Survey Says: Residuals Remain Vital To Agents
INSIDE THIS ISSUE
News Briefs . . . . . 3
Vendor Briefs . . . 5
People . . . . . . . . 11
Stock Watch . . . . 4
Market Trends . . 7
Appointments. . 16
April 9, 2009 | Volume 5, Issue 12 To subscribe, visit www.isoandagent.com.
Tips, Tactics and Strategies for POS & ATM Sales Success See ad index on page 15
R EVE N U E
Survey Says: Residuals Remain Vital To Agents By Kevin Woodward he recession is causing many business leaders to rethink how their companies generate revenue and create expenses. But as this year’s ISO&Agent survey of its readers found, most in the ISO and merchant-acquiring industry expect little change in their wages and compensation. Fully 69% of respondents expect their wages and benefits
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to remain the same this year as in 2008. That is just a few percentage points more than the 62% last year who believed their 2008 compensation would remain the same as in 2007. The survey, started in 2005, found that sales performance continues to be the primary factor in determining whether to award individuals bonuses. This year, 66% of respondents said
R EVE N U E
Pricing Confusion Demands Agent Diligence By Meghan Boyer ompensation packages acquirers and processors offer to ISOs and agents vary, which can make comparing prices and revenue challenging when choosing business partners. The lack of industry compensation standards requires ISOs to perform due diligence before entering into contracts to ensure they understand the agreements and are receiving fair compensation, according to industry insiders. Pricing grids purposefully are complicated to make “shopping around” for
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COMPENSATION cont’d on page 9 Y
INSIDE
ISO Adds IPhone App For Card Processing
Fidelity Buys Metavante In $2.94B Stock Deal
Merchant Warehouse Inc. has developed its own free point-of-sale terminal software for use on Apple Inc.’s iPhone. See page 3.
Buying competitor Metavante Technologies Inc. places Fidelity National Information Services Inc. in a better position against competitors. See page 15.
SURVEY cont’d on page 13 Y
INTERNET CRIME COMPLAINTS UP 11% IN 2008 Dollar losses from reported Internet-based crimes reported to iC3, the U.S. Internet Crime Complaint Center, reached a record $265 million in 2008, up nearly 11% from $239 million the previous year, according to a report the center released last week. The number of complaints of online crime reached 275,284 last year, up 33.1% from 206,884 in 2007. Indeed, the number and cost of reported online crime complaints has climbed steadily since 2004, when the center reported a loss of $68.14 million from 207,449 crime complaints. Credit and debit card fraud comprised 9% of online crime complaints last year, far below non-delivery of purchased goods and services, which accounted for 32.9% of online fraud, and fraudulent auctions, which accounted for 25.5% of complaints. ISO
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2 I NTE R C H A N G E
Time is on your side
MasterCard Cuts European Rates On Cross-Border Transactions
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}&RPSOHWHVWDWHRIWKHDUW ZHEEDVHGWRXFKVFUHHQ326 VROXWLRQVIRUUHVWDXUDQWV 25'>ISO Writes iPhone Application That Enables Merchant Processing
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NEWS BRIEFS
Merchant Warehouse Inc., a Boston-based ISO, has developed its own free point-of-sale terminal software for use on Apple Inc.’s iPhone. Called MerchantWare Mobile, the software accepts credit and debit payments in which the merchant types in the card number, amount and other relevant data. A merchant must have a Merchant Warehouse account to use the software, says Henry Helgeson, Merchant Warehouse president and co-CEO. He tells ISO&Agent Weekly that transactions are sent directly to his company’s network and do not use a thirdparty payment gateway. There are two other POS terminal applications in the iTune stores for the iPhone selling for $6.99 and $9.99 each, after discounts. Helgeson says mobile merchants who either choose not to or cannot afford a traditional wireless POS terminal are the primary customers for this software. Transactions move on the iPhone’s existing wireless connection, whether it is a telco connection or a WiFi one, he said. In either case, the transaction is encrypted and no cardholder data is stored on the phone, Helgeson says.
APRIL 9, 2009
Merchant Warehouse also will have a version for third-party ISOs to sell as their own that Helgeson says should debut in mid-April.
>>>Q4 Credit Card Delinquencies Increased 4.52% From 4.2% Credit card delinquencies rose to 4.52% of total loans during the fourth quarter ended Dec. 31, from 4.2% in the previous quarter, according to a report by the American Bankers Association. The credit card delinquency rate was 4.38% for the fourth quarter of 2007. The association’s report defines delinquencies as payments that are 30 days past due. “The wheels just fell off the economy in the fourth quarter of 2008,” James Chessen, the ABA association’s chief economist, said of the report’s findings. “As the economy continues to shed jobs, it is unlikely that delinquencies will see any improvements this year,” says Chessen. The composite ratio, which tracks eight closed-end installment loan categories such as credit card, auto and home-equity loans, rose 32 basis points to a record 3.22% in the fourth quarter from 2.9% in the previous quarter. ISO
4 I N D U STRY N EWS
ISO Lifts Restrictions For Merchants In Free-Terminal Program United Bank Card Inc., a Hampton, N.J.-based ISO, has revised its free-terminal program by removing restrictions that prevented some merchants from choosing any of seven point-of-sale terminals in the program. A United Bank Card spokesperson says the program now has seven terminals available to all merchants. Before, some terminals could only be used with certain merchants. United Bank Card’s sales agents have the option to install all but one of the terminals for free to merchants or to sell or lease them, keeping all of the profit on the devices, the spokesperson says. United Bank Card says a Nurit wireless terminal cannot be sold or leased. ISO
Payment Stock Watch Company
American Express CyberSource Diebold Discover eBay FNDS3000 Corp. Global Payments Heartland Payments Hypercom Intuit MasterCard Optimal Payments Pipeline Data Sage TSYS U.S. Bancorp VeriFone Visa
Symbol
Last Week’s Low
AXP 12.74 CYBS 14.14 DBD 19.89 DFS 5.75 EBAY 12.22 FDTC.OB 0.22 GPN 30.82 HPY 5.51 HYC 0.93 INTU 26.27 MA 157.15 OPMR 0.23 PPDA.OB 0.20 SGE.L 25.99 TSS 13.43 USB 13.61 PAY 6.22 V 53.01
Last Week’s Last Week’s % Change From High Close Prior Week’s Close
15.33 16.49 23.10 6.89 14.63 0.23 34.75 7.67 1.11 28.32 174.05 0.30 0.20 24.24 14.67 16.00 8.31 60.16
15.33 15.60 23.03 6.75 14.31 0.22 32.00 7.64 1.11 27.73 174.05 0.28 0.20 25.37 14.58 15.97 8.16 60.08
6.09 5.69 1.63 -0.74 11.36 -8.33 -3.32 15.23 14.43 3.35 3.93 7.14 33.33 1.68 5.96 2.11 19.65 10.75
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APRIL 9, 2009
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VENDOR BRIEFS VivoTech, Eagle Eye Sign NFC Deal
Payments Product ‘Bills Parents’
Eagle Eye Solutions, a United Kingdom-based mobile voucher firm, has struck a mobile-couponing technology deal with U.S.-based contactless vendor VivoTech Inc., according to officials from both firms. The deal calls for the two companies to market a “consolidated mobile vouchering system for retailers,” according to a statement. The service will enable consumers with mobile handsets to receive coupons, loyalty offers or similar incentives via text-message vouchers from Eagle Eye, or through chipenabled “smart” posters that use Near Field Communication technology. Consumers can redeem the vouchers by entering 8-digit numbers at payment terminals that take chip cards, or by touching the handset to the terminal’s contactless reader. Downloading a coupon from an NFC-enabled poster takes no more than 30 seconds, says Mohammad Kahn, VivoTech’s president and founder. Redeeming the voucher at the point-of-sale takes less than a second, an Eagle Eye spokesperson tells CardLine Global. The service “will work, theoretically, anywhere in the world that has a credit card payment system and/or contactless payments,” the Eagle Eye spokesperson says.
