STRATEGIC PARTNERS
An ISO or small financial institution may find a "sink or swim" attitude at giant processors like EDS and First Data -- but there are plenty of smaller companies ready to reel them in with personal service.by James Belcher, contributing writer
March 11, 2002
Alik Perakh knows exactly what separates RBSA, his processor, from EDS, First Data, Concord and other processing giants.
"When I want something from my processor, I don't get 'Well, this is company policy,' it's more like 'How can we get it done?' " said Perakh, owner of Cashflow ATM, a San Diego, Calif.-based ISO which recently deployed ATMs at the Perris, Calif. Fair.
Cashflow's processor represents an important niche in the ATM industry. Although the vast majority of transactions are processed by high-volume processors for large deployers, firms which cater to small ISOs and financial institutions are building loyal customer bases with superior service and specialized know-how about the ISO market.
Cashflow's experience at the Parris Fair reveals how far some processors will go to serve their ISO clients.
"It's a short-period, high-volume setup," Perakh explained. "One of the machines wasn't communicating properly with the processor for some reason. We had to re-download the software. I contacted the processor, and one of the people came in on his day off on Saturday. He sat there for two or three hours to help me work through it 'til he had to go to his son's soccer game."
Dialing for dollars
Norma Wayco of Lynk Systems knows that the processing needs of ISOs differ from those of large banks and retailers. Lynk has been serving merchant businesses since 1991 and helped pioneer the use of dial-up technology.
Wayco said that firms which are driving ATMs for banks often use lease line hookups, deal in card-issuing and handle full data processing for their bank customers. Lynk, on the other hand, does not provide ATM service to financial institutions unless a bank wants to do an off-premise, low-cost ATM.
"The timing on dial-up, making sure the message gets to you, making sure you have an acknowledgement of that message... the whole technology around dial-up is different than when you have an open lease line and you don't have to worry about that traffic," Wayco said. "So our technology and development has been geared toward managing and understanding the requirements of the dial-up world."
The focus on dial-up has helped differentiate Atlanta-based Lynk from firms which handle far more transaction volume.
"What (big processors) have done is tried to treat the merchants, the ISO and the dial-up world much as they treat the lease-line world," Wayco said. "We're much more sensitive to uptime in the retail world, the different types of hours in processing, the ability to get authorization at the merchant location -- because it's not just someone getting cash, it's someone getting cash who wants to spend it at that location."
Lynk's approach is paying off in satisfied customers. "We've been very happy with them," said Michael Deutsch of Flash Cash ATM, a Barrington, Ill.-based ISO . "Their reporting has been accurate and they pay on time, promptly. They've also given quick attention to customer service issues."
The company will even manage terminals for customers who need such a service. According to Lynk, it has customers who make a profit with 300 transactions a month.
Lynk's software development has been geared toward the retail world as well. Instead of taking a banking product and modifying it, the firm developed its own product, one without bells and whistles that aren't needed in retail deployment. Lynk also doesn't handle any gateway processing to speak of, which improves response time.
Smaller processors understand that timeliness and accuracy are crucial in the ISO market.
"We feel that we are better able to respond to the ISO's needs on their terminals for information," said Ron Schuldt of RBSA, Perakh's processor. "They need to know dead-on how much cash has been dispensed, and what the status of their terminals are. We've developed a platform for delivering timely information to the market."
Carrollton, Texas-based RBSA, like other ISO-oriented processors, has had to use some creative thinking for off-premise deployments. Among the first converts to dial-up, smaller processors are also early adopters of technologies like Cellular Digital Packet Data (CDPD), a form of wireless telecommunications.
"We were the first to get the CDPD option up for Triton," Schuldt said. "We got those up for some of the gambling ships off the coast of Miami. Antenna placement is very important on that to get the signal out."
One-stop shopping
The market for processing ISO transactions is attractive enough to draw new entrants like Nick Bergiadis, who is establishing a company that will cater to ISOs. The firm, Kybernan Payment Systems (currently a third-party deployer itself called System One), is enlisting the help of ATM veteran Del Tonguette, now a consultant with Actoras Consulting Group.
Tonguette plans to bring a "one call that's all" direction to the enterprise -- any calls from ISOs shouldn't require more than one call to resolve. This type of thinking is necessary, he said, because smaller deployers are getting ignored by the larger processors.
"And yet, there are still 9,000 or so community banks out there, and I don't know how many ISOs. There's a tremendous market for a processor whose sole objective is to serve this market," Tonguette said.
