Just a few weeks left in 2019, and it will go down in history as the year of the payments mega-merger. The headlines were full of deals worth tens of billions of dollars, where consolidation has brought on a range of transaction-related services under the umbrella of large firms — now suddenly becoming larger.
For merchants, there may be some sense of unease as the post-merger landscape takes shape. Long-in-place relationships have now been acquired by other companies, and are part of a continuum of offerings where individualized attention was once the norm.
For independent sales organizations (ISOs), the once-coveted distribution channel for large processors, the uneasiness is growing even faster. ISOs are left with fewer options, and must make hard decisions about who they will partner with and why. Can ISOs afford to take off-the-shelf products to market, or should they offer customized solutions that solve business problems for their merchant customers?
Examining The Value Proposition
To that end, John Newton, vice president of strategic partnerships at First American Payment Systems, said in an interview with PYMNTS that the time is now for ISOs to examine the value proposition they offer to merchants. ISOs can benefit by taking a step back to see where they’ve been before deciding where they might be headed amid new risks and opportunities, he said.
Decades ago, “the value proposition that ISOs brought to the table was really one of ‘we can run transactions, as well as service your account,’” Newton told PYMNTS.
As the synergies of the mega-mergers come to fruition, he said, “many people who have been in the payments industry will find themselves presented with an opportunity to go out and start something new.”
Against that backdrop, ISOs have evolved to become what Newton termed “early indicators” of market ideas and trends at the merchant level — information and insight that, in turn, can be passed along to processors and technology partners.
Those partners, of course, design and make the products that are sold to the ISOs — and ultimately sold to the merchant. In this way, said Newton, the ISO enables cross-pollination that benefits all stakeholders, extending its value proposition well beyond the confines of the technology powering payments. That’s especially important as payments are increasingly embedded in technology solutions.
To cement the role of trusted advisor, ISOs must look internally and ask, “If I am successful today, can I continue to do exactly what I'm doing and be successful tomorrow?” The answer to that, in many cases, is “maybe,” said Newton. To move beyond that “maybe” toward certainty, and to prepare for the demands of the future, ISOs must examine what they can offer merchants that need to solve day-to-day problems — a crucial transition.
To do so, said Newton, ISOs should look for processing partners that can evolve with them as they seek to expand their value proposition — offering a range of products and software-based technologies that include data analysis, APIs and levels of service that are increasingly useful to merchants.
Service is becoming the key differentiator. After all, smaller businesses are usually owned and operated by individuals who, or small teams that, wear several hats. The individual making and baking pizzas at a local establishment may be the same person tasked with managing schedules, human resources, ordering inventory and maintaining food prep.
ISOs can help smaller merchants by suggesting business software that reduces training time and expenses for day-to-day operations. They can also tailor payment operations that reduce the amount of cash on hand, but help merchants get paid faster, which improves operating cash flow. Along the way, Newton noted, ISOs can develop and market their expertise tied to a particular market segment or vertical.
“These ISOs are very successful in being ‘solutions experts,’ which I think ties into the emerging technology discussion, whether it’s across hardware or software platforms,” he said.
Other ISOs are adept at developing a “hook” that can cement relationships with merchants. That hook might come through cash discounts or reduced fees, which can boost clients’ margins.
The ISOs likely to be most successful in a post-merger payments realm will have all the components under one roof: industry, tech and data management expertise, and the aforementioned hook.
“At the end of the day, the merchant wants to interact with their business providers in the same way they interact through a personal relationship,” said Newton. “Anytime we have large mergers and consolidation in the industry, it breeds opportunity for folks to start something new to attack the market in a different way. And I see no reason why we won't see that coming out of these mergers as well.”