I have recently met more than one merchant who has a working VeriFone terminal stashed under the countertop. In some cases, the terminal was new in the box! When I asked the store owner why he had two terminals, the answer invariably came back something like this: "The salesman told me it was an upgrade, but when I got it out of the box, it was basically the same as the one I had and I saw no reason to change."
   This kind of work does not help the bankcard industry's reputation generally and you can bet it did not help that ISO's reputation with the merchant in question. Selling another POS terminal to a merchant who already has one may be good for today's profit margins, but it will do nothing for the long term viability of our industry. In fact, it hurts.
   Are you seeing signs of saturation in your market area? Simply put, saturation means too many POS terminals in too many places. Ten years ago, POS terminals were sold through approved sales channels. To become a VeriFone Value Added Reseller (VAR) required registration, credit checking, etc. POS terminals were sold by trained sales reps and always came bundled with processing solutions. (There were other terminal based solutions, too, such as inventory tracking.)
   Today, a merchant can buy a new POS terminal at Sam's Wholesale Club or Costco off the shelf for about what my company used to buy a used one for wholesale. In a world where the merchant drives to Sam's and picks up his own terminal, there's no profit margin left for the traditional distribution channel. Now, that's a problem!
   I frequently hear bankcard processing referred to as a commodity. The classic definition of a commodity is a good or service where differentiation in quality is impossible and all vendors and products are considered identical. The only point of competitive differentiation is price. Think gasoline. I agree that bankcard processing shares some characteristics of a classic commodity, but certainly not all. There is an opportunity for differentiation through service, but ISO's have to find the customers who value service and are willing to pay for it. The hardest part of that rather simple sentence is determining what service really is and then building an organization to deliver that definition.
   Saturation goes one step beyond commoditization. Saturation is overabundance, excess supply to the point of being ridiculous. Saturation causes falling prices and destroys possibilities for building a service culture because it destroys the customer's sense that the salesman is providing any added value. Saturation takes all the mystery and mastery out of the sales process.
   Early signs of saturation are key for you in planning your future. Once you see signs of saturation, beware, because soon, they will start to have an effect on the customers in your area.
   How can you spot signs of saturation in your marketplace? Look for these classic signs:

Multiple sales delivery channels

   In how many ways or through how many channels can a customer buy a POS terminal in your market? How many choices does he have, and what is going to make him/her buy from you? If your customer can, with relatively little effort, find the same POS terminal in more than two places, then your market is showing signs of saturation. More channels will follow. Don't forget to add eBay to the list. Have you seen what a Hypercom T7P is selling for on eBay lately? It's a good gauge of where the national market is going, and the news isn't good.

Increasing reliance on replacement or upgrade sales

   Do you find that you or your sales people are increasingly selling against installed terminals which are working fine, but might need an upgrade? Upgrade advantages are much harder to sell than was the conversion from paper to electronic processing. Almost all the upgrades on the market today have wispy, intangible benefits which do not immediately provide value to merchants. A growing percentage of replacement sales is likely to translate into falling prices for the core product which is credit card processing, which in turn means declining residuals for ISO's. This is the long slow path to oblivion, and many ISO's are on it.

Lack of product innovation/service

   So, what's new? Not much here! Selling the same old product over and over is leading to�well, you guessed it, price cutting, and forcing of the marginal sale for the sake of today's cash flow. Watch this cycle in your market, too. Have you seen any merchants with below interchange pricing? How long can an ISO live on a negative residual payment?
   Not all is gloomy, however. An old business adage goes something like this "There's always a way to make money, you just have not found it yet." Another version runs like this "If what you are doing is losing money, try the opposite!" Are you sure you are in the right business? Are you sure the opportunity is still what it used to be? After all, the ISO business flourished by driving the conversion of paper-based merchants to POS electronic processing solutions - first the Zon Jr plus, then the XL, then the Tranz 330. But that transition is over, and no one knows what is coming next. Maybe biometrics, maybe nothing. How long can you hold out waiting for that next lift? If you see saturation in your market, it might be a good time to rethink your business model.