The San Diego payments technology vendor IdeaEdge Inc. is preparing to introduce BillMyParents, a service that would let children shop online and then route the bill to a parent for approval, according to a report in American Banker, an ISO&Agent Weekly sister publication. The company, which does business as Socialwise Inc., said the service lets families give kids the freedom to make their own choices but without the responsibility of having payment cards. Other payment providers have tried to empower children to shop online but Jim Collas, president and CEO of IdeaEdge, says his service differs because the other providers required parents to set up the account. “The real key here is to have youth pulling the process,” Collas says. BillMyParents is presented early in the shopping process on merchants’ product pages and not at the shopping cart or checkout page, Collas says. After a child has placed an order, a parent will receive an e-mail, and veto power, before the product is shipped. To approve a purchase, the parent must enter their payment card or bank account details. IdeaEdge charges merchants a fee of 3% to 5% of the transaction and charges parents 50 cents per transaction. ISO
I N D U STRY N EWS
Global Merchants Next On Apriva’s List Global demand for wireless point-of-sale terminals and service is spurring Apriva, which operates a wireless POS terminal network, to start an international division, Paul Coppinger, a co-founder, tells ISO&Agent Weekly. “We’re going international because there’s a definite need around the world,” Coppinger says. Scottsdale, Ariz.-based Apriva’s services are sold in the United States through independent sales organizations. Coppinger says the international sales model also will rely on working with acquirers, which may not be ISOs, but still have access to merchants. Coppinger says nations lacking a fully developed wired telephone infrastructure, such as in the United States, are among locations where Apriva sees a need for its services. In particular, Apriva is looking at nations such as Brazil, Russia, India and China, which have growing middle classes and increasing use of debit and credit payment methods. Coppinger said Apriva considered international markets when the company started in 1999, “but the timing wasn’t right,” Coppinger says. Apriva also named Bill Clark, who joined Apriva in 2005, as the executive in charge of the company's U.S. POS division. ISO APRIL 9, 2009
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APRIL 9, 2009
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MARKET TRENDS >CARDHOLDERS’ BILL OF RIGHTS APPROVED BY HOUSE FINANCIAL SERVICES COMMITTEE
>>>FRAUDSTERS ATTEMPT CHECK FRAUD MORE THAN OTHER FRAUD FORMS: SURVEY
The House Financial Services financial institutions subcommittee last week approved the Credit Cardholders’ Bill of Rights. The bill, sponsored by Rep. Carolyn Maloney, D-N.Y., contains many of the same provisions contained in new card-industry rules the Federal Reserve Board and other regulators finalized last year. Those rules, which will ban double-cycle billing and would prevent issuers from raising interest rates on cardholders’ existing balances, are slated to go into effect July 1, 2010. The new version of Maloney’s bill contains a provision that would prohibit banks from reporting an account opening to the credit bureaus until the card is activated. An additional amendment would ban card issuers from charging customers fees for making card-account payments.
Seventy-one percent of businesses and other organizations experienced actual or attempted payments fraud in 2008, according to results of a January survey of 5,300 members of the Association for Financial Professionals. That is the same percentage of survey respondents who reported in last year’s survey actual or attempted fraud directed at their organizations. Thirty percent of respondents reported an increase in the number of incidents of actual and attempted payments fraud during 2008 compared with 2007, and 40% reported that the increase came during the last half of 2008. Checks were the most common fraudulent tender, with 91% of respondents reporting actual and attempted fraudulent check payments. Twenty-eight percent reported fraudulent automated clearinghouse debits, 18% noted fraud on consumer credit and debit cards and 14% on corporate and commercial purchasing cards. Seven percent of respondents reported fraud involving ACH credits, and 6% involving wire transfers. As the number of checks written for consumer and business-to-business payments declines, fraudulent checks take up a larger piece of the check-payments pie, according to the association. Of organizations reporting an increase in fraud attempts last year, 82% of those organizations reported more check fraud, compared with 18% reporting more fraud on consumer credit and debit cards and 14% a greater prevalence of ACH fraud.
>>>SENATE BANKING COMMITTEE OKS SWEEPING CARD-INDUSTRY LEGISLATION The Senate Banking Committee last week narrowly approved legislation for sweeping credit card industry reforms, according to American Banker, an ISO&Agent Weekly sister publication. The 12-11 vote in favor of the Credit Card Accountability Responsibility and Disclosure Act of 2009, sponsored by Sen. Christopher Dodd, D-Conn., included no Republicans. One Democrat on the committee, Tim Johnson, D-S.D., voted against it. But analysts said it is unlikely the bill will pass a full Senate vote without bipartisan support. Johnson said during the hearing it was a mistake to push the bill before new rules from the Federal Reserve Board and other regulators go in effect next year, and contended that Dodd’s bill would do consumers more harm than good. “At a time when Americans are already seeing their credit card interest rates rise and their credit limits decrease, this legislation could mean that even fewer consumers get credit and lines of credit are greatly reduced,” Johnson said. Dodd’s bill would go further than the card regulations finalized by the Fed, which would define several common practices like double-cycle billing and universal default as unfair or deceptive. The regulators’ rules would not go into effect until July 2010, but Dodd’s bill would take effect nine months after enactment. Unlike the Fed proposal, Dodd’s bill also would ban charging interest on fees, prohibit fees for paying bills and restrict over-the-limit charges. Dodd emphasized after the vote that he was willing to make some concessions on the bill. APRIL 9, 2009
>>>CONFIDENCE INDEX HOLDS STEADY IN MARCH AFTER FEBRUARY DECLINE After a sharp decline in February, the Consumer Confidence Index remained largely unchanged in March, The Conference Board, a research organization, announced recently. The March index stands at 26, up from 25.3 in February. The baseline for the index is 100. Research company TNS conducts the monthly Consumer Confidence survey of 5,000 randomly selected households. The cutoff date for the survey was March 24. “Consumer confidence was relatively unchanged in March, after reaching an all-time low in February,” Lynn Franco, director of The Conference Board Consumer Research Center, said in the report. The percentage of respondents who said business conditions are “bad” increased to 51.1% from 50.5% who said so in February, while those claiming business conditions are “good” slightly decreased to 6.8% from 7% last month. ISO
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APRIL 9, 2009
9 Y COMPENSATION cont’d from page 1 better prices difficult, says Adam Atlas, a Montreal-based attorney with Adam Atlas Attorney at Law. “If you shop around to five different processors, you will get five different pricing grids,” Atlas says. To adequately compare rates and evaluate potential business partners, ISOs and agents should understand the aspects to look for in compensation packages and how to evaluate the agreements. “There’s no way to say what’s an average” compensation agreement, agrees Curt Hensley, president of CSH Consulting Inc., a Phoenix-based executive-recruitment firm. Packages typically vary based on the types of merchants the ISO or agent targets and on the experience level required for the job and for the agent, he says.
understanding of what their revenue will be with a potential contract, he says. “If you don’t understand pricing, the chances you’ll be taken for a ride are higher,” says Atlas. “You have to look not only at the price but at what you have left at the end of the month when you get your residual check and take out costs,” says Joe Natoli, senior executive vice president of ISO sales with Louisville, Ky.-based National Processing Co. During the turbulent economy, ISOs also should question potential business partners’ financial stability, says Aaron Slominski, director of business development with Direct Technology Innovations, a Fort Lauderdale, Fla.-based ISO. “You have to feel comfortable with the people writing the checks,” he says. “It is important to ask questions,” agrees Natoli, adding many ISOs are looking for stability in their business partners. ISOs and agents are asking different questions today than they were a year ago” because of the difficult economic environment, he says.
