The “Wait and See” Mentality In Regards To Mobile Payments Is Not An Option For ISO’s
Companies like Verizon, T-Mobile, AT&T, and Google are feeding millions of dollars into widespread consumer use of mobile payment systems. Google Wallet alone is dedicated to attaining one billion mobile payment users over the next five years. David Heun, The Wallet Story Begins to Unfold, ISO & Agent, at 60 (September/ October, 2013). The increase in mobile payment systems creates challenges for everyone involved in the payment industry, including ISOs.
When consumers start to utilize mobile payment systems on a mass scale, ISOs may get left behind. This is due to the fact that, with mobile payment systems, interchange fees are either minimized, or cut out of the equation entirely. The argument for interchange fees is that they help prevent fraud; however, security regarding mobile payment systems versus point of sale systems remains unknown. As such, either learning how to compete with, or partner with the companies spearheading mobile payment systems is vital.
There are a number of things ISOs could do in an effort to keep pace with these companies. For example, larger ISOs with financial firepower could create their own mobile payment systems and provide them to merchants as part of a packaged deal. That way, they would lock in interchange fees for point of sale and mobile payment devices. Further, ISOs could offer a reduced rate for mobile payment devices should the merchant want to utilize them. These solutions, however, could potentially spur affection towards mobile payment systems, again leaving ISOs behind.
ISOs could also attempt to work together with these companies. When mobile payment systems are deployed, customers and merchants will need training on the proper way to use the devices and authenticate their identity. Additionally, there could be issues with upgrades and support, and ISOs could fill that niche for a small, yet easily duplicative fee. Lastly, full-function point of sale systems on tablets is a viable market because they offer ISOs more sales opportunities.
Many factors lead to a potential for an increase in mobile payments. There has been a rapid growth in consumer use of smart phones, an adoption of Near Field Communication chips, an increase in mobile banking adoption, and an embrace of mobile commerce. Continued openness toward mobile payments – which is likely – will force the ISO industry to adapt to technology and either learn to compete with, or work with, mobile payment providers. Therefore, ISOs should strive to evolve with the changing marketplace and be creative in their approach.
Credit Card processing fraud is on the rise in the United States, with a 17% increase in incidents between 2011 and 2012. In fact, nearly a quarter of respondents in a recent survey suffered fraudulent charges to their bank or credit cards within the last year. There is a corresponding increase in consumer apprehension toward purchasing. More consumers are hesitant to sign the back of their credit cards, make suspicious transactions, and are pushing retailers to take a firmer stance on fraud. As such, the ISO industry and merchants should strive to meet consumer demands.
ISOs should act to protect themselves and their sales agents. There are a number of things ISOs can do to minimize fraud, including educating agents on the proper techniques of signing merchants to contracts. Conversely, ISOs should strive to protect themselves. This can be done by implementing preventative policies, thereby creating a legal distance between ISOs and agents. ISOs should require agents to create their own limited liability companies or corporations. This results in the agent running a separate business, with ISOs not being liable for the agent’s fraud. ISOs can also require agents to pay their own costs, make their own appointments with merchants, and buy processing equipment from the ISO to act as a broker to the merchant. ISOs who are interested in limiting their liability relating to the conduct of their sales agent should obtain legitimate representation from a legal provider knowledgeable in the area. Consequently, ISOs would limit their liability and continue to thrive even in an economy where fraud runs rampant.