VALUATION AND METHODS
by Harold Montgomery
Over the last few months, in talking with industry players, I increasingly hear that it's tough to keep salespeople. The typical salesman � especially new ones - can't seem to sell enough terminals at the right price to make enough money given other job opportunities they may have. In short, they can't make as good a living in our business as they can elsewhere. Depending on the market, even experienced salespeople are having trouble making their numbers work. And no wonder, for ISO's, the current trends at work in the industry are tough:
Terminal sales are slowing
The major terminal manufacturers are reporting slower sales growth. This means the market is maturing � and fast. While there are high hopes for new technologies which might invigorate terminal sales, biometrics and smart cards are still far in the future. Even new services like POS check truncation or gift/loyalty don't have a terminal sales associated with them that provides a large enough profit margin to the ISO to compete with a full credit card set-up.
Terminal prices falling
Slowing growth means price competition. Also, manufacturers are creating alternative, cheaper distribution channels for terminals � a merchant can now buy a terminal at Sam's Wholesale Club and have his processor download it for much less than the cost an ISO demands for the same services. As a result, ISO margins on terminal sales are dropping.
New merchant creation is off
Events of September 11 and a generally weaker economy combined to make the last year a weak one for new retail merchants. New merchants are the staple of many ISO marketing strategies, and their decline creates a serious problem. Existing merchants become more important to replace lost volumes of new merchants. But existing merchants are more discriminating buyers and have a longer sales cycle than new merchants. That again means smaller profit margins on each sale.
Most ISO's these days have portfolios they built with major super-ISO's (NOVA, Retriever, IRN, On Line Data, etc.) or directly with processors like FDC, NDC, NPC, etc. In most cases these days, ISO's don't own the merchant and don't take the risk. In the good old days of merchant portfolio sales, prices ranged up to 48x monthly gross margin (revenues minus interchange and assessments). That was when the buyer could move the merchant processing relationship to his platform to achieve meaningful economies of scale. Today, when the ISO does not own the merchant, the buyer has to abide by the contract the seller has with the super-ISO or processor � there are no economies of scale in that situation. Prices are typically a lot lower.
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