REVENUE RECONNAISSANCE ISOs and agents always should determine what their potential revenue may be within a specific provider’s pricing grid before entering into an agreement, advise industry insiders. ISOs should “take any pricing grid they’re being given and analyze it against the typical kind of merchant they are going to sell to,” says Atlas. Crunching the numbers themselves, and not relying on the provider to estimate earnings, gives ISOs an
APRIL 9, 2009
NEGOTIATING TERMS Acquirers and processors rarely set their compensation agreements in stone, and ISOs and agents should negotiate contracts to ensure they fit both companies’ business models, agree industry insiders. “It’s like anything—if you don’t ask, you won’t know,” says COMPENSATION cont’d on page 11 Y
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APRIL 9, 2009
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People & Promotions Payments consultancy The Strawhecker Group has hired Tara Houck as an associate specializing in mergers and acquisitions. USAePay, an online payment gateway, has hired Martin Drake as vice president of business development. ISO
Y COMPENSATION cont’d from page 9 Jill Miller, attorney and counselor with Jaffe Raitt Heuer & Weiss, a Southfield, Mich.-based law firm. “I find the processors are easy to work with, and they want to be fair.” Direct Technology Innovations uses a standard agreement for the foundation of a discussion, says Slominski. Contract points, such as the revenue split and whether there will be an acquisition bonus, are negotiable, he says. “Our contract is a two-way street,” says Slominski. North American Bancard bases negotiations on the “level of commitment” an agent is willing to make to the company, says Gary Rutledge, chief operating officer of the Troy, Mich.based ISO and processor. North American Bancard makes “commitments to its sales partners,” he says. “But we also want them to make a commitment to us” regarding how much business they are willing to bring in to the company. Not all ISOs and agents, however, have the same levels of negotiating power, says Miller. “A new ISO coming into the industry with no proven record, no sales experience and no grasp of the industry, that particular ISO wouldn’t have a lot of negotiating power,” Miller says. An ISO with a sales force and industry experience has greater negotiating leverage, she says. For a novice agent targeting small merchants, a compensation package could be commission only or a 50/50 revenue split, says Hensley. With a few years of experience, an agent could earn a commission on top of a $30,000 or $40,000 base salary, he says. As ISOs and agents gain more experience, they can renegotiate to gain better terms, says Hensley. Comparing and attaining fair compensation packages in an industry without standard pricing grids can be challenging. However, by understanding the types of provisions included in compensation agreements, researching potential business partners and engaging in contract negotiations, ISOs and agents can reach profitable agreements with acquirers and processors. ISO APRIL 9, 2009
12 Y INTERCHANGE cont’d from page 2
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“very difficult” for MasterCard to increase interchange rates if it loses its appeal. The commission is confident the Court of First Instance will uphold the December 2007 ruling, Todd says. In a statement, Kroes’ office put MasterCard rival Visa Europe on notice that it continues its antitrust investigation into Visa’s interchange fees. The commission had told Visa to take guidance from its December 2007 ruling against MasterCard. “What we have said today is we clearly do expect a level playing field,” Todd says. Cross-border transactions account for no more than 5% of bankcard purchases in Europe, but the commission’s approval of the new interchange rates for MasterCard will have broader implications because national financial regulators likely will use it to guide their decisions on interchange for domestic transactions. The commission’s blessing for the new MasterCard fees is not sitting well with Brussels-based merchant lobbying group EuroCommerce. The group does not see a justification for any interchange, and prefers a fixed-rate pricing scheme for card transactions. If national regulators follow the commission’s lead, “that would be extremely bad news for the consumer,” says Xavier Durieu, secretary general of the group. ISO
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Y SURVEY cont’d from page 1 sales performance determined their bonuses compared with 69% who did in 2008, 60% in 2007, 49% in 2006 and 68% in 2005. Most in the industry see little reason for the importance of sales performance to diminish. “Our program is simple,” says Andy Pitts, president of MLS Direct Network Inc., a Birmingham, Ala.-based ISO. “We have 80% residuals. That doesn’t change.” Residuals are a portion of the transaction fee that represents revenue for the ISO and sales agent.
will remain unchanged compared to previous years,” Sanford C. Brown, Heartland chief sales officer, said in a statement to ISO&Agent Weekly. “We believe our model rewards our personnel for the right behaviors in supporting the company and our customers, and [we’ll] RESIDUALS HOLD VALUE continue to apply those same values and That steadfast adherence to paying rewards going forward. out 80% of residual income to MLS “Additionally, we will continue to Direct’s 75 partner offices may seem parlook at creative ways to enhance our adoxical amid a tough economy that has other rewards and incentives to recogseen some compression in transaction nize the efforts of our sales professionals volume. But the partners, and the agents in creating value for our enterprise, our working for them, say residuals can customers and our counteract that comshareholders.” pression, Pitts tells Sixty-nine percent of At the end of ISO&Agent Weekly. survey respondents 2008, Heartland had “We are as busy as expect their wages 1,459 salespeople that we’ve ever been with worked directly with new business,” says and benefits to remain Pitts. “That seems to the same this year as in merchants, according to comments made by help offset some of 2008, compared with Robert O. Carr, the volume compres62% last year who Heartland CEO and sion.” And he sees no believed their 2008 chairman, during a reason to change the compensation conference call with compensation plan would remain the analysts in February. for the partners who same in 2007. As the economy sell merchant sputtered along last accounts, especially if ISO&Agent fall in the past year, they are more experiCompensation Survey ISOs and acquirers enced salespeople. opted to cut expenses Heartland and to examine which Payment Systems Inc. groups of merchants held the best profit is another payment-industry company that sees little reason to alter its compen- potential, which likely led to 2009 sales goals that were not overly ambitious, sation structure, even though the says Donna Embry, senior vice president Princeton, N.J.-based processor is at Payment Alliance International, a embroiled in the fallout from a major Louisville, Ky.-based ISO. Now as ISOs data breach. “Our 2009 core compensation model find their budget goals for expenses and APRIL 9, 2009
revenues are working, they have confidence to sell new services to existing merchants and to recruit new accounts, she says. Such confidence also gives many merchant salespeople optimism in their compensation plans, Embry says. What is changing is the reliance on counting a merchant application as a success, instead of the harder-to-get metric of whether the merchant activates the account, she says, noting reliance on merchant applications is ill-suited to the challenges of today’s marketplace. An agent concentrating on merchant applications will not see residual income if the merchant fails to activate the account. SURVEY cont’d on page 15 Y
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APRIL 9, 2009
15 D E A LS
Fidelity National Bulking Up to Gird for New Rivals By Steve Bills Buying its next-largest competitor in core processing would make Fidelity National Information Services Inc. a giant in banking technology and position it against the even larger companies it expects to enter the market. The Jacksonville, Fla.-based company announced a $2.94 billion stock deal for Metavante Technologies Inc. last week. In the near-term, Fidelity does not expect its third-party resellers to experience changes, says Cleve B. Shultz, Fidelity senior vice president. He did not specify how many third-party sellers work with the company. “Upon the successful closing of this transaction, [Fidelity] will work with all partners to ensure they will benefit from the additional depth and breadth offered by the combination of these two companies,” he says. The purchase would make Fidelity the world’s largest provider of banking-technology products and services, and it would need that kind of scale to face the newcomers eyeing the payments market, says Lee Kennedy, Fidelity president and chief executive. “There are going to be larger competitors in this space in the not-sodistant future,” including Oracle Corp.
