A clash between big and small merchant processing companies flared in the recent election of directors for industry's trade association.
Members of the Bankcard Services Association agreed to change its name to Electronic Transactions Association, to "include the entire transaction services industry." But they sharply rejected their nominating committee's bid to put two representatives of the biggest company in the field - Roger Peirce and O.B. Rawls 4th - on the five-member board.
Mr. Peirce is group president of electronic funds services at First Data Corp.'s card services group in Palo Alto, Calif. Mr. Rawls is president of Unified Merchant Services, a First Data-NationsBank joint venture in Atlanta. First Data is No. 1 in card processing for retail merchants, and United is No. 12.
At the vote during a meeting in Orlando last month, a vocal minority of the 147 companies raised objections to having two such large and closely allied organizations on the board.
In their place, members elected Joseph S. Kaplan, president and chief executive, Superior Bankcard Service, Woodland Hills, Calif., and John Hunnicutt, an executive of PayTran LLC, Tucson, Ariz.
"It was an unfortunate experience," Mr. Peirce said, adding that he attended the meeting as a personal favor to several board members who are customers of First Data and who nominated him.
"It was an embarrassment for me personally and for the members of the board who had made the recommendation to have their direction repudiated," he said.
In a business that has been quickly consolidating and squeezing out smaller players, the six-year-old association has generally looked after the interests of smaller, independent sales organizations. They are more numerous but less powerful than industry leaders like First Data and have been trying to enhance their credibility as marketers and service providers.
"Small members felt that the association did not represent their voice if the directors were from a large organization," said a source who attended the meeting but who insisted on anonymity. "When people exclude large members, the ETA is not as powerful a voice."
The source said the reaction was emotional rather than rational, because each member organization, regardless of size, has only one vote.
"I had put together the board and nominated Roger Peirce and O.B. Rawls," said Chuck Burtzloff, ETA president and president and chief executive officer of Cardservice International, Agoura Hills, Calif.
"Members didn't want a large company like First Data" on the board, he added.
"It wasn't the correct thing to do," Mr. Burtzloff said of his nominees' defeat. "It would have brought the ETA to the level of respectability we were trying to get it to."
Independent sales organizations, or ISOs, have had to fight for legitimacy, in part due to criminal activity by a handful of organizations that no longer operate.
"Smaller ISOs fear that the larger ISOs will eat them up, that their survival will be short-lived," said Mr. Kaplan of Superior Bankcard. "They fear that economies of scale will be so skewed that competing will be difficult."
He said smaller players also fear the vast resources of the larger organizations, which enable them to capture more of the merchant base.
"They are fearful that they are not included," Mr. Kaplan said, "that they have to hang onto the dog's tail and get wagged around with no say in the market."
Kurt Knipp, executive vice president of merchant card services at National Processing Co., the No. 2 merchant processor, who was nominated on the slate with Mr. Peirce and Mr. Rawls but won election, agreed.
The election's outcome may have reflected smaller companies' frustration at being treated as "second-class citizens in comparison to (First Data's) customer base of banks," Mr. Knipp said.
"I think there was a perception that the slate as presented may not have represented the broader constituency, he said. "I do not believe that to be the case. I think the slate as presented with myself, Roger Peirce, and O.B. Rawls, would have very appropriately represented all the membership."
It was just politics as usual to Ken Bowman, executive director of the ETA.
The association "is proud of the fact that it has always been a democratic organization," he said. "In Florida, you could see democracy in action. There has always been the opportunity for nominations from the floor.
"It's a reflection of what's going on in the marketplace - a lot of consolidation," he continued. "Smaller players wonder what will happen in a few years," and there was "the perception that their volunteer organization would be tilted toward larger companies."
"The ETA is a great organization for ISOs, and the members get to elect who they want," Mr. Rawls said. "I was disappointed I wasn't elected, but I respect the democratic process. The members should choose who they want."
Mr. Rawls is current chairman of the ETA's bylaws committee, overseeing changes in membership.
The association "has the potential to be significant," Mr. Peirce said. "But it will remain insignificant unless it truly represents the industry, which it does not do now."
