Cover Story

in Uncertain Times
by Michael Cottrell

   Keeping focused in uncertain times is one of the most difficult tasks for a business to do. For an ISO, selling to, and managing merchants who are processing Internet transactions is becoming even more difficult to understand and manage. It wasn't long ago that the Internet was all the rage. ISO's that focused their business solely on processing for online merchants started emerging in the marketplace. Traditional acquirers were forced to understand the clicks and bricks business. Lastly, companies that knew nothing about the payments business suddenly had all the answers to the industry's and merchant's perceived woes. Online currencies such as Beenz and Flooz were going to allow merchants and consumers with more feature-rich ways to pay. Internet payment engines and Internet gateways became the talk of the town. Companies such as Cybercash, Cybersource, Signio and are just a few that were going to change the world.
   Well, times HAVE changed. Many of these Internet companies have folded, merged or struggle to stay in business. Yet, the Internet commerce segment continues to produce strong transactional growth and revenue streams for ISOs, merchants and processors that focus on helping merchants sell more goods and services. During the last several years, many processors, ISOs and merchants wasted a lot of time and money on services that were flawed from the beginning. To avoid a repeat with the current market, you need to analyze and understand what activities and companies deserve your focus and attention More importantly, learn how you can profit from serving your merchants needs by creating long term relationships through targeted sales efforts. The remainder of this article focuses on the payment engines and how to position some of the new services coming to the market.

The Payment Engine

   The payment engine is the most critical component to your merchant. After all, without it they don't get paid. Payment engines come in many shapes and sizes. If you take the time to truly understand the needs AND capabilities of your merchant and provide the payment engine that meets their needs, you'll create a long-term customer. VeriSign, and Cybersource all have mass market products designed for the small business. Additionally, all three provide products that can be sold to enterprise type customers that have their own in-house staff for systems development and integration. Each has their unique benefit to sell. VeriSign is seen in the Internet world as THE trusted authority. is simple and easy to use, while Cybersource is viewed as the leader in fraud tools.
   On the other end of the scale are companies such as TrustCommerce and Paradata. They are payment engine providers capable of serving the mass market but they also provide the service and programming assistance that is often required when integrating to legacy or evolving systems. TrustCommerce can integrate the payment engine with the inventory management, fulfillment, shipping and payment all into one package. For many merchants, this is exactly what they need, not a redirect to a hosted solution. Taking the time to understand your merchant's needs and appropriately position companies that can help meet those needs is critical to your success and long term relationship with the merchant.

Keeping the Merchant Focused

PIN Debit on the Internet

   Your merchants are in the business of selling goods and services while earning a profit and maintaining their costs. Your job as an ISO is to help them understand where to invest their efforts and avoid the "noise" in the payments market. Recently, there has been lots of "noise" about PIN based debit on the Internet. The rationale is that it is cheaper for the merchant and a secure payment method for the consumer. Sounds like a pretty attractive value proposition doesn't it? It's your job as an ISO to take it a step deeper and question whether you and your merchants should invest in this technology. A few things to consider;

  • Roughly 80% of bank debit cards are branded with either a Visa or MasterCard logo. If the other 20% of those consumers cannot qualify for a checkcard, are they really a primary target for your merchant?
  • The issuing banks are no longer owners of the largest debit networks. Put yourself in the issuing bank's shoes. If you are a large bank, where are you going to focus your marketing and development efforts? On Verified by Visa and MasterCard UCAF that serves your credit and debit base, or your ATM-only cardholders that are small subset of your business? If you believe the latter, then you could argue that consumer adoption isn't going to happen anytime soon.

   Again, take the time to truly understand how PIN debit on the Internet can help your merchant sell more goods and services. If the margin on incremental new sales can cover the development cost, and consumers are willing to use the service, make the investment. If not, explain to the merchant why it doesn't make sense and move on to services that provide meaningful value today.

Verified by Visa and MasterCard UCAF

   Verfied by Visa (VBV) and MasterCard UCAF (UCAF) provide the greatest potential for merchants to reduce cardholder fraud and their total cost of payment processing. These programs provide a secure mechanism for consumers to pay with their credit or debit card and provide chargeback protection to the merchants. Before investing in the business of selling and managing a VBV or UCAF host, consider your ability to integrate and sell the service with the payment engines and shopping carts. All of the major shopping carts and payment engines have, or will soon have, turnkey solutions for merchants as part of their packaged offering. Suggesting to merchants that they need to integrate your in-house solution as part of their current or proposed offer may cause unnecessary cost or confusion at the merchant.
   Whether you create an in-house VBV/UCAF solution, or partner with the payment engines and shopping carts, take a hard look at how you price the services at the merchant level. If your merchant is selling high margin goods like digital content, what is the true impact of a chargeback? Conversely, if the merchant is selling expensive physical goods, chargebacks definitely have an impact on the bottom line. Prior to pricing VBV/UCAF to your merchant, analyze their business environment, review their chargebacks and evaluate their current total costs of processing. Once you've done this, you know your price to beat. Do yourself and the merchant a favor at this point. Give them pricing that significantly reduces their overall operating costs and you'll increase your margin on existing business and create a lasting relationship with the customer.
   If you haven't been selling Internet services because you don't understand the market or can't work through the "noise," hopefully this information is beneficial to you. If you are selling to Internet merchants today, take a moment to really examine whether you provide value in the transaction chain. If not, step back and examine how you can build a lasting relationship that provides financial rewards to you and the merchant over the long term.