Ten years. That’s roughly the length of time between the introduction of the DVD and the almost total removal of the VHS videotape from mainstream retail marketplaces. Square, the payment facilitator often cited as a payments industry game-changer, launched its app fueled by payment facilitation technology five years ago. Could that mean the next five years will bring slow decline of the traditional independent sales organization (ISO) into eventual obsoleteness?
It’s a question worth considering, outlandish as it might seem to an industry that has relied on ISOs for decades to provide merchant services to those navigating the rough waters of payment processing. Though concrete figures are difficult to find, it’s been documented that Square processed $30 billion worth of transactions in 20141, and PayPal’s payment volume in 2010 was reported to equal roughly 18% of that year’s ecommerce…globally.2 According to PayPal’s website, it currently has 169 million active customer accounts. While it’s true that a significant portion of those accounts would not be suitable for a traditional merchant account, it’s an interesting thought experiment to consider what the impact on the ISO market would be if even a fraction of those accounts were converted from sub-merchants operating under a payment facilitator to a full-fledged merchant serviced by an ISO.
The truth is, if the trajectory of technology innovations has taught us anything, it’s that virtually nothing is safe from the relentless march of progress. Today’s seeming juggernaut is tomorrow’s metaphorical videotape—for example, who could have foreseen the demise of the paper map? Folding maps used to be the standard of navigation for any situation, but GPS is fast rendering them virtually useless in all but the most disconnected corners of the earth.
A Tale of Two Technologies
However, there are well-known examples of new players coming along and not completely replacing the traditional way of doing things, but rather complementing existing options. Books are a good illustration of this occurrence. Though popular culture hails the e-reader as the harbinger of death for the paper book, it seems as though there is a place for both types of reading experiences in the market. Evidence points to an uptick in paper book sales over the past year, despite a widespread misperception that no one buys “real” books anymore. E-book sales also continue to grow, suggesting that both physical and electronic books are here to stay.
The current state of the payments industry suggests something similar will happen for ISOs and payment facilitators. While there’s a good deal of buzz surrounding the rise of the payment facilitator as a merchant service provider (MSP), there’s no denying that a significant need remains for the traditional ISO. It seems there are two major categories of merchants: those who are suitable for a traditional merchant account, and those who aren’t.
ISO or Payment Facilitator?
When business owners decide to start taking credit card payments, they must make some choices. For example, do they sign up with an aggregator such as PayPal, or undergo the more rigorous process of applying for a merchant account? There are pros and cons to either route:
As illustrated above, different types of merchants need different types of service. In other words, there’s room for ISOs and payment facilitators at the MSP table, and it’s likely there will be a need for both well into the future.
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- Wilhelm, Alex, “Putting Square’s $5B Valuation Into Context,” TechCrunch, last modified January 13, 2014, http://techcrunch.com/2014/01/13/putting-squares-5b-valuation-into-context/.
- Rao, Leena, “PayPal Now Processing $315 Million in Payments Per Day,” TechCrunch, last modified September 25, 2011, http://techcrunch.com/2011/09/25/paypal-now-processing-315-million-in-payments-per-day/