. A public company has enormous reporting requirements. Recent changes in the law, such as the Sarbanes-Oxley Act of 2002, mean the reporting has to be accurate, on time and very visible.

Financials are now public domain. Investors want to see stockholder value increase, period. Anyone who has taken a company public or gone from the private sector to the public knows this is a big, expensive, time consuming change. The reporting alone is mind numbing. It will be interesting to see sales, costs, income, expenses and more laid bare for the entire industry to see and contemplate.

Jeffrey I. Shavitz
Charge Card Systems
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What will be the effect of Visa going public? In my opinion, very little. The merchant processing industry is complicated, and even as experienced industry professionals, there is a lot to truly understanding interchange, the issuing banks, acquiring banks and their respective fees. If MLSs and ISOs have questions, merchants will as well.
With this said, merchants are getting smarter and more educated in this arena. Visa and MasterCard currently post on their Web sites all of their interchange categories and their respective fee structures. Why then isn’t every merchant paying interchange?

Even with full disclosure and the card Associations going public, merchants need the education, communication and service that we provide. In this regard, we need to teach merchants why a particular card type will hit a specific fee class or why the transaction is downgrading to a mid- or nonqualified rate.

With any maturing business such as payment processing, rates will continue to become more competitive (but this is not a direct reflection of the Visa IPO).

I would think this IPO may cause some long-term pricing pressures on Visa. Banks currently set the interchange rates, and with this IPO and the public having ownership, you would surmise that the shareholders (many of which are owners of small and mid-size businesses) would start to question the escalating credit card fees.

Just like lobbyists raise the awareness of issues in Washington, D.C., new Visa stockholders will have the opportunity to understand rising fees hurt the profitability of their businesses.

The consequence of this IPO on Charge Card Systems is that we must continue to educate our sales partners and merchants alike on how to effectively run their businesses by accepting credit card payments. Once we stop adding value, we will undoubtedly lose that merchant account.

In conclusion, it would be funny if shareholders had to pay into the $17 billion IPO using their credit cards - assuming an average of 2.2 percent (of course a MO/TO transaction), that would be $374 million in fees. Without breaching any CCS confidentiality, this would be the biggest merchant in our portfolio.

Ted Svoronos
Group ISO Inc.
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Visa’s IPO has given a slight boost to the economy but an even bigger boost to the sector in which it falls.
Giving the public a chance to invest in a “household name” will bring back some belief in the marketplace. With all the turmoil in the markets since Enron’s demise and other events, giving people the opportunity to get involved with a staple in the industry is like renewing hope in investments, as Visa is a tried and true organization. Remember the adage, You cannot go wrong by buying IBM.
I am not exactly sure what impact this will have on our business. We have been and always will follow criteria, rules, regulations and the guidance of Visa and MasterCard. They are the industry grandfathers.
Our business will continue to grow with or without Visa going public, only because we have based what we do on strict guidelines, compliancy and tutelage of the card Associations for many years. We, as many others, depend on them and know that while processors, ISOs, agents and merchants may come and go, Visa and MasterCard will always be here.
Within the payments industry, my feeling is that Visa going public has given us a certain air of confidence overall. Down the road, now that Visa is a tradable commodity, the industry may start to measure success, profitability or growth based on stock valuation and earnings from Visa and MasterCard.
I’m not sure if I would consider that to be a true indicator in the credit card industry. MasterCard and Visa were quite successful for a very long time before their IPOs. We have to keep in mind that success and growth in this industry are based upon many factors such as consumer spending, the unemployment rate, the Federal Reserve Bank, the European Union, global economies and other variables. Overall, business should run as it has except now maybe with a little extra “oomph” in its step.

Scott Wagner
Humboldt Merchant Services
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If we extrapolate based on the MasterCard world post-IPO, I would say Visa post-IPO will be status quo. Rates will continue to fluctuate (mostly head north), new card categories will be introduced, merchants will clamor, and legal action will be both threatened and initiated.
Not much different than today or a year ago.

However, there is a rub. Post-Visa IPO, who will MasterCard and Visa be beholden to? Clearly, it will no longer be the member banks. In its simplest form both companies will be driven by the same designs and models as every other publicly traded company - the bottom line.

The investment community will have a large say and sometimes even dictate on how these companies thrive. MasterCard basically has been a Wall Street darling from the day it went public. Markets being what they are today, Visa likely will not have the same impact.

