The Future of the ISO Sales Rep
As we continue to watch the bankcard industry evolve, one thing is for certain … change. Competition grows more fierce and margins continue to erode. We take notice as the Associations strictly enforce their rules of compliance and make interchange more complex; large financial institutions (FIs) emerge in the acquiring market space where they once outsourced this function. Large processors and acquirers are consolidating and Discover and American Express are issuing cards through financial institutions slowly starting to chip away at Visa and MasterCard’s FI market share. Hundreds of articles are devoted to these and the numerous other changes affecting the acquiring business, but most evaluate the changes as they affect the larger institutional players. What about the effect on the merchant-level salesperson or the ISO sales rep?

What is the future of our “feet on the street”?
As long as there are ISOs, the ISO sales rep will have a home–however, they should be mindful that the larger acquirers (both FI and ISO) are forever enhancing their direct sales capabilities. During the past several years, margins have continued to compress due to competition while the ISO sales rep has demanded a greater share of the acquiring revenue. A large ISO principal recently shared with me why he was supplementing his ISO sales rep model with an internal direct sales team, “Margins are lower, risk of losses is greater, servicing costs are the same as always and the agents demand more than they did in the past. I have no choice but to start an in-house sales effort to increase my margins.”
    A true 50-50 revenue share is standard compensation today, unlike just a few years ago when a buy-rate program might net an ISO sales rep ten to twenty percent of the merchant acquiring revenue. To keep a greater share of the residual income for themselves, larger acquirers have made strategic investments in both internal and external direct sales forces. As that same ISO principal stated, “It may take two to three years to break-even on a merchant account with a direct model, but over the long-term this model provides for a much more profitable business when fifty-percent of the core revenue is not being paid out to the sales force.“
    Another threat to the ISO sales rep is the emergence of new players in the acquiring world. Henry Helgeson, President of Merchant Warehouse.com expects to see “large organizations that traditionally sell other products entering the payment space, taking on merchant acquiring as secondary business and the incremental revenue from existing merchants. Companies such as Intuit have made large investments in our industry and I would expect to see more of this.” There has also been a resurgence of VARs and point-of-sale companies entering the acquiring space. At one time these players worked with the ISOs and sales reps, but now have determined that they can better “own” a merchant relationship by becoming the acquirer as well.
    Even with these new threats and a move towards direct sales, the institutional acquirers appreciate the incremental benefits of the ISO sales rep. ISOs allow institutional acquirers and processors to get incremental volume with no fixed cost of sales. Likewise, the merchants approached by the ISO sales reps are traditionally smaller and under the radar of the institutional acquirer’s direct sales force. These incremental sales only help the larger players amass the scale needed to drive down costs and be more competitive. John Rice, Vice President - ISO Line of Business for BA Merchant Service, agrees, “There will always be a spot for the merchant level salesperson. I am tired of people always telling me that competition is fierce. It is, but those salespeople with a strong work ethic will always be able to survive in this industry.”
    While we can all concur that the ISO sales rep will endure, we certainly can’t ignore how the Associations have made life more complex for these reps. Jared Isaacman, President of United Bankcard, acknowledges that the compliance issues have reached “peak awareness.” The Associations have started enforcing their own rules and this crack down puts them in-line with where they should be within the industry. Jeff Rosenblatt, Chief Operating Officer for EVO, supports Jared’s comments and believes this move is, “good for the industry, will weed out the bad apples and help level the playing field.”
    In addition to enforcement of the rules, the Associations continue to add new levels and manipulate the existing levels of interchange. The continued complexity of interchange will make it much more challenging for the ISO sales rep. Ed Freedman, President of Total Merchant Services, truly believes, “The ISO sales reps who stay informed and educated will survive.”
    Many industry leaders believe that the number of merchant-level sales people will decrease in the future, as the traditional hardware sales model will disappear. “There is going to be a change of mindset, an evolution of sorts,” said Mario Parisi, President of Merchant Services, Inc. - New Jersey. Similarly, Isaacman believes that the established, knowledgeable and residual-focused salespeople will continue to do well, while those who require hardware or leasing revenue will find it a tough path. Marc Gardner, President of North American Bancard, also agrees, “Get a strong rev-share contract and build a good solid recurring book of business and you will be fine. Hardware profits are getting thinner and thinner.” He further suggests that the smart sales rep will latch on to a well-known acquirer and piggy back on the name brand, tools and pricing.
    This expected shift away from hardware and toward residual income raises the ever-present question of financing. ISO sales reps will need to be better funded from day-one as their revenue tapers off along with their hardware sales. This alone will limit the number of new merchant-level salespeople entering our industry, but will create a sales rep who is interested in the long-term well-being of a merchant and not just the immediate equipment sale. The future sales rep will need to be financially prepared and have the patience to build a successful residual portfolio.
    Yet another stumbling block for the ISO sales rep, Rosenblatt believes, is the need of ammunition in the market. Technology will equip the sales rep with new commodities to present to merchants such as value-added products, IP connectivity and wireless options. Freedman’s advice to his salespeople, “Get involved, join ETA, attend regional acquirer association events and industry seminars, subscribe to industry publications and stay informed.” By staying on top of the industry, the sales rep will become the most knowledgeable about new products and services, and possibly bring a suite of products to the market that will open doors to more merchants. When merchants do buy, they will purchase numerous products, further strengthening the relationship between the sales rep and the merchant. Technological advances will drive the payments industry and those salespeople that latch on will prosper. The ISO sales rep is often in a better position to drive new technologies, as the institutional acquirers take some time to develop products and bring them to market. The key will be choosing the right technologies and the right partners.
    It’s true that the evidence proves that technology and new products are important components to the arsenal, but Rice believes that good, old-fashion hard work and networking are the keys. The sales reps that can network with anyone and everyone, roll up their sleeves and get “dirty” will be the ones who survive. The face of the ISO sales rep may change as the internet and referral partnerships become commonplace for networking and lead generation. So as the marketing approach may change, hard work will still win out. Parisi said it best, “Even we can expect change, similarities abound.”
    There will always be tremendous opportunity for the hard working sales rep, but the path to success will require a new level of education as the marketplace changes. The Associations have started to enforce their solicitation rules, have taken a very strict line regarding entities that pass or store cardholder data and continue to add to the complexities of interchange. Within these refinements and complications, there are opportunities. A merchant-level sales-person must align with an upstream partner that can keep abreast of all these changes, as well as supplement education as much as possible. As the Associations look to increase card acceptance, there will be more emerging markets that the merchant-level salesperson can attack. Ken Osaka, Chief Marketing Officer for Electronic Exchange Systems says, “We’re actually seeing many of our sales agents looking to business-to-business, government, integration services and emerging markets as the next frontier within the payments industry. The continual changes within our industry makes it harder to thrive in a traditional MLS sales environment however, it forces the maturation of the sales agent and creates new opportunities in non-traditional bankcard sectors.” The ISO sales rep that learns to navigate these changes will have a leg-up on all the competition. The keys to becoming a successful rep of the next century include:

• Adopt new technologies and value-added solutions,
• keep a residual mind-set and the long-term interests of the merchant at hand,
• work within the rules of the Associations,
• continue to educate yourself in our market, and
• WORK HARD.

    There will be threats from direct sales forces but the future will be bright for those flexible ISO sales reps that can adapt to the changing times and learn new technologies and markets. For the old-school, rigid individual, times will be tough. The opportunities will be there. I challenge you to dig and find them.