and International Business Machines Corp., Kennedy said during a conference call with analysts. Both Oracle and IBM already are in the financial services technology market, he said. “They dabble in this space, but not in a big way yet.” Oracle purchased a controlling stake in India-based core processing software vendor I-Flex Solutions Ltd. in 2005. Though popular elsewhere in the world, its Flexcube product has not gained support in the United States. IBM also is looking for a bigger role in the banking market, Kennedy said. “We know that they’re going to be in it, one way or another,” he said, also mentioning Hewlett-Packard Co., whose chief, Mark Hurd, is the former CEO of NCR Corp. “Those companies have the capital and resources to move into a market when they want to,” says Frank R. Martire, Metavante president and CEO. The deal is expected to close next quarter. Fidelity was the No. 2 vendor in ISO&Agent Weekly’s sister publication American Banker’s FinTech 100 list last year, behind Fiserv Inc. Metavante was No. 10. It was not immediately clear where the companies would consolidate. Metavante runs one of the
Y SURVEY cont’d from page 13 “Those are toxic assets,” Embry says. “How many of them actually perform?” Embry says she has yet to see a compensation model that relies solely on merchant applications sans activation that provides long-term benefits. Commissions from residual income and equipment revenue loom large in the eyes of survey respondents, much more so than last year and in 2007. In fact, this year’s ISO&Agent compensation survey found that 55% of respondents said a better commission would improve their compensation plans, compared with 32% who believed so in 2008 and 39% who did in 2007. The survey also found that 45% of respondents made more APRIL 9, 2009
industry’s largest platforms for online bill payment, and Fidelity has a platform its own. “But that doesn’t mean we’re necessarily going to convert our FIS customers” to the other platform, says Michael D. Hayford, Metavante chief operating officer and a senior executive vice president. He acknowledged that Metavante has the “broader, more open platform.” The deal talks had been under way for months, and details will be included in a proxy statement to be sent to shareholders soon, executives say. The deal also requires regulatory approval. Executives do not anticipate antitrust objections. Kennedy would serve as executive vice chairman, with responsibility for integrating the two companies, and Martire would become president and CEO. Fidelity’s headquarters will stay in Jacksonville. Metavante’s payment lines, including the NYCE debit network and the Endpoint Exchange image network, were important factors in Fidelity’s decision, says John T. Williams, an analyst at Macquarie Capital U.S.A. Inc. ISO Steve Bills is a deputy editor with American Banker.
than 76% of their earnings from commissions, a jump from the 33% who said so last year and from the 28% who did in 2007. ISO Look for an expanded version of this article in the April issue of ISO&Agent magazine arriving in a few weeks.
ISO&Agent Weekly Ad Index Credomatic . . . . . . . . . . . . . . . . 2
VeriFone . . . . . . . . . . . . . . . . . . 9
North American Bancard. . . . . 3
Wausau. . . . . . . . . . . . . . . . . . 10
North American Bancard. . . . . 4
Apriva . . . . . . . . . . . . . . . . . . . 11
W.Net . . . . . . . . . . . . . . . . . . . . 5
Transfirst. . . . . . . . . . . . . . . . . 12
TSYS . . . . . . . . . . . . . . . . . . . . . 6
Now PrePay . . . . . . . . . . . . . . 12
POS Portal . . . . . . . . . . . . . . . . 7
PaymentsSource.com . . . . . . . 14
16 ISO&Agent Staff Editor Kevin Woodward
Director of Advertising Jim Baker
[email protected]
[email protected]
Associate Editor Meghan Boyer
Advertising Hope Lerman
[email protected]
[email protected] 312-983-6102
Group Editorial Director, Banking Richard Melville
Theresa Easterday [email protected] 312-983-6179
[email protected]
Editorial Director, Payments Group Jeff Green [email protected]
Creative Sharon Pollack [email protected]
Ryan Egan [email protected]
ISO&Agent Advisory Board Xavier Ayala, Humboldt Merchant Services
Mike McCormack, Noblett & Associates
Larry Bleiler, VeriFone
Tim McWeeney, Way Systems
Tom Della Badia, Cynergy Data Bill Clark, Apriva
Joe Natoli, NPC
Matt Clyne, Consultant
Ryan O’Connor, Velocity Payments LLC
Joyce Cook, International CyberTrans
Anthony L. Ogden, BankCardLaw
Mark Dunn, FieldGuide Enterprises
Linda Perry, Consultant
Steve Eazell, Secure Payment Systems
Mike Petitti, Trustwave
Donna Embry, Payment Alliance International
John Priore, Priority Payment Systems
Glenn Goldman, AdvanceMe
Pat Reed, Merchant Management Systems Inc.
Dennis Hamilton, TransFirst
Linda Rossetti, Bluestone Payments
Rod Hometh, Hypercom Corp.
Mike Segura, Group ISO
Matt Johanson, Discover Network
Lisa Shipley, Ingenico
Rod Katzfey, Comdata Processing Systems
Dan Skaling, JCB International
Gerritt Kerkstra, MasterCard Worldwide
Jeff Turner, TSYS
Don Singer, EZCheck
SourceMedia: Chairman & CEO: James M. Malkin; CFO: William Johnston; Executive Vice President and Managing Director, Banking Group: Douglas J. Manoni; VP, Finance: Richard Antoneck; VP, Sales & Customer Service: Steve Andreazza; SVP, Operations: Celie Baussan; EVP, Marketing & Strategic Planning: Anne O’Brien; EVP, Chief Content Officer: David Longobardi ISO&Agent is published weekly by SourceMedia, Inc., One State Street Plaza, 27th Floor New York, NY 10004. Subscriptions are free. For subscriptions, renewals, address changes or delivery service issues contact 800-221-1809. For reprints, call Damian Nash, 212-803-8365; fax, 212-843-9624. Direct editorial inquires to ISO&Agent, 550 West Van Buren, 11th Floor, Chicago, IL 60607; phone, 312-983-6127. The contents of ISO&Agent are, and remain, the property of SourceMedia, Inc. © 2009 SourceMedia Inc., and ISO&Agent. All rights reserved.
Federal Reserve Banks Intro Global ACH System The Federal Reserve banks plan to let American banks send payments directly to nonbanks in other countries as they prepare for a new form of international payment using the automated clearinghouse network. The Fed also has formed partnerships with payments services in Europe and Panama to process international ACH payments, and it plans to introduce a new suite of services for United States banks to manage their funds flows. ACH payments usually flow from one bank account to another, Jim McKee, senior vice president in the Fed's Retail Payments Office, said Monday at the NACHA Payment conference being held in Orlando, Fla. “We are expanding account-to-receiver services so it can be received by a nonbank participant,” McKee said. The Fed announced the services at the conference. Such a nonbank funds-transfer service could be especially useful for immigrant remittances, McKee said. It also is recognition by the Fed of the evolving reality of international payments because the recipients of the remittances in developing countries frequently lack bank accounts, but they may hold other kinds of accounts, particularly mobile phones. Although McKee would not discuss the types of nonbanks with which the Fed would be willing to connect, he said the banks would vet the recipient networks “to manage the risk, so the payment is controlled and gets to the right people.” Elizabeth McQuerry, assistant vice president in the Fed’s Retail Payments Office, said the Fed has developed “new foreign-exchange regimens” that international banks in the United States could use for euro-to-euro transactions and those in other currencies. “Institutions can use their own euros, pesos or pounds,” McQuerry said. “They will be able to completely manage their own foreign exchange.” The new services are being rolled out in conjunction with the introduction of a new ACH format, called IAT, for international ACH transactions that which takes effect Sept. 18. ISO
The App ointment B ook W.NET SUPER LINC MEETING April 21 Mandalay Bay Resort & Casino Las Vegas www.w-net.biz
ETA ANNUAL MEETING & EXPO April 21-23 Mandalay Bay Resort & Casino Las Vegas www.electran.org/content/ category/6/35/118/
MIDWEST ACQUIRERS ASSOCIATION July 22-24 Westin Lombard Yorktown Center Lombard, Ill. www.midwestacquirers.com/next _event.php
WESTERN STATES ACQUIRERS ASSOCIATION Oct. 14-15 Sheraton Park Hotel Anaheim, Calif. www.westernstatesacquirers.com
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Tips, Tactics and Strategies for POS & ATM Sales Success See ad index on page 15
R EVE N U E
Survey Says: Residuals Remain Vital To Agents By Kevin Woodward he recession is causing many business leaders to rethink how their companies generate revenue and create expenses. But as this year’s ISO&Agent survey of its readers found, most in the ISO and merchant-acquiring industry expect little change in their wages and compensation. Fully 69% of respondents expect their wages and benefits
T
to remain the same this year as in 2008. That is just a few percentage points more than the 62% last year who believed their 2008 compensation would remain the same as in 2007. The survey, started in 2005, found that sales performance continues to be the primary factor in determining whether to award individuals bonuses. This year, 66% of respondents said
R EVE N U E
Pricing Confusion Demands Agent Diligence By Meghan Boyer ompensation packages acquirers and processors offer to ISOs and agents vary, which can make comparing prices and revenue challenging when choosing business partners. The lack of industry compensation standards requires ISOs to perform due diligence before entering into contracts to ensure they understand the agreements and are receiving fair compensation, according to industry insiders. Pricing grids purposefully are complicated to make “shopping around” for
C
COMPENSATION cont’d on page 9 Y
INSIDE
ISO Adds IPhone App For Card Processing
Fidelity Buys Metavante In $2.94B Stock Deal
Merchant Warehouse Inc. has developed its own free point-of-sale terminal software for use on Apple Inc.’s iPhone. See page 3.
