The ISO’s Special Realm

Transaction Trends is posting an article I published. You can find a direct link here or read the article below on my take with ISO’s as a strategic channel for card-linking.


There was a time when ISOs sold magnetic-stripe “loyalty cards,” but demand for those loyalty cards appeared to wane. However, that falloff was not the result of reduced demand but rather poor execution: Customers just did not want to carry another loyalty card. Today, loyalty is in increasing demand, and loyalty provider startups are selling loyalty devices and apps directly to small to medium-sized businesses (SMBs), to the exclusion of ISOs. Thus, two questions arise: Why are ISOs no longer in the loyalty game, and is there an opportunity to get back in? While it appears that ISOs have ceded loyalty to the startups, in 2016 card brands, terminal companies, and Software as a Service (SaaS) loyalty providers are bringing to market terminal integrated card-linked loyalty solutions that vastly improve and streamline the customer loyalty experience for merchants and customers alike—and ISOs are the only ones that can sell them.

The terminal is the ISO’s special realm. If it touches the terminal/point of sale (going forward we will use “terminal” to reference both), the merchant is calling the ISO. If ISOs want to sell loyalty, loyalty must touch the terminal. It makes perfect sense for loyalty to be tracked at the terminal because shopping is the key metric.

According to Forrester Data’s recent “Forrester Wave: Customer Loyalty, Solutions for Midsize Organizations, Q1 2016” report, “Our data shows that improving customer loyalty is likely to be a top marketing priority for 80 percent of decision makers at midsize organizations in the next 12 months. As a result, they seek loyalty solutions that help companies identify and track customers, reward behavior, and drive deeper engagement and relationships.” The loyalty market is big, and SMBs will pay for it.

Who Wants to Download a Loyalty App?

The ISOs’ execution failure opened the SMB loyalty market to firms like Belly, which does not touch the terminal. Belly’s ($99 to $200 a month) product is a separate device that sits next to the terminal, taking up counter space, with the Belly brand standing between the merchant and customer. As with many other loyalty companies, Belly requires the merchant’s customer to download the Belly app to redeem the reward. Because these devices do not touch the payment terminal, the loyalty companies do not need ISOs to sell to the merchant. They sell direct.

Notwithstanding the attempts of the loyalty startups, there is still too much friction with existing loyalty offerings. In addition to not wanting to carry another loyalty card, most SMB customers will not go online and enroll, download an app, provide their mobile number every time they shop, or print a reward. Customers are lazy—and rightfully so. Earning points and redeeming rewards should be as easy as simply paying with the credit or debit card already in their wallets.

Terminal Integrated Card-Linked Loyalty

Terminal integrated card-linked loyalty offers both merchants and their customers a superior, seamless, and easy loyalty execution by tracking loyalty with the payment cards customers already possess. With card-linked loyalty, every time customers shop and pay with their credit or debit card, they automatically earn points and redeem. No longer does a customer have to carry a separate loyalty card, download an app, provide a number with every purchase, or print a reward. The payment terminal, in effect, becomes the loyalty terminal, displacing any third-party device crowding the counter space. Card-linked loyalty becomes part of the payment process—and just happens.

A merchant’s loyalty program should be for the merchant’s best customers, with the goals of being easy and automatic, and increasing spending and frequency. This means the card-linked loyalty solution must empower the merchant to enroll its own customers, and the loyalty reward must be redeemable only at that merchant’s store. To make this happen, the card-linked loyalty program must be integrated into the merchant’s payment terminal.

As mentioned above, the merchant must be able to enroll its own customers. The single best place to enroll members is at the merchant’s point of sale. Once customers leave the store, getting them to go online to enroll and provide a credit card is almost impossible. But if the card-linked loyalty program is integrated into the terminal, linking the customer’s payment card to the merchant’s loyalty program becomes as easy as entering a mobile phone number into the terminal, one time. By integrating with the terminal, the SaaS loyalty provider sees the payment card token in real time, and, if the token is not in the loyalty program, the SaaS provider delivers a prompt to the terminal to enroll the customer. Only if the terminal is integrated with the SaaS loyalty program is it possible for the enroll- ment prompt to occur. But once integrated, enrolling the merchant’s customers is easy.

Today, card-linked offers are being embraced by Facebook, Twitter, Microsoft, and credit card issuing banks in a coalition format. (To learn more about card linking, go to Presently, card-linked offers are not integrated into the terminal, and, as a result, the discount can only be put back on the credit card statement or in another currency (e.g., airline miles). If a merchant wants its own loyalty program (as opposed to a coalition), then the loyalty reward should be the merchant’s reward, only redeemable back at the merchant’s terminal. Requiring the reward be redeemable back at the merchant drives another visit back to the merchant, which should be the goal of every loyalty program. With terminal integrated card-linked loyalty, when the customer pays with the enrolled card, the reward is automatically deducted from the total bill and reflected on the terminal printed receipt. It is a seamless and easy experience for the loyalty member and the merchant.

Terminal integrated card-linked loyalty automates the loyalty process, and it is the easiest and best merchant-centric loyalty solution in the marketplace. And there is only one industry that should sell it: ISOs.

Who Better To Sell Than ISOs?

SaaS companies, card brands, and terminal companies are or will be offering terminal integrated card-linked loyalty in 2016, and the ISO is the channel that should sell it. In addition to offering a complementary loyalty revenue stream, ISOs will sell terminal integrated card-linked loyalty to reduce churn. Merchants that have thousands of members in their terminal integrated loyalty program will not want to switch payment processor/loyalty providers.

Because card-linked loyalty touches the payment terminal, the exclusive realm of the ISO, the ISO is the logical sales channels for reselling terminal integrated card-linked loyalty. Welcome back to the Loyalty Game.

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