While MasterCard and Visa are different brands and companies, they are likely so similar and closely related in the marketplace that they will behave, react and trade in a like manner.

So, what happens down the line? The next quarter? The next year? What happens when they don’t earn what they projected they would or, in other words, they miss the street’s number?

At what point do investors and funds pull the plug and bail? Who pays if or when that happens and stock values plummet? Right now the markets are at best tenuous, so is the fear of missing earnings and falling stock prices real? What might happen to interchange rates?

You have two potential answers: Interchange rates will either decrease or increase. If you are not sure which, I will narrow it down for you: Interchange will not go down. Is it possible merchants could be looking at significantly higher rates in the near term?

Group ISO was formed with the belief that Agents deserve the resources and payment processing options usually only offered to the larger organizations.  Ezic offers a robust payment-processing Gateway with diverse options and feature-rich sets.  With over 50 years of combined business experience, together these companies have the proper tools and resources to introduce into the marketplace for hotels and hospitality.

“This solution will allow ISOs and Agents who are involved in the hospitality industry to meet their needs quickly and securely,” says Ted Svoronos, CEC, CFE for Group ISO.  “This alliance gives users the ability to apply the solution end to end; we are bringing the best of both worlds.”

Ezic provides innovative tools designed to minimize costs and maximize resources.  Its Hotel Interchange Rate Certification enables transactions to qualify for the hotel interchange rate, allowing Merchants engaged in booking and charging hotel transactions the capability to qualify for lower rates. 

“This alliance will give the hospitality industry a front-to-back, bundled solution they can easily plug-and-play and use effectively,” Mike Fox, Senior Sales Rep. and in-house Interchange expert says.  “As an added bonus, the Agents providing this solution will be “Heaven-sent” to Merchants because it truly provides the hospitality industry the interchange rates they deserve.”

“Group ISO has the potential to be a huge Reseller for Ezic in an alliance where both companies have the ability to grow and prosper,” says Jim Mouzakiotis, Ezic’s              Vice President, Channel Sales.  “They have the credibility, they’ve been around and they’re looking to stay around to continue to offer the best products in the industry.”

As the largest Private Gateway provider available, Ezic’s value-added solutions to real market needs give existing customers fresh options and new customers complete solutions.

“We both have knowledgeable and reputable firms with profiles that can definitely make a dent in the industry,” says Svoronos

About Group ISO
Group ISO believes that offering the best price for credit and debit card processing is truly not enough to grow a long-term and viable relationship with an organization. Our philosophy is to bring the very best possible rates, coupled with unparalleled industry expertise and quality service to best serve all of your needs. We also offer consulting services to any of your Merchants when they open an account with us and do their credit card processing here.  We are considered to be a one-stop shop and will be there from beginning to end to answer any and all of your questions, bring best of breed products to the table and assist you in any matters regarding your retail, e-commerce, MOTO or franchise business. 


About Ezic
Ezic, Inc. has been the leader in high-performance digital payment solutions since 1999.  Our payment-processing Gateway offers superior convenience, continuous market-driven advanced product development, and complete multi-level security against fraud for all Internet-based transactions.  To learn more about our Internet Payment Platform, please visit our website at www.ezic.com or call Jim Mouzakiotis, Vice President of Channel Sales at 847-327-9870 x111.

ISOs can count on continuing uncertainty as the battle rages over interchange rates. No one knows when the National Retail Federation and the card brands will resolve their differences or how that resolution might affect ISOs and agents. Meanwhile, most merchants know little and care less about how the card brands set interchange rates.

The battle centers on the retailer group’s claim the United States has the world’s highest interchange fees, which are fees paid by the merchant bank to the card brands for processing transactions, not including fees and rates charged by ISOs and processors.

The Merchants Payment Coalition, a branch of the retailers’ association, says the fees cost consumers $50 billion annually. That leaves the coalition pushing to force deep reductions in interchange rates.

A year ago, state legislatures were pondering more than a dozen bills to regulate rates. Some sought clearer disclosure of the rates, while others wanted to create caps-0.75% in Tennessee, for example. The battle also is playing out in the courts.

“The most likely scenario is that the [card] associations are going to have to basically give in and have some kind of concessions about the amount of the interchange rate and the future increases,” says Paul Rianda, who spent three years as an ISO chief operating officer before founding an Irvine, Calif.-based law firm specializing in the payments industry.

“The alternative is legislation that dictates what happens, and that could be catastrophic for the industry’ Rianda says.