Buying competitor Metavante Technologies Inc. places Fidelity National Information Services Inc. in a better position against competitors. See page 15.
SURVEY cont’d on page 13 Y
INTERNET CRIME COMPLAINTS UP 11% IN 2008 Dollar losses from reported Internet-based crimes reported to iC3, the U.S. Internet Crime Complaint Center, reached a record $265 million in 2008, up nearly 11% from $239 million the previous year, according to a report the center released last week. The number of complaints of online crime reached 275,284 last year, up 33.1% from 206,884 in 2007. Indeed, the number and cost of reported online crime complaints has climbed steadily since 2004, when the center reported a loss of $68.14 million from 207,449 crime complaints. Credit and debit card fraud comprised 9% of online crime complaints last year, far below non-delivery of purchased goods and services, which accounted for 32.9% of online fraud, and fraudulent auctions, which accounted for 25.5% of complaints. ISO
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2 I NTE R C H A N G E
Time is on your side
MasterCard Cuts European Rates On Cross-Border Transactions
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}&RPSOHWHVWDWHRIWKHDUW ZHEEDVHGWRXFKVFUHHQ326 VROXWLRQVIRUUHVWDXUDQWV 25'>ISO Writes iPhone Application That Enables Merchant Processing
>>>
NEWS BRIEFS
Merchant Warehouse Inc., a Boston-based ISO, has developed its own free point-of-sale terminal software for use on Apple Inc.’s iPhone. Called MerchantWare Mobile, the software accepts credit and debit payments in which the merchant types in the card number, amount and other relevant data. A merchant must have a Merchant Warehouse account to use the software, says Henry Helgeson, Merchant Warehouse president and co-CEO. He tells ISO&Agent Weekly that transactions are sent directly to his company’s network and do not use a thirdparty payment gateway. There are two other POS terminal applications in the iTune stores for the iPhone selling for $6.99 and $9.99 each, after discounts. Helgeson says mobile merchants who either choose not to or cannot afford a traditional wireless POS terminal are the primary customers for this software. Transactions move on the iPhone’s existing wireless connection, whether it is a telco connection or a WiFi one, he said. In either case, the transaction is encrypted and no cardholder data is stored on the phone, Helgeson says.
APRIL 9, 2009
Merchant Warehouse also will have a version for third-party ISOs to sell as their own that Helgeson says should debut in mid-April.
>>>Q4 Credit Card Delinquencies Increased 4.52% From 4.2% Credit card delinquencies rose to 4.52% of total loans during the fourth quarter ended Dec. 31, from 4.2% in the previous quarter, according to a report by the American Bankers Association. The credit card delinquency rate was 4.38% for the fourth quarter of 2007. The association’s report defines delinquencies as payments that are 30 days past due. “The wheels just fell off the economy in the fourth quarter of 2008,” James Chessen, the ABA association’s chief economist, said of the report’s findings. “As the economy continues to shed jobs, it is unlikely that delinquencies will see any improvements this year,” says Chessen. The composite ratio, which tracks eight closed-end installment loan categories such as credit card, auto and home-equity loans, rose 32 basis points to a record 3.22% in the fourth quarter from 2.9% in the previous quarter. ISO
4 I N D U STRY N EWS
ISO Lifts Restrictions For Merchants In Free-Terminal Program United Bank Card Inc., a Hampton, N.J.-based ISO, has revised its free-terminal program by removing restrictions that prevented some merchants from choosing any of seven point-of-sale terminals in the program. A United Bank Card spokesperson says the program now has seven terminals available to all merchants. Before, some terminals could only be used with certain merchants. United Bank Card’s sales agents have the option to install all but one of the terminals for free to merchants or to sell or lease them, keeping all of the profit on the devices, the spokesperson says. United Bank Card says a Nurit wireless terminal cannot be sold or leased. ISO
Payment Stock Watch Company
American Express CyberSource Diebold Discover eBay FNDS3000 Corp. Global Payments Heartland Payments Hypercom Intuit MasterCard Optimal Payments Pipeline Data Sage TSYS U.S. Bancorp VeriFone Visa
Symbol
Last Week’s Low
AXP 12.74 CYBS 14.14 DBD 19.89 DFS 5.75 EBAY 12.22 FDTC.OB 0.22 GPN 30.82 HPY 5.51 HYC 0.93 INTU 26.27 MA 157.15 OPMR 0.23 PPDA.OB 0.20 SGE.L 25.99 TSS 13.43 USB 13.61 PAY 6.22 V 53.01
Last Week’s Last Week’s % Change From High Close Prior Week’s Close
15.33 16.49 23.10 6.89 14.63 0.23 34.75 7.67 1.11 28.32 174.05 0.30 0.20 24.24 14.67 16.00 8.31 60.16
15.33 15.60 23.03 6.75 14.31 0.22 32.00 7.64 1.11 27.73 174.05 0.28 0.20 25.37 14.58 15.97 8.16 60.08
6.09 5.69 1.63 -0.74 11.36 -8.33 -3.32 15.23 14.43 3.35 3.93 7.14 33.33 1.68 5.96 2.11 19.65 10.75
Is there a stock you would like us to track? E-mail us at [email protected] Quotes are from Yahoo! Finance, Monday through Friday.
APRIL 9, 2009
5
VENDOR BRIEFS VivoTech, Eagle Eye Sign NFC Deal
Payments Product ‘Bills Parents’
Eagle Eye Solutions, a United Kingdom-based mobile voucher firm, has struck a mobile-couponing technology deal with U.S.-based contactless vendor VivoTech Inc., according to officials from both firms. The deal calls for the two companies to market a “consolidated mobile vouchering system for retailers,” according to a statement. The service will enable consumers with mobile handsets to receive coupons, loyalty offers or similar incentives via text-message vouchers from Eagle Eye, or through chipenabled “smart” posters that use Near Field Communication technology. Consumers can redeem the vouchers by entering 8-digit numbers at payment terminals that take chip cards, or by touching the handset to the terminal’s contactless reader. Downloading a coupon from an NFC-enabled poster takes no more than 30 seconds, says Mohammad Kahn, VivoTech’s president and founder. Redeeming the voucher at the point-of-sale takes less than a second, an Eagle Eye spokesperson tells CardLine Global. The service “will work, theoretically, anywhere in the world that has a credit card payment system and/or contactless payments,” the Eagle Eye spokesperson says.
