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This article appears in the Dec. 18, 2008, edition of ISO&Agent Weekly.
With thousands of workers laid off from their jobs, consumers watching every dollar and merchants struggling to compete, 2008, and very likely 2009, may stand out as supremely competitive years for ISOs.
To help gauge what some of this means for ISOs, ISO&Agent Weekly has asked members of its editorial advisory board for their thoughts on what trends most affected the industry in 2008 and what they forecast will have an impact on the industry next year. This is the first of two parts, with the next issue containing more insight from the advisory board.
Bill Clark
Executive vice president
Apriva
What trend/event/change in 2008 most affected the industry and why?
Security issues for merchants and the sunset of several non-PCI compliant POS terminals that expire in 2010. The economy.
Will that carry over into 2009?
These are likely 2009-2010 items.
What factors will most affect the payments industry, specifically ISOs, in 2009?
Shrinking margins. Merchant closures. Consolidation in our industry. I also expect new product releases to be slow as larger acquirers tighten resources.
Tim McWeeney
Vice president, North American sales
ExaDigm Inc.
What trend/event/change in 2008 most affected the industry and why?
Bank failures, consolidation and recession. We have not yet begun to see the impact this will have on merchant processing now that there are fewer significant processing banks in the market.
Will that carry over into 2009? Why or why not?
It will change the industry moving forward. ISOs already are talking about pulling out of free-terminal programs due to unprecedented bankruptcies and closures of their customers.
What factors will most affect the payments industry, specifically ISOs, in 2009?
Again, the impact has not been fully felt, but the consolidation will affect them greatly next year and beyond. Also, the tightening of money will begin to strangle them.
Don Singer
Senior vice president
EZCheck
What trend/event/change in 2008 most affected the industry and why?
Without a doubt the declining economy was far and away the biggest factor that impacted the payments industry in 2008. Declining sales quickly resulted in declining payment volumes. On a macro-economic scale, the drop in sales combined with the lack of available credit caused businesses, from small, single-location operators to multilocation retailers and auto dealers, to close their doors. Specific to our industry, historically low-risk merchants and low-risk industries required tighter underwriting and the use of higher risk-pricing models.
Will that carry over into 2009? Why or why not?
Most experts predict the economy won't start to rebound until late 2009 at the earliest and possibly not until 2010. So the impact of the 2008 economic slowdown will certainly carry into 2009. But one thing to keep in mind is that this economic drop off and especially the stock market losses have shattered almost all prevailing economic theories the experts have followed for the last 50 to 100 years. At this point it looks like everybody's crystal ball is cracked or broken. With that in mind, recovery could come much later or much sooner than predicted.
What factors will most affect the payments industry, specifically ISOs, in 2009?
While the economy will slow all commerce and business, including payments, over the next year or two, the payments industry and ISOs can find some ways to prosper during these times. One way to do this is to focus on services that our industry provides that increase or protect cash flow, reduce or eliminate risk, and increase sales or reduce costs.
During economic slowdowns, all businesses are looking for ways to survive, and services that provide any or all of these benefits will be in demand. Some specific examples available to ISOs today include cash advances to keep the merchant afloat, check guarantee and collections to protect cash flow, and debit card acceptance to lower processing costs. There are other payment-industry products out there that fall under these categories as well. But in general, expect those types of services to be in much higher demand than high-tech, whiz-bang technology products that have less direct impact on a merchant's bottom line.
Mark Dunn
Owner
FieldGuide Enterprises LLC
What trend/event/change in 2008 most affected the industry and why?
The combination of two trends was of great significance in 2008: merchant dissatisfaction with merchant-services fee structures and government involvement in banking and potentially in bankcard pricing. These pose the greatest potential for change in our industry and, unfortunately, further compression of profit margins for ISOs.
Will that carry over into 2009? Why or why not?
The banking crisis will continue for the first half of 2009. In addition, small to medium-sized merchants will be hurting financially and will press for fee changes. The Obama administration will, I think, re-examine and re-write many banking practices, which will have a ripple effect in merchant services. I see the industry being further pressed to defend its fee structures and rates.
On the plus side, all merchants are highly dependent on the quick cash flow that credit and debit card usa enables. Also, cardholders like the convenience of cards over cash and checks. Card usa should remain high but processing volumes will decline.
What factors will most affect the payments industry, specifically ISOs, in 2009?
The agent and small ISO side of our business is highly dependent on processing volumes and the health of small to medium-sized merchants. A sizeable economic downturn doesn't bode well for these portfolios. I believe we already are starting to see a decline in small-ISO portfolio valuations. This could mean more small ISOs will become motivated sellers of part or all of their portfolios.