Some favor settling merchant lawsuits against the card brands as the fastest route to resolution. “It seems to me that those lawsuits-hopefully will progress quickly and come to some resolution…that will take care of the legislatures’ interest in this whole process,” Rianda says.

Resolving the lawsuits would yield a better solution than legislation would provide, he says. “I think that’s the most likely outcome, and that’s the one that probably would be the safest for everybody concerned,” he says.

When a resolution may occur remains uncertain. “I feel any serious change is way down the road” says Douglas Mack, president of Payex, a Columbus, Ohio-based ISO.

CAUTIONARY TALES FROM ABROAD

The United States is not the only place with a battle over interchange. In Australia, where the Reserve Bank reduced interchange rates by 40% in2002, from 0.95% to 0.55% regulators argued that interchange subsidized credit card users and thus stifled innovation in other payment types. The industry responded by increasing other charges, particularly annual fees, to offset those losses.

“I can’t imagine what would happen to our industry and all of the ISOs if that happens,” Rianda says of the Australian situation. “That would wipe out ISOs and agents and make everybody go with a more direct approach from the processor level.”

Although the payments markets differ in Australia and the United States in terms of structure and types of players, what happened there provides clues about what deep, mandated interchange rates cuts could do here, observers say. One example is the argument that merchants would pass on the savings to customers.

“Some of the research shows that since [the Australian rate cut], 70% of merchants didn’t even notice that there was a reduction in the interchange fees, which means it probably wasn’t even passed on to [the customers],”says Mike Preuss, an international payments-processing associate at The StrawheckerGroup, an Omaha,Neb.-based consultancy.

The U.S. payments industry also is watching Europe for clues. In December 2007, when the European Commission ordered MasterCard and its banks to eliminate the fees within six months, the National Retail Federation issued a press release comparing the two markets.

“European authorities say MasterCard is double-dipping in Europe, and that’s exactly what we think both MasterCard and Visa are doing here in the U.S.,” Mallory Duncan, association senior vice president and general counsel, said in the release. The NRF did not respond to repeated requests for comment for this article.

The association release stated, however, that MasterCard’s interchange rates for cross-border transactions in Europe are 0.8% to 1.2% of each transaction, while in the United States, MasterCard and Visa average nearly 2%. MasterCard and Visa did not respond to interview requests.
Comparisons of rates in Europe and the United States aside, the two markets differ enough that some observers do not think legislators or courts here could use Europe as a template for resolving the interchange debate.
“The whole business model from a European perspective doesn’t really feature ISOs,” says Kevin Murphy, a Strawhecker Group international payments processing associate.” MasterCard and Visa in Europe now publish their interchange fees on their Web sites, which they’ve done kicking and screaming.”

Despite conflicts over U.S. interchange rates, some view the situation as just another step in the evolution of payments here, “Many industries have had their share of the spotlight, and now it’s simply our turn,” Mack says. “I don’t see the NRF being any different than the National Federation of Independent Business [a Washington,D .C.-based trade group for small business owners] in that it is trying to be advocates of their member base, as membership drives their revenue. It’s business.”

Interchange Ignorance

In the United States, interchange rates have been widely available to merchants in print and online for more than a year. In theory, that information should give merchants an edge when comparing ISOs. In practice, however few merchants have even a basic understanding of interchange rates or know that they are available.

“I don’t have my clients complaining that whenever they walk into a place, the merchants are demanding a certain interchange level,” says Rianda, the lawyer who specializesin payments.’ Also, the problem is that there are so many interchange levels and different cards that the merchants really can’t make a demand on the ISOs and agents other than to give them straight interchange.”

Large, national merchants often know about interchange rates and sometimes have someone on staff who specializes in rates. But they are the exception, ISOs say.

“l don’t think that many small to mid-size merchants are aware that those [published rates tables] even exist,” Rianda says. “lf you’re Wal-Mart, you probably know what interchange is. I don’t think that publication changed a whole lot in terms of what the average merchant is able to negotiate or is charged.”

Mike Fox, the interchange specialist at Group ISO Inc., an Irvine, Calif-based ISO for Wells Fargo Bank, shares that view.

“A lot of merchants don’t even know that [publication] happened,” Fox says. “They still don’t know what interchange is.”

They are not the only ones. “Bankcard sales representatives re ally don’t understand all of the idiosyncrasies of interchange,” says Jamie Savant, a StrawheckerGroup partner.” lt’s very complicated.”

