Between earnings pressures, looming regulatory changes and new technologies flooding the marketplace, today's market can be a tough place for sales agents.
Some ISOs have written off the agent model as an inefficient way of doing business, but many still believe there is a bright future for those willing to evolve and adapt.
"I do not see the importance of the agent or sub-ISO diminishing at all," says Dan Neistadt, president and CEO of Electronic Merchant Systems in Cleveland. "In fact, my view is that they will continue to be an important cog in the acquiring business."
But survival will be a challenge. The consolidation trend, combined with the struggling economy, creates fewer opportunities for salespeople. At the same time, processors and acquirers face continuing pressure to bring in enough business, and the only way the two can compete in the market is on price.
"The current situation is we're in a negative zero-sum gain," says Paul Martaus, president and CEO of Martaus & Associates, a consulting firm based in Mountain Home, Ark. "Not only are we stealing merchants from each other, but the pool is continuing to shrink."
Despite market forces, the independent sales agent program is thriving at Atlanta-based First Data Corp. John Barrett, the company's senior vice president of independent sales services, calls the program one of the processor's "key distribution channels."
First Data has more than 500 independent sales agents throughout the country and processed more than 28 billion merchant transactions in the United States in 2009.
First Data sees plenty of opportunities for independent sales agents, as long as they are willing to educate themselves and keep abreast of industry changes.
"They're independent, so they're not employees. Yet you want them to go out with the same message and follow the same strategic plan the ISO may have. And that's one of the challenges you have with a lot of agents. They need to adapt with their knowledge level and as the environment changes," Barrett says.
Not all ISOs have faith in the outside sales agent model. Dharma Merchant Services does not use any outside sales agents, and that suits company President Jeff Marcous just fine.
"Our attention kind of shifted to other ways of engaging with merchants," Marcous says. "The old model, it's kind of passed."
Today, 65% to 70% of the San Francisco-based ISO's merchant portfolio consists of merchants specializing in e-commerce and mail/telephone orders. The remaining clients are retail merchants.
Business By Phone
"Twice just this week, I got a call from a yoga studio and acupuncturist, both in New York. We closed them over the phone and walked them through the application. So from our perspective, although it's wonderful to meet someone in person, it's simply not necessary these days," Marcous says.
Instead of independent agents, Dharma Merchant Services relies on its staff employees to answer the phones to land sales. They don't receive commissions and have regular hours and benefits. "We're fortunate that we don't have to do any outreach. Most sales are from people who find us," Marcous says.
Keeping sales in-house has been a necessity for the small company, which does not have the resources to communicate regularly with outside salespeople. It also is difficult to find agents who know all the nuances of the industry and then keep tabs on how much effort they put into their sales.
"It really takes three to six months to learn this industry, speak with confidence and be effective, and we just don't want to take that time," Marcous says.
Still, Dharma Merchant Services does receive employment inquiries. "Occasionally someone will call and ask if we have a sales agent program. We have full disclosure of our fees and donate 10% of our proceeds to charity, so a lot of people want to work with us. But we just don't feel it's the best use of our time," Marcous says.
The company has tried taking on part-time agents, but without success.
Dharma Merchant Services has set some boundaries in terms of limiting personal interaction. Early on, the company tried an electronic application in which a prospective merchant could go online and never have to engage with a human.
"But we feel it's so important for there to be a relationship between the merchant and our company," Marcous says.
A debate goes on among ISOs over whether to sell direct or take the independent agent route. "The increasing level of residual compensation that acquirers have to pay out could ultimately threaten the independent program," Barrett says.
In-House Sales
By keeping sales in-house, the ISOs have more control over what salespeople say or do because the reps are employees. But from a sales perspective, having independent agents creates a broad spectrum of opportunities for the ISO. Plus, acquisition costs are lower because the ISO does not have to pay benefits or other overhead costs.
"These (agents) are all entrepreneurs, and they go into markets in areas of the country you may not be able to go into, or want to go into, as an organization. And I think there are some inherent advantages in there," Barrett says.
But independent agents who do not keep up with industry changes and lose the ability to help develop new markets might find themselves out of work quickly, Barrett says.
Threats To The Agent Model
Many in the industry have faith in the sales-agent model, but they also acknowledge that threats exist. For one, the consolidation trend has made it unclear whether the market will sustain the number of processors and acquirers now operating.
"If the number of acquirers gets dramatically diminished, ISOs are going to have to scramble for sponsorship," Martaus says.
Small to midsize sponsors are exiting the market because of capital constraints. And ISOs also are getting cut out of the equation because processors view them getting too expensive, and their earnings are dwindling.
As with many other industries, the economy also is taking a toll. "I've got to think that as the economy has started to shrink in the last few years with merchants going out of business, out of sheer numbers there just aren't as many new opportunities to find new merchants," Marcous says.
Then there are the unknowns surrounding how proposed federal interchange regulations will affect the card-processing fees charged to merchants.
