Business-to-business and government purchases are untapped gold mines for the independent sales organizations that market card processing services to small and midsize retailers, executives said at a conference last week.
Speaking at the annual meeting of the Electronic Transaction Association, a merchant processing group originally organized by the ISOs, industry experts said taking advantage of these opportunities would require new thinking.
ISOs would have to broaden their horizons by getting smaller merchants to accept purchasing cards, which are fast becoming the payment vehicle of choice for major companies and government agencies.
Vendors that accept purchasing cards tend to be large suppliers that maintain high-volume accounts with corporations or agencies, but these institutional purchasers seek the flexibility to use smaller vendors as well.
"I would like to challenge you to work with us," said Armen Khachadourian, senior vice president of new market development at Visa U.S.A. He estimated the market for business-to-business payments at $1.7 billion annually.
Mr. Khachadourian said ISOs have been missing the chance to serve this sector but can catch up quickly by signing up new and existing clients for purchasing cards. Chemical, medical, and industrial suppliers are categories with vast opportunity, he said.
"Midsize companies are available for acquiring," Mr. Khachadourian said. "There is nobody other than you to provide a one-stop shop for your customer."
One ISO embracing this trend is Cardservice International of Agoura Hills, Calif., which has signed a partnership with General Electric Co. to facilitate electronic payments with midsize vendors.
Charles Burtzloff, president and chief executive officer of Cardservice, said suppliers interested in selling to GE will soon be able to click an icon on that company's Web site.
The name of the interested vendor would be forwarded to Cardservice, which will give it a merchant number "in seconds," Mr. Burtzloff said.
"This will give an inexpensive, quick, and easy solution for suppliers," said Gail Mahan, corporate agent programs group manager at Cardservice.
Some ISOs are not eager to get into the purchasing card business. One ISO executive, Alan Lubitz of TermNet Merchant Services Inc., said a hardware store client accepted a Visa procurement card from a nearby U.S. Army base, only to discover that the interchange rate was higher than for consumer cards.
"Small merchants are not willing to bear the cost of these occasional transactions," said Mr. Lubitz, executive vice president and chief technology officer of TermNet.
Mr. Khachadourian said merchants can avoid higher rates by capturing more data at the point of sale. Retailers that can provide detailed transaction records would reap the full benefits of purchasing card acceptance.
Merchants and acquirers who shun this payment vehicle will lose out in the long run, Mr. Khachadourian said. "Do you want to sell this way?" he said. "Because that is how (companies) want to pay."
Some corporations are willing to buy goods from smaller merchants without purchasing cards but want to be able to funnel the transaction data directly to their account books, experts said. The format, typically electronic data interchange, can be foreign to some merchants and their ISOs.
Large processors are waiting in the wings to help ISOs set up these types of systems.
"What we're doing is creating an environment for the small guys," said Heidi Goff, executive vice president of strategy and market development at Global Payment Systems of Atlanta. "We are enabling the smaller supplier."