The San Diego payments technology vendor IdeaEdge Inc. is preparing to introduce BillMyParents, a service that would let children shop online and then route the bill to a parent for approval, according to a report in American Banker, an ISO&Agent Weekly sister publication. The company, which does business as Socialwise Inc., said the service lets families give kids the freedom to make their own choices but without the responsibility of having payment cards. Other payment providers have tried to empower children to shop online but Jim Collas, president and CEO of IdeaEdge, says his service differs because the other providers required parents to set up the account. “The real key here is to have youth pulling the process,” Collas says. BillMyParents is presented early in the shopping process on merchants’ product pages and not at the shopping cart or checkout page, Collas says. After a child has placed an order, a parent will receive an e-mail, and veto power, before the product is shipped. To approve a purchase, the parent must enter their payment card or bank account details. IdeaEdge charges merchants a fee of 3% to 5% of the transaction and charges parents 50 cents per transaction. ISO
I N D U STRY N EWS
Global Merchants Next On Apriva’s List Global demand for wireless point-of-sale terminals and service is spurring Apriva, which operates a wireless POS terminal network, to start an international division, Paul Coppinger, a co-founder, tells ISO&Agent Weekly. “We’re going international because there’s a definite need around the world,” Coppinger says. Scottsdale, Ariz.-based Apriva’s services are sold in the United States through independent sales organizations. Coppinger says the international sales model also will rely on working with acquirers, which may not be ISOs, but still have access to merchants. Coppinger says nations lacking a fully developed wired telephone infrastructure, such as in the United States, are among locations where Apriva sees a need for its services. In particular, Apriva is looking at nations such as Brazil, Russia, India and China, which have growing middle classes and increasing use of debit and credit payment methods. Coppinger said Apriva considered international markets when the company started in 1999, “but the timing wasn’t right,” Coppinger says. Apriva also named Bill Clark, who joined Apriva in 2005, as the executive in charge of the company's U.S. POS division. ISO APRIL 9, 2009
6
APRIL 9, 2009
7
MARKET TRENDS >CARDHOLDERS’ BILL OF RIGHTS APPROVED BY HOUSE FINANCIAL SERVICES COMMITTEE
>>>FRAUDSTERS ATTEMPT CHECK FRAUD MORE THAN OTHER FRAUD FORMS: SURVEY
The House Financial Services financial institutions subcommittee last week approved the Credit Cardholders’ Bill of Rights. The bill, sponsored by Rep. Carolyn Maloney, D-N.Y., contains many of the same provisions contained in new card-industry rules the Federal Reserve Board and other regulators finalized last year. Those rules, which will ban double-cycle billing and would prevent issuers from raising interest rates on cardholders’ existing balances, are slated to go into effect July 1, 2010. The new version of Maloney’s bill contains a provision that would prohibit banks from reporting an account opening to the credit bureaus until the card is activated. An additional amendment would ban card issuers from charging customers fees for making card-account payments.
Seventy-one percent of businesses and other organizations experienced actual or attempted payments fraud in 2008, according to results of a January survey of 5,300 members of the Association for Financial Professionals. That is the same percentage of survey respondents who reported in last year’s survey actual or attempted fraud directed at their organizations. Thirty percent of respondents reported an increase in the number of incidents of actual and attempted payments fraud during 2008 compared with 2007, and 40% reported that the increase came during the last half of 2008. Checks were the most common fraudulent tender, with 91% of respondents reporting actual and attempted fraudulent check payments. Twenty-eight percent reported fraudulent automated clearinghouse debits, 18% noted fraud on consumer credit and debit cards and 14% on corporate and commercial purchasing cards. Seven percent of respondents reported fraud involving ACH credits, and 6% involving wire transfers. As the number of checks written for consumer and business-to-business payments declines, fraudulent checks take up a larger piece of the check-payments pie, according to the association. Of organizations reporting an increase in fraud attempts last year, 82% of those organizations reported more check fraud, compared with 18% reporting more fraud on consumer credit and debit cards and 14% a greater prevalence of ACH fraud.
>>>SENATE BANKING COMMITTEE OKS SWEEPING CARD-INDUSTRY LEGISLATION The Senate Banking Committee last week narrowly approved legislation for sweeping credit card industry reforms, according to American Banker, an ISO&Agent Weekly sister publication. The 12-11 vote in favor of the Credit Card Accountability Responsibility and Disclosure Act of 2009, sponsored by Sen. Christopher Dodd, D-Conn., included no Republicans. One Democrat on the committee, Tim Johnson, D-S.D., voted against it. But analysts said it is unlikely the bill will pass a full Senate vote without bipartisan support. Johnson said during the hearing it was a mistake to push the bill before new rules from the Federal Reserve Board and other regulators go in effect next year, and contended that Dodd’s bill would do consumers more harm than good. “At a time when Americans are already seeing their credit card interest rates rise and their credit limits decrease, this legislation could mean that even fewer consumers get credit and lines of credit are greatly reduced,” Johnson said. Dodd’s bill would go further than the card regulations finalized by the Fed, which would define several common practices like double-cycle billing and universal default as unfair or deceptive. The regulators’ rules would not go into effect until July 2010, but Dodd’s bill would take effect nine months after enactment. Unlike the Fed proposal, Dodd’s bill also would ban charging interest on fees, prohibit fees for paying bills and restrict over-the-limit charges. Dodd emphasized after the vote that he was willing to make some concessions on the bill. APRIL 9, 2009
>>>CONFIDENCE INDEX HOLDS STEADY IN MARCH AFTER FEBRUARY DECLINE After a sharp decline in February, the Consumer Confidence Index remained largely unchanged in March, The Conference Board, a research organization, announced recently. The March index stands at 26, up from 25.3 in February. The baseline for the index is 100. Research company TNS conducts the monthly Consumer Confidence survey of 5,000 randomly selected households. The cutoff date for the survey was March 24. “Consumer confidence was relatively unchanged in March, after reaching an all-time low in February,” Lynn Franco, director of The Conference Board Consumer Research Center, said in the report. The percentage of respondents who said business conditions are “bad” increased to 51.1% from 50.5% who said so in February, while those claiming business conditions are “good” slightly decreased to 6.8% from 7% last month. ISO
8
APRIL 9, 2009
9 Y COMPENSATION cont’d from page 1 better prices difficult, says Adam Atlas, a Montreal-based attorney with Adam Atlas Attorney at Law. “If you shop around to five different processors, you will get five different pricing grids,” Atlas says. To adequately compare rates and evaluate potential business partners, ISOs and agents should understand the aspects to look for in compensation packages and how to evaluate the agreements. “There’s no way to say what’s an average” compensation agreement, agrees Curt Hensley, president of CSH Consulting Inc., a Phoenix-based executive-recruitment firm. Packages typically vary based on the types of merchants the ISO or agent targets and on the experience level required for the job and for the agent, he says.
understanding of what their revenue will be with a potential contract, he says. “If you don’t understand pricing, the chances you’ll be taken for a ride are higher,” says Atlas. “You have to look not only at the price but at what you have left at the end of the month when you get your residual check and take out costs,” says Joe Natoli, senior executive vice president of ISO sales with Louisville, Ky.-based National Processing Co. During the turbulent economy, ISOs also should question potential business partners’ financial stability, says Aaron Slominski, director of business development with Direct Technology Innovations, a Fort Lauderdale, Fla.-based ISO. “You have to feel comfortable with the people writing the checks,” he says. “It is important to ask questions,” agrees Natoli, adding many ISOs are looking for stability in their business partners. ISOs and agents are asking different questions today than they were a year ago” because of the difficult economic environment, he says.
