Just as merchant-acquirers were adjusting to the Internet, along came the wireless craze to give them more to worry about.
The 1,500 merchant-acquiring executives who gathered in Chicago last week for the midyear meeting of the Electronic Transactions Association seemed tacitly to agree that e-commerce - in all its plugged and unplugged manifestations - is a constant source of anxiety.
The high fraud and chargeback rates that accompany Internet card transactions are getting national media attention, and the people responsible for handling retailers' relationships with banks and card processors are taking a lot of the heat.
"The industry is not ready for e-commerce," said Cynthia Phillips, director of chargebacks, retrievals, and imaging at Cardservice International, an independent sales organization in Agoura Hills, Calif. "We cannot guarantee every transaction on the Internet, and merchants get angry because they didn't know what was going to happen to them."
The conference was the largest to date for the 10-year old association, whose members are primarily executives from independent sales organizations, card associations, and technology companies. The main topic of conversation was the Internet, with its two sides of opportunity and risk.
The convention's exhibit hall was packed with new wireless devices, Web-building kits, and online support services.
Pamela Patsley, president of First Data Merchant Services, opened the conference by urging attendees to regard the new wave of Internet commerce as an evolution, rather than a revolution.
"We've come a long way," she said. "Everything we know these days starts with an 'e'. But we haven't quite achieved the time when paper money has become obsolete."
Two factors make Internet commerce dangerous for merchant-acquirers and their customers, Ms. Patsley said: high fraud rates and lack of profitability among Internet merchants. She reminded the audience that last year's sales at Amazon.com - a seemingly successful Internet venture - were roughly equal to Wal-Mart Stores Inc.'s sales on the day after Thanksgiving. She also said that two years ago 10% to 15% of Guess.com's online credit card transactions were fraudulent.
But progress has been made in the last two years, and Ms. Patsley reinforced the idea that merchant-acquirers were best suited to overcome the inauspicious beginnings of e-commerce. "Acquirers already have the infrastructure in place and the merchant relationships," she said. "Let's make sure we keep that advantage."
Speakers at the conference repeatedly took note of the industry's history and reminded listeners that despite the trepidation surrounding the Internet, merchant-acquirers have managed credit card transactions for years. Some even reminisced about the lost days of the manual embosser, "the knuckle-buster" that started it all.
The briefings served as the preface to a call to arms in which speakers expressed the belief that merchant-acquirers are the natural inheritors of e-commerce.
Aside from playing golf, the organization's members spent most of the three days addressing industrywide pressures to take control of Internet transactions and to come up with more secure methods of payment than traditional credit cards. Throughout the convention, speeches alternated between verbal embraces of e-commerce, and fighting words about growing instability and competition.
In a highly competitive industry, where companies compete to provide the same basic services to a fixed number of merchants, a peculiar spirit of solidarity seemed to hang over the convention. Once considered brash upstarts themselves, executives at independent sales organizations emphasized their industry's cohesiveness and attempted to banish fears that new and unfamiliar competitors were waiting to capitalize on the burgeoning but limited field of Internet transactions.
Stuart Bloom, executive vice president and principal of the electronic transaction consulting firm Carmody & Bloom of Ridgewood, N.J., warned that "the absence of an Internet strategy is a decision to relinquish market share." He described a new order in which merchants are reaching customers directly, rather than through stores.
Trying to represent acquirers as "the ultimate middle man," he showed a slide featuring cartoon images of a friendly storefront and a cluster of consumers with a puffy white cloud placed awkwardly between them reading, "Acquirer Business."
Educational sessions that followed the speech paid particular attention to developments in wireless markets and e-commerce, picking up on Mr. Bloom's effort to insert the acquiring industry somewhere in the closed circuit of Internet transactions.
Jonathan J. Palmer, president and chief executive officer of Vital Processing Services, the merchant processing company co-owned by Visa U.S.A. and Total System Services Inc., said banks are losing out in the new commercial scheme.
For the merchant services industry, "this is not about fear of the Internet, to be sure," Mr. Palmer said. "The world has changed. Consumers and merchants are now farther up the food chain than the banks. It used to be the banks" that acquired sales transactions. "Now, we're in charge."
Jack Wilson, vice president and manager of bank relations for Electronic Clearing House Inc. of Agoura Hills, Calif., said he was at the conference (his fourth) to get ideas on the current "wireless craze." Mr. Wilson, whose company has been around since 1981, described distinctly contemporary situations that make wireless applications necessary instruments for the processing industry.
One of Mr. Wilson's customers, a parking garage owner near an airport, wants to clear payments more quickly to eliminate the long lines that result when business travelers get off the same flight, he said. "Wireless is excellent," for doing this, he said. "All applications that use the Internet to reach a merchant's point of sale are useful."
In one educational session, Tim Hopkins, an arbitration and compliance consultant for MasterCard International, focused on the darker view of Internet commerce by addressing chargebacks, which he called "the necessary evil of the credit card process." The rise of Internet transactions has made the proliferation of chargebacks inevitable, he said.
Mr. Hopkins recommended that merchant-acquirers worried about chargebacks should get out their 2000 MasterCard Chargeback manuals. Those books are sure to help, and, at the very least, are "guaranteed to put you right to sleep," he said.
Mr. Hopkins said that chargebacks were "brutal," and that "if our merchants could eliminate one word in their vocabulary, it would be 'chargebacks.' "