ASSESSING THE IMPACT

Merchant awareness of interchange rates is noteworthy because it is one way to assess how merchants might react if the brands slashed or eliminated the fees. For example, large merchants typically mark up prices to cover interchange.

“If interchange was abolished, would they bring prices back down?” Fox says. “I’ve asked my personal sources and they say, ‘No. Why would people do that?’ So if that were the case, merchants would keep their prices the same yet be paying less and putting more money into their pockets.”

That could help the economy and Wall Street by increasing retailer’s profits. But would it help ISOs? The answer depends partly on the size of the ISO and the size of the merchants in its portfolio.

“Those things that happen will impact ISOs, but they’re going to impact more of the bigger accounts,” says Susan Horne, a StrawheckerGroup associate.

“There are so many small accounts across the United States. They don’t understand interchange. They don’t want to understand interchange. A lot of ISOs also are smaller and have a lot of small accounts. So it all comes down to…everybody has got to pay, but they don’t understand necessarily why they have to pay.”

Payex is another ISO that says it was not affected when the card brands published interchange rates.

“I see every little difference,” Jack says.” Most merchants still don’t know what interchange is and are not aware it is publicly available until we educate them of such. Admittedly, I had my concerns, but anymore I’m a fan of an interchange-plus pricing structure as I believe it is in our clients’ best interest and having their best interest in mind will hopefully result in a longer-term relationship.”

If so many merchants remain unaware that interchange rates are in the public domain, are they also unaware of the battle over the future of those rates? Horne says some have heard about it but do not understand how it will affect them. That could change if the press trumpets the resolution of the dispute. Meanwhile, more merchants are paying attention to interchange.
Some observers believe a gap of about one year may occur between the time the combatants reach a truce and merchants find out the war has ended.

“The first thing that would happen is the ISOs’ profit probably would triple because interchange would just drop,” says Group ISO’s Fox. “But as
soon as merchants found out, it would turn into a mouse hunt.”

Fox and his colleague, Theodore Svoronos, believe most merchants will search for the lowest rate. The sudden pressure to compete primarily on rate could damage individual ISOs and the ISO industry as a whole.

“The industry may have a hard time keeping up the level of professionalism and service [while] educating merchants,” says Svoronos, the firm’s e-commerce expert.

If rates change drastically or cease to exist, the shock could rock the industry.

“You’re going to have a lot of merchant dropoff’ Svoronos says. “The people who can’t meet rates are going to lose business.”

For now, though, ISOs are conducting business as usual because most merchants remain unaware of the battle over the future of interchange rates.

“The impact of what’s going on behind the scenes has not hit us yet,” Fox says.” The outcome whatever it may be-will.”

KNOWLEDGE MEANS OPPORTUNITY
Because it is so complex, interchange can create opportunities for ISOs willing to master it. That knowledge could give them a competitive advantage once the players resolve the interchange-rate battle.

“It will turn into a payment card industry revolution, where everything basically starts from the ground up again,” Fox says. “When it happens, the little guys could become the big guys. And the big guys, if they’re not up on it, may lose half their portfolio.”

He makes those predictions because ISOs, large or small, that have not developed strategies for dealing with changes in interchange rates will find themselves caught short.

As merchants scramble for the best deal, ISOs that have adjusted their business models to meet that demand could pick up a lot of business.

“You’re going to run into a situation of first-come, first-served,” Svoronos says.

As knowledge, or at least awareness of interchange rates trickles down to small and mid-sized merchants, some ISOs believe that it is creating an opportunity regardless o f how the battle is resolved.

Group ISO, for example, already is teaching its merchants about interchange as a preemptive strike against competitors looking to poach.

“lf they find [the published rates], they’ll start asking their provider,” Fox says. “We educate our merchants on it because when someone comes along and tries to educate them and make a value-add above what we already offer, they’re going to say: ‘l already know this. Sorry.”

Making retailers aware of interchange rates is just the latest value-added feature some ISOs are using to minimize merchant churn and reduce the need to compete on rates.

In Group ISO’s case, that means educating merchants on PCI compliance and new technologies. Group ISO also provides a 24-7 call center staffed by employees with enough industry knowledge to answer questions on the spot instead of taking messages.

“We’ve built a loyalty factor by educating our merchants,” Svoronos says. “We keep them abreast of what’s happening in the marketplace. Selling a rate is not what gets you a merchant these days. It’s the customer support. It’s the education. It’s the handholding. It’s the consulting.”