REVENUE RECONNAISSANCE ISOs and agents always should determine what their potential revenue may be within a specific provider’s pricing grid before entering into an agreement, advise industry insiders. ISOs should “take any pricing grid they’re being given and analyze it against the typical kind of merchant they are going to sell to,” says Atlas. Crunching the numbers themselves, and not relying on the provider to estimate earnings, gives ISOs an
APRIL 9, 2009
NEGOTIATING TERMS Acquirers and processors rarely set their compensation agreements in stone, and ISOs and agents should negotiate contracts to ensure they fit both companies’ business models, agree industry insiders. “It’s like anything—if you don’t ask, you won’t know,” says COMPENSATION cont’d on page 11 Y
10
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APRIL 9, 2009
11
People & Promotions Payments consultancy The Strawhecker Group has hired Tara Houck as an associate specializing in mergers and acquisitions. USAePay, an online payment gateway, has hired Martin Drake as vice president of business development. ISO
Y COMPENSATION cont’d from page 9 Jill Miller, attorney and counselor with Jaffe Raitt Heuer & Weiss, a Southfield, Mich.-based law firm. “I find the processors are easy to work with, and they want to be fair.” Direct Technology Innovations uses a standard agreement for the foundation of a discussion, says Slominski. Contract points, such as the revenue split and whether there will be an acquisition bonus, are negotiable, he says. “Our contract is a two-way street,” says Slominski. North American Bancard bases negotiations on the “level of commitment” an agent is willing to make to the company, says Gary Rutledge, chief operating officer of the Troy, Mich.based ISO and processor. North American Bancard makes “commitments to its sales partners,” he says. “But we also want them to make a commitment to us” regarding how much business they are willing to bring in to the company. Not all ISOs and agents, however, have the same levels of negotiating power, says Miller. “A new ISO coming into the industry with no proven record, no sales experience and no grasp of the industry, that particular ISO wouldn’t have a lot of negotiating power,” Miller says. An ISO with a sales force and industry experience has greater negotiating leverage, she says. For a novice agent targeting small merchants, a compensation package could be commission only or a 50/50 revenue split, says Hensley. With a few years of experience, an agent could earn a commission on top of a $30,000 or $40,000 base salary, he says. As ISOs and agents gain more experience, they can renegotiate to gain better terms, says Hensley. Comparing and attaining fair compensation packages in an industry without standard pricing grids can be challenging. However, by understanding the types of provisions included in compensation agreements, researching potential business partners and engaging in contract negotiations, ISOs and agents can reach profitable agreements with acquirers and processors. ISO APRIL 9, 2009
12 Y INTERCHANGE cont’d from page 2
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“very difficult” for MasterCard to increase interchange rates if it loses its appeal. The commission is confident the Court of First Instance will uphold the December 2007 ruling, Todd says. In a statement, Kroes’ office put MasterCard rival Visa Europe on notice that it continues its antitrust investigation into Visa’s interchange fees. The commission had told Visa to take guidance from its December 2007 ruling against MasterCard. “What we have said today is we clearly do expect a level playing field,” Todd says. Cross-border transactions account for no more than 5% of bankcard purchases in Europe, but the commission’s approval of the new interchange rates for MasterCard will have broader implications because national financial regulators likely will use it to guide their decisions on interchange for domestic transactions. The commission’s blessing for the new MasterCard fees is not sitting well with Brussels-based merchant lobbying group EuroCommerce. The group does not see a justification for any interchange, and prefers a fixed-rate pricing scheme for card transactions. If national regulators follow the commission’s lead, “that would be extremely bad news for the consumer,” says Xavier Durieu, secretary general of the group. ISO
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13
Y SURVEY cont’d from page 1 sales performance determined their bonuses compared with 69% who did in 2008, 60% in 2007, 49% in 2006 and 68% in 2005. Most in the industry see little reason for the importance of sales performance to diminish. “Our program is simple,” says Andy Pitts, president of MLS Direct Network Inc., a Birmingham, Ala.-based ISO. “We have 80% residuals. That doesn’t change.” Residuals are a portion of the transaction fee that represents revenue for the ISO and sales agent.
will remain unchanged compared to previous years,” Sanford C. Brown, Heartland chief sales officer, said in a statement to ISO&Agent Weekly. “We believe our model rewards our personnel for the right behaviors in supporting the company and our customers, and [we’ll] RESIDUALS HOLD VALUE continue to apply those same values and That steadfast adherence to paying rewards going forward. out 80% of residual income to MLS “Additionally, we will continue to Direct’s 75 partner offices may seem parlook at creative ways to enhance our adoxical amid a tough economy that has other rewards and incentives to recogseen some compression in transaction nize the efforts of our sales professionals volume. But the partners, and the agents in creating value for our enterprise, our working for them, say residuals can customers and our counteract that comshareholders.” pression, Pitts tells Sixty-nine percent of At the end of ISO&Agent Weekly. survey respondents 2008, Heartland had “We are as busy as expect their wages 1,459 salespeople that we’ve ever been with worked directly with new business,” says and benefits to remain Pitts. “That seems to the same this year as in merchants, according to comments made by help offset some of 2008, compared with Robert O. Carr, the volume compres62% last year who Heartland CEO and sion.” And he sees no believed their 2008 chairman, during a reason to change the compensation conference call with compensation plan would remain the analysts in February. for the partners who same in 2007. As the economy sell merchant sputtered along last accounts, especially if ISO&Agent fall in the past year, they are more experiCompensation Survey ISOs and acquirers enced salespeople. opted to cut expenses Heartland and to examine which Payment Systems Inc. groups of merchants held the best profit is another payment-industry company that sees little reason to alter its compen- potential, which likely led to 2009 sales goals that were not overly ambitious, sation structure, even though the says Donna Embry, senior vice president Princeton, N.J.-based processor is at Payment Alliance International, a embroiled in the fallout from a major Louisville, Ky.-based ISO. Now as ISOs data breach. “Our 2009 core compensation model find their budget goals for expenses and APRIL 9, 2009
revenues are working, they have confidence to sell new services to existing merchants and to recruit new accounts, she says. Such confidence also gives many merchant salespeople optimism in their compensation plans, Embry says. What is changing is the reliance on counting a merchant application as a success, instead of the harder-to-get metric of whether the merchant activates the account, she says, noting reliance on merchant applications is ill-suited to the challenges of today’s marketplace. An agent concentrating on merchant applications will not see residual income if the merchant fails to activate the account. SURVEY cont’d on page 15 Y
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APRIL 9, 2009
15 D E A LS
Fidelity National Bulking Up to Gird for New Rivals By Steve Bills Buying its next-largest competitor in core processing would make Fidelity National Information Services Inc. a giant in banking technology and position it against the even larger companies it expects to enter the market. The Jacksonville, Fla.-based company announced a $2.94 billion stock deal for Metavante Technologies Inc. last week. In the near-term, Fidelity does not expect its third-party resellers to experience changes, says Cleve B. Shultz, Fidelity senior vice president. He did not specify how many third-party sellers work with the company. “Upon the successful closing of this transaction, [Fidelity] will work with all partners to ensure they will benefit from the additional depth and breadth offered by the combination of these two companies,” he says. The purchase would make Fidelity the world’s largest provider of banking-technology products and services, and it would need that kind of scale to face the newcomers eyeing the payments market, says Lee Kennedy, Fidelity president and chief executive. “There are going to be larger competitors in this space in the not-sodistant future,” including Oracle Corp.
