The ability to integrate e-commerce capabilities into existing merchant service offerings may well determine which ISOs will still be in business five years from now and which will not. The window may be closing even faster for many ISOs that focus primarily on small and medium-sized retailers or professional service organizations.
   Conducting transactions over the Internet is real business and becoming more significant everyday, particularly for small to medium-sized businesses (SMBs) ­ a large portion of the traditional ISO customer base. For many SMBs, e-commerce is creating a level playing field that allows them to compete against much larger retailers and to build micro communities throughout the country. This expanded market opportunity would simply not have been available to SMBs in a traditional retail model. As a result, a tremendous ISO opportunity exists today to branch out and provide additional merchant services that are critical to customers' success. ISOs have historically survived in a low-margin business; however, adopting e-commerce as part of a complete merchant solution will put them in a position to increase margins and transaction volume.
   Forget everything you have heard about the dotcom crash ­ that's ancient history now. A combination of three key factors ­ the "ISO perfect storm" ­ are fueling a potential ISO e-commerce bonanza. They are:

• Strong growth in online transactions
• Strong SMB movement to e-commerce
• The new turnkey e-commerce solutions now available.

   Forrester projects that e-commerce sales will increase by approximately 20 percent year-to-year, growing to $229 billion in 2008­ making online retail transactions 10 percent of total U.S. retail sales by 2008. Driving that growth will be almost 5 million new U.S. households shopping online in each of the next five years, with the total number of U.S. online shopping households expected to reach 63 million by 2008. This is good news for the transaction-minded ISO. Product categories that historically have seen insignificant online growth are predicted to grow the fastest, according to Forrester. For the next five years, food and beverage, sporting goods and home goods will outpace more traditional online categories like books and travel. Books, which generated 14 percent of U.S. e-commerce sales in 2000, will fall to 3 percent of total sales over the next five years. This is very good news for the SMB market.
   If within five years one out of 10 business transactions will be conducted via the Internet, what will this mean for SMBs? More and more small businesses are establishing a presence online and this presence is possible due to exponential growth in Internet usage. Today, more than ever, selling online is fast, easy and cheap for SMBs and the payback is almost immediate. This is one marketing tool that they can't afford to pass up. This future opportunity is so great that even the business gorillas, such as Yahoo!, Microsoft and major financial institutions have jumped on the SMB band wagon. This market segment refuses to be ignored and in the future, in combination with more people buying online, the movement of SMBs to e-commerce will make it essential for resellers, hosting companies and ISOs to offer these services.
   If you aren't ready for the coming e-commerce revolution, don't panic. Now may actually be the best of times, and the easiest of times to integrate e-commerce capabilities.

Could the "e" in e-Commerce Stand for Easy?

   There are many paths up the e-commerce mountain. You can approach e-commerce from scratch, hiring the necessary technical staff to go out and find the best tools and technologies to build an offering for your customer base. This is clearly the hard way. Or, you can partner with an e-commerce solution provider that can offer you a proven, supported, turnkey solution that you can begin offering customers almost immediately.
   The dotcom bust and the resulting impact on e-commerce service providers has been downright Darwinian ­ the strongest service providers have survived and in many cases are better equipped to serve your needs than ever. Many turnkey solutions today offer a full range of e-business functionality, including the ability to build Web sites and customized online catalogs, run special promotions, offer affiliate programs and frequent buyer clubs, cross-sell and up-sell products, and perform detailed tracking of business metrics. In addition, many e-commerce providers include hosting, e-commerce support and SSL as part of their turnkey solutions. E-commerce today is very inexpensive and comes bundled in an intuitive package that's ready to go and doesn't require any customization. There is no cost of goods for the ISO ­ all an ISO has to do is offer an e-commerce package and bill its merchants.
   It is important not to think about e-commerce as only applying to retail transactions. Service businesses of all kinds are looking for the same competitive edge that e-commerce can provide. While your focus may ultimately be on retail- based services, remember that Web sites are being used daily for scheduling, subscriptions, supply chain management, and a host of other non-financial business transactions that are critical to a company's viability.
   By partnering with an existing, successful e-commerce service provider, you are in effect becoming a reseller of its services. Most will let you brand the solution yourself. The goal is to add world-class e-business services to your existing offering, while maintaining the quality end-user experience your customers have come to expect from your brand. A turnkey e-commerce solution gives you the ability to extend your brand, or to provide your customers with the opportunity to extend theirs.
   Simply put: Increased profits. By offering e-commerce services, an ISO can up-sell existing customers that have stayed away from e-commerce because of the perceived difficulty in managing the financial back-end (merchant account) of the site and integrating all the necessary components. By partnering with a turnkey e-commerce provider, an ISO can set its own price for the e-commerce services it resells. In some cases, these services might be packaged as a loss leader to drive sales of other services.
   E-commerce services may also be one of your strongest bulwarks against customer churn. While lower monthly merchant account or transaction fees from a competing ISO may be tantalizing to some of your customers today, it is very unlikely that any customer using your e-commerce offerings will be interested in changing ISOs as long as you continue to provide the services required. The fact that there is a large potential for increased SMB transactions is another reason for adding e-commerce to your SMB offering. Your commerce offerings help demonstrate to your customers that you are the full service shop for their needs today, and will continue to be so as their business needs evolve.
   You can easily evaluate the success and therefore the value of e-commerce services. Tracking customer revenue, hit rates and incoming calls is relatively easy. A little more complex, yet possibly more relevant, would be tracking churn rates between non-e-commerce enabled customers and those that are e-commerce enabled. Once a customer's e-commerce capability is up and running, churn rates are often well below 5 percent compared to a near 50 percent annual churn rate typical for ISOs.

What Makes For a Smart ISO?

   A smart ISO is one that is not only able to develop and grow its existing operations, but is the one that has the foresight to anticipate what's coming next. e-Commerce is what's next, and it's coming fast.