"We're going after smaller to medium-sized deployers. A lot of the bigger processors, unless you can bring on 100 machines the first year, they don't even want to talk to you," Bergiadis noted. "It's basically a PC-based processing service, very simple to use. You can bring your machine online in less than 10 minutes, versus waiting upwards of a week. We'll be running a server, but be directly connected to regional EFT networks."
Chino Hills, Calif.-based Kybernan also plans to meet the cash service needs of ISOs and small financial institutions.
"We've made arrangements with a couple of banks for cash services for very competitive rates for these smaller deployers, so they won't have to borrow a million dollars for vault cash," Bergiadis said. "They're not going to be paying prime plus 4 percent -- instead prime plus 2 percent."
Kybernan aims to be a one-stop shop for ISOs. Deployers won't have to seek out all of the services to deploy their machines, and can concentrate on marketing themselves to locations instead.
"Some of the other ISOs won't have much of a name to compete for location, but we plan to group our ISOs together under the Kybernan brand," Bergiadis explained.
Many ISOs appreciate this type of turnkey service. Neil Clark of Billings, Mont.-based ISO ATM Express said that his processor, USPI, "really set up all of the contacts we needed, as far as a sponsor bank and the networks when we first started with them."
ISO-friendly account handling rates highly with Clark as well. "We don't have all the extra fees associated with (account changes); we have a pretty standard rate. We also get daily surcharge settlements, as opposed to monthly."
Been there, done that
Ed Bourgeois of Automated Technology Machines is working to carve a niche in the ISO processing field. The New Orleans-based company now drives about 500 terminals in 33 states. With experience as an ISO himself, Bourgeois knows exactly what sets his firm apart.
"The big guys are good processors, but in terms of getting something unique, or different, or quickly, they're not responsive. We used to process through Deluxe Data, but we wanted phone cards and were told 'talk to us next year,' " Bourgeois said.
ISOs need quick response time, Bourgeois stressed. "They'd love to take an ATM in the back of their pickup truck, drop it off, plug it in, call in to the processor, and bring it up live."
ISOs want and need their processors to be among the first to adopt new EFT technologies, whether it involves settlement issues or bringing up a new type of terminal. "They look to us to be their expert," Bourgeois said.
Bourgeois said that more and more ISOs are finding it difficult to get cash for the ATMs, and that larger processors typically do not provide vault cash.
"We've got a number of affiliations with banks that provide vault cash," he said. "So for an ISO we can do everything from installing the ATM for them, bringing it up live, to providing the network connectivity, the sponsorships to monitor the ATMs, dispatching first and second line and vault cash."
Bourgeois' company provides a "menu" that clients can select from in terms of the services they want. Each service is priced separately. "If they just want us to drive a terminal like EDS, that's fine, and that'll cost nickels a transaction or whatever," he said, "but if they want these other services we can provide them."
Having former ISO personnel involved in processing has other benefits as well. "I'm not going to say we're at the level of de facto consulting," Bourgeois said, "but we certainly take our ISOs under our wing."
Certain names keep cropping up in discussions of third-party processors who cater to the ISO market, because successful players focus on high level customer service. Alik Perakh put a fine point on this fact when summing up his experience with RBSA during the Parris fair.
"This is something that would not happen with EDS. Knowing each other by first name helps when trying to work through problems. The bottom line is the personal relationship," Perakh said.
Target for takeover?
The success of these processors in serving the ISO market will no doubt attract the attention of larger competitors over time. Some smaller companies view this as a measure of success, others as a competitive issue.
Bourgeois, of Affiliated Technology Machines, said, "I don't think we're on the big guys' radar screens yet. We only began processing with third-party ISOs and community banks within the past year. We're clearly starting to hit the radar screens of our target customers, though, because we're marketing the service now."
Schuldt, of RBSA, is a bit more cautious in assessing the field. "We're popping up on the radar screen of some of the larger processors now that we have gotten established and are running more ATMs."
Bergiadis, founder of Kybernan Payment Systems, seems to relish the prospect of attracting such attention, even while maintaining his ISO focus.
"As far as being a buyout target or threat, we want to become a larger processor, but we can do that and still cater to ISOs and smaller FIs," Bergiadis said. "At that point, we probably would be a competitor or buyout target for one of the larger processors. I don't know how many ATMs we would need to have online to become a target, but eventually we will."