and International Business Machines Corp., Kennedy said during a conference call with analysts. Both Oracle and IBM already are in the financial services technology market, he said. “They dabble in this space, but not in a big way yet.” Oracle purchased a controlling stake in India-based core processing software vendor I-Flex Solutions Ltd. in 2005. Though popular elsewhere in the world, its Flexcube product has not gained support in the United States. IBM also is looking for a bigger role in the banking market, Kennedy said. “We know that they’re going to be in it, one way or another,” he said, also mentioning Hewlett-Packard Co., whose chief, Mark Hurd, is the former CEO of NCR Corp. “Those companies have the capital and resources to move into a market when they want to,” says Frank R. Martire, Metavante president and CEO. The deal is expected to close next quarter. Fidelity was the No. 2 vendor in ISO&Agent Weekly’s sister publication American Banker’s FinTech 100 list last year, behind Fiserv Inc. Metavante was No. 10. It was not immediately clear where the companies would consolidate. Metavante runs one of the
Y SURVEY cont’d from page 13 “Those are toxic assets,” Embry says. “How many of them actually perform?” Embry says she has yet to see a compensation model that relies solely on merchant applications sans activation that provides long-term benefits. Commissions from residual income and equipment revenue loom large in the eyes of survey respondents, much more so than last year and in 2007. In fact, this year’s ISO&Agent compensation survey found that 55% of respondents said a better commission would improve their compensation plans, compared with 32% who believed so in 2008 and 39% who did in 2007. The survey also found that 45% of respondents made more APRIL 9, 2009
industry’s largest platforms for online bill payment, and Fidelity has a platform its own. “But that doesn’t mean we’re necessarily going to convert our FIS customers” to the other platform, says Michael D. Hayford, Metavante chief operating officer and a senior executive vice president. He acknowledged that Metavante has the “broader, more open platform.” The deal talks had been under way for months, and details will be included in a proxy statement to be sent to shareholders soon, executives say. The deal also requires regulatory approval. Executives do not anticipate antitrust objections. Kennedy would serve as executive vice chairman, with responsibility for integrating the two companies, and Martire would become president and CEO. Fidelity’s headquarters will stay in Jacksonville. Metavante’s payment lines, including the NYCE debit network and the Endpoint Exchange image network, were important factors in Fidelity’s decision, says John T. Williams, an analyst at Macquarie Capital U.S.A. Inc. ISO Steve Bills is a deputy editor with American Banker.
than 76% of their earnings from commissions, a jump from the 33% who said so last year and from the 28% who did in 2007. ISO Look for an expanded version of this article in the April issue of ISO&Agent magazine arriving in a few weeks.
ISO&Agent Weekly Ad Index Credomatic . . . . . . . . . . . . . . . . 2
VeriFone . . . . . . . . . . . . . . . . . . 9
North American Bancard. . . . . 3
Wausau. . . . . . . . . . . . . . . . . . 10
North American Bancard. . . . . 4
Apriva . . . . . . . . . . . . . . . . . . . 11
W.Net . . . . . . . . . . . . . . . . . . . . 5
Transfirst. . . . . . . . . . . . . . . . . 12
TSYS . . . . . . . . . . . . . . . . . . . . . 6
Now PrePay . . . . . . . . . . . . . . 12
POS Portal . . . . . . . . . . . . . . . . 7
PaymentsSource.com . . . . . . . 14
16 ISO&Agent Staff Editor Kevin Woodward
Director of Advertising Jim Baker
[email protected]
[email protected]
Associate Editor Meghan Boyer
Advertising Hope Lerman
[email protected]
[email protected] 312-983-6102
Group Editorial Director, Banking Richard Melville
Theresa Easterday [email protected] 312-983-6179
[email protected]
Editorial Director, Payments Group Jeff Green [email protected]
Creative Sharon Pollack [email protected]
Ryan Egan [email protected]
ISO&Agent Advisory Board Xavier Ayala, Humboldt Merchant Services
Mike McCormack, Noblett & Associates
Larry Bleiler, VeriFone
Tim McWeeney, Way Systems
Tom Della Badia, Cynergy Data Bill Clark, Apriva
Joe Natoli, NPC
Matt Clyne, Consultant
Ryan O’Connor, Velocity Payments LLC
Joyce Cook, International CyberTrans
Anthony L. Ogden, BankCardLaw
Mark Dunn, FieldGuide Enterprises
Linda Perry, Consultant
Steve Eazell, Secure Payment Systems
Mike Petitti, Trustwave
Donna Embry, Payment Alliance International
John Priore, Priority Payment Systems
Glenn Goldman, AdvanceMe
Pat Reed, Merchant Management Systems Inc.
Dennis Hamilton, TransFirst
Linda Rossetti, Bluestone Payments
Rod Hometh, Hypercom Corp.
Mike Segura, Group ISO
Matt Johanson, Discover Network
Lisa Shipley, Ingenico
Rod Katzfey, Comdata Processing Systems
Dan Skaling, JCB International
Gerritt Kerkstra, MasterCard Worldwide
Jeff Turner, TSYS
Don Singer, EZCheck
SourceMedia: Chairman & CEO: James M. Malkin; CFO: William Johnston; Executive Vice President and Managing Director, Banking Group: Douglas J. Manoni; VP, Finance: Richard Antoneck; VP, Sales & Customer Service: Steve Andreazza; SVP, Operations: Celie Baussan; EVP, Marketing & Strategic Planning: Anne O’Brien; EVP, Chief Content Officer: David Longobardi ISO&Agent is published weekly by SourceMedia, Inc., One State Street Plaza, 27th Floor New York, NY 10004. Subscriptions are free. For subscriptions, renewals, address changes or delivery service issues contact 800-221-1809. For reprints, call Damian Nash, 212-803-8365; fax, 212-843-9624. Direct editorial inquires to ISO&Agent, 550 West Van Buren, 11th Floor, Chicago, IL 60607; phone, 312-983-6127. The contents of ISO&Agent are, and remain, the property of SourceMedia, Inc. © 2009 SourceMedia Inc., and ISO&Agent. All rights reserved.
Federal Reserve Banks Intro Global ACH System The Federal Reserve banks plan to let American banks send payments directly to nonbanks in other countries as they prepare for a new form of international payment using the automated clearinghouse network. The Fed also has formed partnerships with payments services in Europe and Panama to process international ACH payments, and it plans to introduce a new suite of services for United States banks to manage their funds flows. ACH payments usually flow from one bank account to another, Jim McKee, senior vice president in the Fed's Retail Payments Office, said Monday at the NACHA Payment conference being held in Orlando, Fla. “We are expanding account-to-receiver services so it can be received by a nonbank participant,” McKee said. The Fed announced the services at the conference. Such a nonbank funds-transfer service could be especially useful for immigrant remittances, McKee said. It also is recognition by the Fed of the evolving reality of international payments because the recipients of the remittances in developing countries frequently lack bank accounts, but they may hold other kinds of accounts, particularly mobile phones. Although McKee would not discuss the types of nonbanks with which the Fed would be willing to connect, he said the banks would vet the recipient networks “to manage the risk, so the payment is controlled and gets to the right people.” Elizabeth McQuerry, assistant vice president in the Fed’s Retail Payments Office, said the Fed has developed “new foreign-exchange regimens” that international banks in the United States could use for euro-to-euro transactions and those in other currencies. “Institutions can use their own euros, pesos or pounds,” McQuerry said. “They will be able to completely manage their own foreign exchange.” The new services are being rolled out in conjunction with the introduction of a new ACH format, called IAT, for international ACH transactions that which takes effect Sept. 18. ISO
The App ointment B ook W.NET SUPER LINC MEETING April 21 Mandalay Bay Resort & Casino Las Vegas www.w-net.biz
ETA ANNUAL MEETING & EXPO April 21-23 Mandalay Bay Resort & Casino Las Vegas www.electran.org/content/ category/6/35/118/
MIDWEST ACQUIRERS ASSOCIATION July 22-24 Westin Lombard Yorktown Center Lombard, Ill. www.midwestacquirers.com/next _event.php
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