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Does PayPal Initiative Herald A Rush To Embrace ISOs?

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PayPal Inc.’s embrace of ISOs could signal a trend among the payment industry’s new or expanding players -- but not necessarily right away.

Other players that are new to payments or are expanding their payments efforts may not rush to follow PayPal’s example of using ISOs to promote their products to merchants, says Mary Winingham, an analyst for Omaha, Neb.-based Planet Group Inc.

“I think the others are going to wait and see how PayPal fares,” Winingham says of such companies as Google, LevelUp and Dwolla.

At the same time, however, tech companies new to payments are scrambling to join the Electronic Transactions Association, a Washington-based trade group where ISOs account for more than 50% of the member companies.

Fifty companies have joined the ranks of the association since May, when Jason Oxman was named the group’s CEO. They include Google, Groupon, Microsoft, Ericsson, Neustar, Chase Paymentech, Gemalto, Boku, Payvia, Payfone, Tabbedout and BilltoMobile.

The association has been recruiting tech companies to help expand the industry and to foster networking opportunities for established members, according to Oxman.

Whether or not those contacts help forge new relationships between ISOs and tech companies, PayPal is forging ahead in that regard, says Matt Watts, PayPal senior manager, alliances.

“ISOs are already important to us,” Watts says. “We’d like to work more closely and talk to other ISOs. ISOs are looking for other ways to add value, and that’s a compelling reason to partner with PayPal.”

PayPal has publicized its desire to work with ISOs through an advertising campaign in trade publications and a presentation at last month’s Western States Acquirers Association 2012 Conference in Huntington Beach, Calif.

ISOs should share PayPal’s enthusiasm for a working relationship, Winingham maintains. The acquiring industry can spread the word to merchants about how PayPal is gaining broad offline exposure. It will soon have the potential for acceptance anywhere that takes Discover cards.

Offering that type of new service gives ISOs and agents reason to contact merchants, and it gives merchants a reason to listen to the ISO’s sales pitch, she says.

“They can go in with one more conversation that’s different from every other conversation they’ve ever had,” Winingham says. “That’s going to be a great opening for ISOs. I think they’re going to be delighted.”

Besides PayPal’s offline acceptance, ISOs can offer merchants the Payflow gateway, Express Checkout and Bill Me Later, which increase sales volume and order size, Watts says. PayPal has 113 million active users, and have lowered buy rates, he notes.

 

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