Is there a type of merchant that does not take credit or debit cards?  That question often is the first step in ferreting out new markets, but coming up with answers increasingly means thinking outside the box.

Take nonprofit organizations.  As with merchants, the ability to take credit cards can increase revenue because of the convenience.

Suppose, for example, that the local Humane Society chapter has a booth at a festival.  A potential patron might use a credit card to make a donation larger than the cash in his pocket.  A nonprofit group also can pick up more donations from its Web site if visitors do not have to mail in a check. 

 “When we enable nonprofits to take donations online, their overall donation amounts go up dramatically,” says Ben Prusky, CEO of New York-based Freedom Merchants, an ISO for First National Bank of Nevada.  “It far offsets the cost that they have, such as the processing fee.”

Nonprofits also are an example of the opportunities that ISOs and agents miss out on if they do only a cursory analysis of a potential market and hastily concluded the profit potential is too low to make a business case for pursuing the business.
 “You wouldn’t think that a nonprofit would be doing that much credit card volume, but we found a pretty good market in servicing them,” Prusky says.  “They tend to do a lot of processing for donations online.  It’s been a good market for us.”

Another reason why nonprofits are attractive to some ISOs is that they view the market as less cutthroat, with less pressure to compete primarily on price.
 “You’re dealing with good people and very low chargeback, levels, and services is very important for them,” Prusky says.  “They’re no hyper-price-sensitive the way that a restaurant chain or auto dealer might be.”

ISOs and agents look for new markets is to escape established markets where competition and pricing pressure and fierce.  Some look for markets where they can offer specialized services, which give them a value-add proposition and thus reduce the need to compete primarily on price.

“Integrated point of sale is one that we’re looking into,” says Xavier Ayala, vice president and director of national sales at Eureka, Calif.-based Humboldt Merchant Services.  “Why”  It’s a specialization.”
Getting IN, Getting Out

Not all new markets turn out to be worth pursuing.  The trick is deciding when to bail out or whether to get in at all.

Many ISOs recommend—or even require—a written business case for a new market.  Writing out the plan forces the ISO to quantify the risks and benefits instead of making a case based on instinct.       

“When we’re going after the markets, we can’t just say, ‘We’ll go after markets and try this and that,’” says Theodore Svoronos, vice president of Irvine, Calif.-based Group ISO, an ISO for Wells Fargo Bank.  Svoronos wants to know the return on the investment.

“Group ISO asks for basically an ROI,”  Svoronos says.  “What type of resources are we going to spend?  What type of man hours are we going to put into it?  What’s the marketing campaign?  And in the end, what are we expecting to get?”         

Some ISOS focus on whether merchants in a particular sector are price-sensitive, which can translate into high account acquisition and retention costs.  ISOs also try to figure out how much volume the merchants drive.  Even then, markets that initially look lucrative might turn out to be busts.  One example is lawyers.

“Even though [lawyers] may periodically have high transaction sizes, the overall frequency and average transaction size doesn’t lend itself to an easy processing situation,” says Freedom’s Prusky.  “if a lawyer puts a $5,000 retainer on his client’s credit card, there’s chargeback risk.  Proving delivery of service is a tricky thing. 

Restaurants, however, have huge transaction volume, but carry a risk, too.

Hardly a month goes by, for example, without a report about yet another restaurant hit by skimming, where waiters harvest cardholders information that is then sold and used to make fraudulent charges.

Although other types of merchants routinely experience cardholder-security breaches, the perception that restaurants are the most vulnerable is grounded in reality:  More than 60% of breaches involve a restaurant, according to Shift4, a Las Vegas-based company that specializes in secure payment systems. 

 ISOs and agents can leverage awareness of restaurant breaches–but only if they research the market beforehand to understand restaurateurs’’ concerns and to get statistics on restaurants hit hardest.

 Armed with that information, ISOs and agents have a better shot at selling pay-at-the-table products.  Growing consumer awareness of how pay-at-the table terminals benefit them also helps the sales effort.

“Their card is right in front of them,” says Humboldt’s Ayala.  “They’re the ones swiping it.  It makes them feel good about doing business with that merchant.”
© 2007 SourceMedia, Inc. and ISO&Agent.  All rights reserved.  SourceMedia, One State Street, New York, N.Y. 10004 (800) 367-3989

Why someone would choose such a demanding career is something only those who have worn an MLS’ shoes can understand. Michael Segura, Owner of Group ISO, has walked far in those shoes. He knows what it’s like to be an independent MLS among large ISOs; he’s been there. And after years of financial services industry experience, Segura decided to create an ISO that serves the needs of merchants and agents. So in 2001, he established Group ISO.

