There are five companies that, taken together, represent the largest threat to ISOs and agents in the merchant services industry. When I first got into payments ten years ago, Amazon and Paypal existed. However, no one viewed them as a major threat to ISOs. Today, not only are these two companies changing the payments industry, they have been joined by three other disrupting brands: Square, Stripe, and Groupon. Each of these poses a unique challenge and opportunity for ISOs and agents. Let’s talk through each one.
#1 – Square and the shift towards simple payments. Square not only has a strong hold with micro merchants, they are starting to cut into our core clients. Physical location businesses processing $10,000 to $100,000 are starting to view Square as a viable option. That is the threat. What is the opportunity?
By paying attention to Square, you should learn two valuable lessons to apply to your ISO. First, merchants want simplicity and are willing to pay for it. Second, branding can work as a marketing strategy for payment processing. How is your brand positioned with your target market? Are you building a valuable brand with merchants? Is your program simple enough to communicate effectively using brand messaging?
#2 – Stripe and growth in eCommerce processing. Stripe and Square both teach us that simplicity matters. But Stripe also teaches us to be creative with our target audience. Stripe doesn’t target merchants. They target developers and web designers who are frustrated with more complex alternatives like Authorize.net. Stripe charges a huge premium for this added convenience, but their target market isn’t paying these fees. Instead, these increased costs are being paid by merchants as a cost of entry to get the best technology developed.
Acquirers who are trying to land ISV clients need to talk to developers about Stripe. They should understand why Stripe documentation and implementation processes are so far ahead of the competition. They should also make integrating with their gateway easy. ISOs and sales reps should start thinking outside the box about decision makers who control payment processing decisions. Seek out their pain points to create unique offers tailored to them.
#3 – Paypal and lessons about missed opportunity. Paypal is falling behind in my opinion. They became the gold standard in person-to-person payments. But rather than capitalizing on this position to dig deeper into niche applications of their technology, they stayed more generalized. In the meantime, Go Fund Me took a chunk of fund raising; Stripe took over eCommerce; and Square took a big bite out of merchant processing.
While taking a leadership position in your market is great, don’t get complacent. The payments industry is becoming more specialized and segmented. If you don’t target specific verticals with specific solutions, someone else will. Take some time to think about one niche on which you could aggressively focus and pursue for the next twelve months.
#4 – Amazon and the closed versus open strategy. Jeff Bezos seems to have a simple strategy. He wants to sell everything to everyone who buys anything. While Amazon doesn’t feel like a direct competitor to ISOs, they are competing with you in two ways. First, merchants are processing less volume because consumers are buying from Amazon instead of the local shops who process with you. Second, Amazon wants to draw your merchants into their ecosystem and sell their products online using Amazon payments.
If one of your merchants asks to sell products online, how do you answer? I am not saying you need to lead off with eCommerce, but understand that most small merchants will be selling things online in five years. Even service companies will want to provide their customers with convenient online / app payment processing. Make sure you are researching technology solutions to offer merchants the option of sending invoices via email, setting up shopping carts, and offering products and services online. Implement these options before your merchants decide to use Amazon to accomplish this objective.
#5 – Groupon and the BIG margins that come with increased revenue. This is more of a category disruption than a single brand. There are many other companies such as thelevelup.com who offer to help merchants increase their revenue and find new customers. This offer is so appealing to small merchants that they are willing to pay a huge chunk of this new revenue while offering steep discounts.
There is one important lesson here. Saving a merchant money is a zero sum game. If a merchant is paying $100 in mark-up, there is a limited amount of impact you can have through savings. Increasing a merchant’s revenue is a whole different ball game. I am NOT a fan of ISOs or agents shifting their sales focus to marketing products. These shifts are seldom successful. I still believe in opening the door with savings. But after the door is open, walk inside with the intention of growing the business through strategic partnerships and third party applications that can take your merchant to the next level. Thus, your merchants will value your relationship more and your margins will increase dramatically.
These five companies believe our model is out-of-date and quickly becoming obsolete. In a way, they are right. If ISOs and agents don’t adjust their strategies to fit the new realities of the market, they will go the way of disrupted industries before them. However, we have a massive advantage with feet on the street and contact with the merchant. Will our industry begin making the important shifts to leverage this strength in new ways? Time will tell.
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