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Merchant attrition, dwindling profit margins and mandates to secure merchant compliance with industry data-security standards top the list of concerns for acquirers and independent sales organizations in 2010, suggest recent survey results from Aite Group LLC. Of the 45 ISOs and acquirers that responded, 24% cited merchant attrition as the top challenge for next year. Attrition is significant in many ways, regardless of whether merchants find a cheaper payment company or cease operating, report author Adil Moussa, an analyst with the Boston-based firm, tells CardLine sister publication ISO&Agent Weekly. But when merchants go out of business, "whoever underwrites the risk is at risk of holding the bag, and in the case of unsettled transactions or services not rendered, the merchant acquirer has to pay back the cardholders their money," Moussa says. "That's very worrisome for a lot of ISOs and acquirers, especially those that do their own underwriting." Underwriting is an evaluation of a merchant's financial performance that can determine risk. Twenty-two percent of respondents cited margin compression, characterized as higher costs eating into profits, as the second-biggest challenge in 2010. Some 78% of respondents believed that price slashing by ISOs adversely affects the industry. "Newcomers that don't have much to offer to merchants in terms of products can only compete on the basis of pricing, forcing the industry to create a margin compression that all ISOs and acquirers seem to be complaining about," Moussa says. This can result in a heavily taxed sales force, he says. "They have to sell twice as much to net the same as they had before," Moussa says. In addition, 17% of respondents said mandates to get merchants compliant with Payment Card Industry data-security standards are a top concern for 2010. Visa Inc. has set July 1 as the deadline for devices using PIN pads to adhere to the triple data encryption standard.