Group ISO is an organization of, by and for bankcard sales professionals. The company’s founding belief is that all agents deserve the resources and payment processing options that are usually only available to larger organizations. “I have been in the industry a long time,” Segura said. “I understand the challenges and opportunities available, and we do our best to assist agents in reaching their goals.”

Group ISO strives to treat its agents as partners, with respect, dignity and support. And the company doesn’t compete with them. All of its merchant volume comes from its outside ISO and agent programs.

Group ISO enables agents to provide payment processing to almost any type of merchant, from small mom-and-pop startups, to Fortune 500 companies. Group ISO also boasts a 98% approval rate; it works to find ways to approve merchants rather than identify reasons to decline them.

It provides processing for all types of card brands including Visa U.S.A., MasterCard International, American Express Co., Discover Financial Services, Diners Club International Ltd. and JCB International Credit Card Co. Ltd. It also offers debit processing on all national and regional networks including those of STAR Networks Inc., Maestro, Honor Technologies Inc., Interlink Networks LLC, Cirrus Network and PULSE EFT Association Inc.

Additionally, Group ISO has partnered with Global eTelecom Inc. to offer check conversion, guarantee and verification services. Through this partnership, agents are able to offer merchants electronic MO/TO checks, accounts receivable entry lockbox conversion, recurring debit, represented check entry and electronic check image capture.

A generous gateway

Group ISO recently launched ISO Gateway, a co-op venture that is unique in the industry: It is jointly owned and operated for the benefit of its member-owners. The great news for MLSs is that the company doesn’t charge agents or merchants an application fee. “Some other gateways charge between $100 and $200 just to get set up,” Segura said. “With ISO Gateway, the only costs to the agent are a $10 statement fee and $0.10 per transaction.”

Gross revenue generated from the ISO Gateway is allocated to the gateway’s operating costs, Group ISO and its agents. Each agent’s share of net revenue is equal to the amount of gross revenue generated by the agent. “For example, if an agent’s merchants represent 35% of the gross revenue received through ISO Gateway, this agent will be paid 35% of the profits distributed to agents,” Segura said.

ISO Gateway is certified through the following platforms: FDMS Nashville, FDMS North, FDR-7, NDC eCommerce, TSYS Acquiring Solutions, Chase Paymentech Solutions, NOVA Information Systems, Digital Courier Technologies Inc., Network One and Electronic Clearing House Inc.

The gateway is also integrated with more than 20 shopping carts, including Mercantec Inc., CartManager, ezStore123, ShopPal LLC and Qualiteam’s X-Cart.

Group ISO has staff dedicated to helping agents and merchants integrate shopping carts. It also supports recurring billing and provides a customizable fraud and risk management system.

Small agents/big producers

Group ISO works with smaller agents, including those just starting out in the industry. “We are open to working with brand new agents who want to get up and running,” Segura said. “The bigger agents can rent their own [bank identification number] BIN, get their own risk department, etc. Our program is ideal for a small agent who handles a deal with a firm handshake.”

Realizing that smaller agents are its best producers, the company focuses on supporting them. “We provide ongoing support to assist the agents,” Segura said.

“Our agents can call us if they need an answer or help on something. We are more than happy to make them look good in the eyes of their merchants.”

The company also operates as its agents’ partner and, as such, provides necessary services as well as motivational resource. Segura explained that the lower business volume that many new agents generate doesn’t enable them to get the assistance they need. But, with Group ISO, “Our agents can be independent, but still have the support of someone behind them.”

A fabulous 50/50 split

From his experience as an agent, Segura knows that earning potential is a large part of the equation when MLSs are choosing professional affiliations. This is why the company offers agents a 50/50 split of all fees and income.

“If we get $500, you’re getting $250 [of that $500],” he said. “I don’t think anyone does that. Others cut all the income stream off the top, and then do the split.

“Our program is a true split of profitability including discount rates, transaction and statement fees, monthly minimums, voice authorizations, chargeback fees and a variety of other revenue streams.” While there are other companies that offer a greater than 50% split, Segura explained that Group ISO uses its 50% to provide ISO support.