"In the end, you can't control what government is going to do with interchange regulation. So you have to be smarter, and you have to find other ways to make money," Electronic Merchant Systems' Neistadt says.
That might mean that processors will add new services and provide a clear, concise value proposition to the merchant. "Interchange is interchange," Neistadt says. "People buy for reasons that are important to them. We have to find those reasons, and we have to charge a fair price for them."
The 80/20 Rule
Many in the industry remain optimistic about the outlook for merchant-services salespeople, but with some caveats.
ISOs point to the 80/20 rule, that 80% of their sales will come from 20% of their sales force. "That's why it's not worth the effort to maintain a relationship with an unproductive salesperson," Marcous says.
But at what point should the ISO cut out the agent? Some believe in trimming salespeople who are not as adept at closing business deals.
"The closer-the individual who has that unique talent of being able to close a business relationship on the spot-will never be out of work. Ever, ever, ever," Martaus says.
Yet some ISOs keep low-producing agents on retainer because the only time they have to pay them is when the agent brings in a deal.
"If they're not on any kind of a relationship where they're getting paid a minimum salary plus commission, why would the ISO want to get rid of them?" Martaus asks. "They're not costing them anything, and if they bring them one business deal a month, that's one deal they wouldn't have had at the beginning of the month."
Besides the basic skills a salesperson needs, merchant-services agents must keep up with technology and regulatory changes. "That knowledge will help them identify emerging markets that may be out there for electronic payments," Barrett says.
Sales agents use of the Internet is making inroads, but Neistadt believes agent-merchant interaction cannot be replaced. His firm, Electronic Merchant Systems, has been in business since 1987 and goes to market through an agent program, a direct-sales program and a partner financial institution program.
The company has about 100 agents, a number Neistadt says has grown in recent years. In the past two years, the firm has doubled the number of deals it has received from agents.
"There's nothing like that one-to-one, face-to-face interaction with the merchant. The Internet doesn't develop trust. This is still a trust business, and there's still a heck of a future in it for salespeople," Neistadt says.
Tying Software To Sales
After witnessing how free-terminal programs altered the sales pitch a few years ago, ISOs are keeping a guarded watch on how software integrations might affect how they and their agents do business. Many ISOs already work closely with software developers who have access to specialty merchant segment.
No one questions that software integration will make significant inroads into the terminal business, and prices likely will come down over time, Neistadt says. And as that happens, he says his firm will decide whether to use integrate software into its sales strategy.
"Our view is that if we can make a situation win-win-win-for us, the agent and the merchant-then that's how we want to participate in this business," Neistadt says.
Marcous says his company never felt the impact of a service provider offering free terminals, but in terms of software the firm sees companies such as Intuit Inc. taking a lot of market share. Intuit ties merchant processing closely to its QuickBooks accounting software.
Martaus says he has come across a number of value-added resellers that are starting to compete as processors because they bring in value-added products such as software integration. The resellers have a relationship with the retailer because they can provide something the merchant cannot get from their traditional ISO or acquirer.
"It's kind of a dichotomy," Martaus says. "These guys tell me that they have the relationship with the retailers because they're providing industry- specific, incredibly important software, and yet they're having a hard time expanding their businesses because they can't get ISOs to sell on their behalf."
That creates an opportunity for some ISOs if they can identify the value-added resellers and learn and market those value-added products on the resellers' behalf.
"They could literally corner markets," Martaus says. "But there's no intermediary doing the linkage between the [reseller] and the ISO. They're having a hard time recruiting them."
Specialization, Education Key
ISOs and acquirers will remain viable entities for doing business, industry experts believe. The outlook is especially positive for those who are servicing specialty market segments and who are increasing their knowledge base.
Education and adaptation may play a critical role in a sales agent's survival, and some of that responsibility falls on the ISOs. Training agents to better handle objections, general sales and the dynamics of the industry could benefit both salespeople and the ISOs they serve, Neistadt says.
"Often (the agents) receive their initial packet of (training) paperwork and are expected to go out and sell and make a living. Frankly, that's not going to happen. I think we as an industry need to do a better job of educating our agents and preparing them to sell in the merchant services space," Neistadt says.
Moreover, agents can identify an emerging market or trend and become an expert in that specific field, or tie themselves to a value-added reseller that has a specific product offering.
Indeed, signs point to the industry evolving toward specialization, such as mobile payments. That creates opportunities for sales agents who know the mobile market and understand products such as iPhones and Blackberrys.
"The general agents making cold calls, they're going to be less and less productive. So sales agents probably won't last long just trying to be a generalist," Marcous says.
Agents also could benefit from getting more involved, either through the Electronics Transactions Association or their local acquirers' association, to hone their sales skills and better understand industry trends and the direction where the industry is going.
"There's a lot of homework to do on their end," Neistadt says. "And those folks who are the best prepared will be the most successful."
