A New Wave for Payments?

When electronic credit card processing first started, the equipment was marketed by the card issuers. It wasn't until the independent sales organizations got the word out that many merchants adopted them. These sales organizations (commonly referred to as "ISO's") have had a very interesting path with several of them winding up on the Inc. 500 list. Without them, I doubt that so many merchants would be using electronic payments.

The last few years have seen a big change in the profitability and number of ISO's. There are newer regulations which have added costs while the percentage they get from each transaction is less. The result is a loss of people in that business.

According to Warren Buffett, there are three "I"'s in any business cycle; Innovators, Imitators, and Idiots. One way to tell when the "Idiots" have taken over is when price is the only differentiator. When we see that, it is time to start watching for new innovation to happen in that business. The human dynamic is that the "Idiots" do so much harm to the customers that new innovators see how to take those customers away.

In most markets, the innovation starts at the low end, in the business that the established companies are not willing to deal with. Payment innovations are starting with the small merchants who don't really qualify for a standard merchant account.

So, who are the innovators? The focus of the May June issue of Payments Cards & Mobile was on how the web payment firms are going around the current payment structure. While the card processors have pushed NFC (and not gotten very far), PayPal had a million people download their iPhone application in first three weeks after it was launched.

Merchants are starting to accept PayPal more and more. An art gallery in Dallas decided to not get a merchant account. If they sold a painting, they would sit the buyer down with a PC and open up PayPal to make the payment. Likewise, some street vendors are asking people to simply use their smart phone to make the payment via the PayPal web site.

Other companies such as Google, Facebook, and Apple are looking at ways to facilitate online and other payments. Outside of the US, mobile banking has taken off in a huge way with many people having their first non-cash interactions happening through their cell phones - and most of that not with a bank.

The challenge to the ISO community is that of relevance. If the merchants can be served either by a low cost "commodity" provider or they can go to PayPal and not bother with a merchant service provider, why deal with an ISO? There are many different answers to this question and we will let other people answer this for their business.

If you want to offer other services, we can help you set those up. Give us a call.

People not Projects

Alan Kay (the inventor of the personal computer and other things) recently stated in a ComputerWorld interview that how that whole thing got started was that they were funded under the concept of "funding people not projects, visions instead of goals". In short, the agency that funded his work gave money to a few smart people and stepped back to see what they would develop.

This concept that the people are more important than the specific projects can be found in other successful ventures. For example, Warren Buffet started by buying Berkshire Hathaway because of the people and has continued by focusing on buying up successful people and letting them continue to run their businesses the way they want to.

We see the same thing happen at certain technology companies. IBM, TI, HP, and Microsoft all have people that are allowed to pursue any vision they might have and are given the title of "Fellow". Typically, they do research into areas that might not pay off for 10 years or more. Normally, their research helps the whole field rather than just the sponsoring company.

That is part of the problem. When money gets tight, the funding decisions get very political. When there isn't a clear "return on investment", shareholders and others get quite vocal about cutting that funding. Thus, Bell Labs was once heavily into physics research (with a number of Nobel prize winners) but today, is not doing any such research.

We see the same thing with Defense Department funding. The department that funded the development of the Internet and personal computers isn't funding such ventures any more. The politics of control are taking over.

Risky World

Those who like how our government is using high tech passports will enjoy that a researcher has been able to make a device that presents to the reader in one airport a passport that is physically in another country. They can make the passport scanner think that the person has a valid passport when it is actually many thousands of miles away.