“I know other people pay 70 to 80%,” he said. “We pay 50%, but we are true partners; we take care of the backend. We take care of the processing, setting up new accounts, issuing merchant numbers, agent relations, answering new ISO questions, risk management, etc. With our 50% we are helping the ISO.”

An open book policy

Not only does Group ISO split its revenue evenly with agents, it also shares all income information with agents through its open book policy.

“We open our books each month and share details on all of the income we receive so that our agents can be assured they are receiving a true 50/50 split,” Segura said. “No one will disclose a copy of the report they receive from the bank; we will. Our open book policy keeps everyone honest.”

Additionally, along with monthly commission payments, agents also receive a sales report that breaks down exactly how the commission was calculated. Commenting on the litigious climate of the industry, Segura said, “What is beautiful is we have no one suing us. You hear about all these lawsuits; everyone else is getting sued by 12 different agents.”

Group ISO is also straightforward when it comes to informing prospective agents about what they can earn on specific transactions and fees. Detailed rates for items such as chargeback fees, annual fees and statement fees are posted on the company’s Web site, www.groupiso.com . Segura acknowledges that interchange is at least in part to blame for some ISOs’ and MLSs’ unhappiness with the split they receive from their processors.

He thinks the confusion surrounding interchange makes it possible for agents to be in the dark about what they are really receiving in a revenue split, and he shares the frustration that most industry professionals feel about this topic.

“The industry should have a class for people to understand interchange,” he said. “No one can read the statements; no one understands it. It is crazy to have people selling this stuff with something like 128 interchange tables.”

With its deep understanding of the challenges facing independent agents in the bankcard industry, Group ISO works to support agents while also enabling them to remain independent.

Group ISO is just that: a group of ISOs and MLSs who have joined together to share their experience, knowledge and collective processing to make the bankcard industry a bit easier for small agents to navigate.

Mike as one of a couple of people saying that publication of interchange rates has had little impact:

“A lot of merchants don’t even know that [publication] happened,” Fox says. “They still don’t know what interchange is.”

***

On whether interchange reduction or elimination would result in lower prices for consumers:

“If interchange were abolished, would they bring prices back down?” Fox says. “I’ve asked my personal sources, and they say: ‘No. Why would people do that?’ So if that were the case, merchants would keep their prices the same yet be paying less and putting more money into their pockets.”

***

On the likely gap between the time any agreement is reached and when most merchants find out:

“The first thing that would happen is the ISOs’ profit probably would triple because interchange would just drop,” says Group ISO’s Fox. “But as soon as merchants found out, it would turn into a mouse hunt.”

***

On how pressure to compete primarily on rate could have a negative impact on individual ISOs and the ISO industry as a whole:

“The industry may have a hard time keeping up the level of professionalism, service and educating merchants,” says Svoronos, the firm’s e-commerce guru.

“You’re going to have a lot of merchant drop-off,” Svoronos says. “The people who can’t meet rates are going to lose business.”

***

On how it’s business as usual because most merchants are unaware of the battle over the future of interchange rates:

“The impact of what’s going on behind the scenes has not hit us yet,” Fox says. “The outcome – whatever it may be – will.”

***

On how interchange can create opportunities for ISOs willing to master it. For example, that knowledge could give them a competitive advantage once the interchange rate battle is finally resolved:

“It will turn into a payment card industry revolution, where everything basically starts from the ground up again,” Fox says. “When it happens, the little guys could become the big guys. And the big guys, if they’re not up on it, may lose half their portfolio.”

***

On how, as merchants scatter in search of the best deal, those ISOs that have adjusted their business model to meet that demand could pick up a lot of business:

“You’re going to run into a situation of first come, first served,” Svoronos says.

***

On how Group ISO is already educating its merchants about interchange as a pre-emptive strike against competitors looking to poach:

“If they find [the published rates], they’ll start asking their providers,” Fox says. “We educate our merchants on it because when someone comes along and tries to educate them and make a value add above what we already offer, they’re going to say: ‘I already know this. Sorry.’”

***

On how Group ISO educates merchants on PCI compliance and new technologies, as well as providing a 24/7 call center staffed by people with industry knowledge who can answer questions on the spot instead of just taking a message:

“We’ve built a loyalty factor by educating our merchants,” Svoronos says. “We keep them abreast of what’s happening in the marketplace. Selling a rate is not what gets you a merchant these days. It’s the customer support. It’s the education. It’s the hand-holding. It’s the consulting.”

***

Thanks.