More ISOs Are Specializing In Niches

Two decades ago Mary L. Gerdts did something that was quite unusual at the time. She started an ISO that focuses solely on one industry—hotels.

Gerdts, president and chief executive of POST Integrations Inc., says she fell in love with the hotel industry at a previous job and saw an opportunity to cater to the then-underserved market.

Thus, the Phoenix, Ariz.-based company was conceived to concentrate on the needs of hotels. “From day one that was my intent, and I’ve never wavered from that,” she says.

POST Integrations was an early adopter of what is now a growing trend among ISOs—the focus on a few niche markets as a way to become more engrained with merchants.

It’s a big change from a few years ago, when signing up as many merchants as one could—regardless of the business fit—was in vogue.

Nowadays, pounded by fierce competition and price compression, many ISOs have decided that the old free-for-all model isn’t nearly as compelling as a more narrowly tailored one.

ISOs that specialize tend to have lower merchant attrition rates. They also have a significant advantage when it comes to winning new business. That’s because merchants are much more likely to take an ISO seriously when its agents have become experts in their field, says Andie Kolb, vice president of business develop at Cincinnati-based Vantiv.

“When you show me you know what’s going on [in my business and industry], you’re already five steps ahead of the guy who just tried to sell me credit card processing,” she says.

Todd Ablowitz, president of Double Diamond Group, a consulting firm in Centennial, Colo., believes specialization is the wave of the future.

“If you want to be an ISO in 2013 and beyond, you have to do more than hand out VeriFone terminals and accept payments,” he says. “Everybody gets five calls a day for payments acceptance. What they want is something that’s going to improve their business.”

ISOs disagree about whether focusing on a few niche markets means turning away business that doesn’t fit the business plan. They also disagree about whether it’s better to stick to one forte or to a take a slightly broader approach and concentrate on two or three.

In POST Integration’s case, being singularly focused has been a boon. The ISO wins business because of its extensive knowledge of the hotel industry, Gerdts says. Hotels, for instance, tend to house several types of merchants under one roof, including restaurants, stores, a parking garage, golf courses, spas, and the hotel itself. Those businesses all use different point of sale systems, but the hotel typically wants its credit card processor to interface with all of the systems and integrate the data under a single merchant ID. At the same time, however, they want detailed information broken out for each revenue center.

Prospective customers appreciate the fact that the ISO knows the hotel industry intricately, giving POST Integrations a leg up over competitors. “Credit card providers that try to go up against POST can only pitch price because that is all they have to offer,” says Gerdts. “They do not offer any specialization in the hotel industry. They do not solve any of the hotel’s operational challenges and do not have any customized products to make the hotel’s life easier,” she says.

Although it requires discipline for ISOs to stay in a niche, Gerdts believes that failing to do so leads to a dangerous and slippery slope. Unlike some of her peers who specialize in a handful of verticals, she prefers to remain true to her initial focus. Even her expansion plans remain focused on the hotel industry, as opposed to branching out to other niches. “When you try to be all things to all people your product ends up being generic,” she says.

Other ISOs who specialize take a slightly different approach. TransAct Merchant Solutions Inc. of Missouri City, Texas, decided to narrow its focus more than six years ago, as a way to build credibility amid diminishing returns. At the same time, however, Joe Cherry, the ISO’s chief executive, didn’t want to entrust his fate to just one specialty.

Instead, the ISO focuses on three markets: medical, automotive, and the retail franchise industry, with about 90% of its merchant portfolio in those three areas. Because it has more than one area of concentration, the ISO doesn’t have to worry as much when one of its markets goes through a slow period, which is the case in the medical field right now.

Jeremy Wing, president of Payscape Advisors in Atlanta, agrees it’s not a good idea for an ISO to concentrate on one particular area. His company works with a wide variety of merchants, with no complete exposure to one specific industry or niche. At the same time, however, Payscape has succeeded in specialized areas, such as its sports camps registration business, which accounts for about 10% of the company’s business.

Payscape works with about 1,000 camps across the country, providing software to help manage the camp process from start to finish. He started this vertical about five years ago with the purchase of a small company that focused on camps. “I wanted to sell a solution that I knew had value to an end user,” Wing says.

Bluefin Payment Systems, an ISO in Atlanta, is another example of a company that has sought to specialize in a few verticals. Since 2006, one of its main focuses has been to provide payments to software-as-a-service providers.

When an ISO can go into a market and provide a service that no one else can, it makes the company valuable, says Ruston Miles, chief of product innovation and founder of Bluefin.

He hears all the time from other ISOs that they provide better service. “That’s so trite. It falls on deaf ears,” he says. Instead, he believes it’s a more powerful message to show merchants you understand their business because it’s all that you do. “Companies that try to be good at everything are basically good for nothing,” he says.