Direct Sales


common ground

		Direct Sales Conclusion of the 6 month series


	by Greg Cohen

As it gets harder and harder to fund and compete in the independent contractor (IC) model, more and more acquirers are exploring direct sales channel opportunities. Over the past few months, we discussed the differences between the retail (direct) and wholesale (IC) sales models as well as the evolving processing environment. In addition, we explored ways to compete in the direct sales model. Hopefully, you picked up some pointers as we explored the retail world. Initiating a direct or retail channel is not simple, but the ability for organizations to morph into direct sales machines in the current payment environment is increasingly important.
Technology changes and the commoditization of credit card processing have reduced the size of the candidate pool of pure acquiring IC sales people (the traditional MLS). Value Added Resellers (VARs) of all types (POS integrators, software companies, telecom organizations, financing companies, etc.) are entering the acquiring business by presenting full solutions to businesses that includes acceptance of card payments. These VARs were once business partners with ICs, now they are competitors becoming the payment resellers themselves. These new merchant level sales people/organizations have a larger merchant relationship than just payment processing. The remaining acquiring IC sales people will be driven to Mega-ISOs and processors that can offer them free terminals, signing bonuses, and large residuals. The break-even point for an ISO on a new merchant in the “new world” IC model is 15-20 months. With all of this going on, at the same time merchants are applying tremendous pressure on their payments vendors and networks to reduce their costs and pricing. So unless you have deep pockets and scale, you need to re- think your sales model. See chart below.

	Pricing Pressure	Old World Model		New World ISO Direct		New World Processor Direct
		Spread	Revenue	Spread	Revenue	Spread	Revenue
Merchant's Cost		100 BPs		90 BPs		70 BPs
	down
IC - MLS			40 BPs		GONE		GONE
	down
ISO			45 BPs		80 BPs		gone
	down
Acquirer / Processor			15 BPs		10 BPs		70 BPs

To survive, the “new ISO” will be focused on selling directly to merchants eliminating as many intermediaries (channel members) as possible. These so called “channel members,” so often ICs, only increase the cost for the service. The “new ISO” must find referral sources, VARs and network or channel members, which will drive business to their sales staff (field sales or telesales). These “trusted advisors” of the merchants will take the place of the IC, make a small residual themselves, and feed leads to the employed sales teams. In addition, the new ISO will find it necessary to develop vertical expertise presenting a full suite of solutions to a prospect in a given segment. They cannot just rely on credit card processing revenues any longer, and must search out solutions that truly add value to a market segment while bringing numerous revenue streams to their organization. The ISO that can bring a real solution to a segment of merchants adds value in the distribution chain and can be sustained in the new environment.
Wholesale ISOs will continue to be in the market servicing the remainder of the IC community, but there will be less of them than before. The remaining ones will be well funded and will have tremendous scale. The small and mid-tier ISOs that survive this market shift will morph into retail shops that truly add value to a market segment or a strong referral network. Morphing into a retail shop isn’t easy but survival is the name of the game in the era of the “new ISO.” Start thinking through your strategy now.


Greg Cohen is President of Moneris Solutions U.S., and manages all U.S. initiatives and operations for Moneris Solutions. Mr. Cohen can be contacted at 847-520-6559 or via email at greg.cohen@moneris.com.

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