Kimmykims Thoughts on 3rd party billing et al

[Nickatilynx]

Kimmy found this post in another thread and thought it warranted its own thread.

Hope you don't mind.

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For someone to successfully start a new processor, they'd have to be reputable, have big bank, have passed the IPSP process with the card associations, and be able to market.

Could it be done? Maybe. Will it be done successfully? No.

Jettis is a perfect example of this. I was working at CQ for Ken when he launched Jettis. At the time he didn't want to do third party, the only reason he did was because a few people bugged him to do it and it started out as a favor. But Jettis was late to the game (and remember this was '99), DMR had just gone under, Epoch was issuing promissory notes instead of checks, and the card associations had much, much looser rules about everything, and Ken Lawson had the respect of the entire industry.

Consequently as things got tougher, Jettis made the decision over the years not to aggressively court third party business or to offer some of the processing tricks (while perfectly within card association rules) that other processing companies allowed. The third party portion of their business never grew at a pace that would have given them the business that an IBill, CCBill or Paycom generated, and thus made it a much less important part of their business. Ken's never been accused of being stupid, especially when it comes to business, and selling that portion of his business to Paycom was a well thought out decision he made in order to focus on what makes money for Jettis with the least amount of headache and hassle.

There are no more Ken Lawson's in this business that will start processing companies. Sure, there are people that have worked for other companies who are attempting to process transactions, but with the current situation the way it is, both in rumors and actual card association policies, I don't see them creating a successful business solution as an IPSP. Most of them attempt, imo, to subvert the rules, do end runs around the banks, etc. And that's the kind of thing that sets such a business up for failure before it even gets its house in order to start running any kind of volume.

The thing I find most sickening about this business, as always, is that people just love to rumor monger and talk about impending doom. It's just like rain in California, people can't drive because the sky is falling.

Any processor, no matter how stable, exists at the whim of their acquiring bank. Whether it is your own merchant account (as we saw with the First Data wholesale dumping of adult accounts last year) or as an IPSP, your strength is only as good as your banks backing of your business.

My advice hasn't changed over the years. Diversify. Spread your rebills out among any and every method you can find that's somewhat trustworthy, and tailor your join pages to your surfers. Offer any form of regional billing solution to a non-US surfer that you possibly can. Offer check joins to US surfers as a primary method of payment. Yes, I understand the returns on checks are higher than the chargebacks and refunds on credit cards. But until the FDIC starts regulating checks in the same way that credit cards are regulated, there is never any worry that you'll lose your rebills. Get your own merchant account and spread some of the risk off to it, with your prime transactions. That's nothing different than banks or other lenders do -- they pass their best loan risks to certain backends with lower transaction fees and interest and the sub-primes are sent elsewhere and charged more interest because they are at a higher risk for default.

This isn't rocket science, it's a simple matter of risk analysis and doing what's best for your business for either a long term or short term strategy, depending on which way you think about your business.