ISPCON: An ISP Industry that Processes Credit Cards

Charles Wu and Layne Sisk say that ISPs can now serve a greater number of small businesses and cut out the credit card middle men.

by Alex Goldman ISP-Planet Managing Editor [November 11, 2008]

Orem, Utah-based ServerPlus is an ISPCON regular. The company, founded in 2000/2001, provides a variety of services to ISPs. As the ISP business gets tougher, ServerPlus does what it can to stay ahead of the game.

So I'm checking in with Layne Sisk, president of ServerPlus, to find out what's new. The economy is tough, but Salt Lake City's tech suburbs, a corporate center of excellence dating back to the founding of Novell and WordPerfect, is doing better than much of the rest of the country.

The key to gaining ground even in tough times is to always be offering new services. ServerPlus continues to work on its relationship with nearby partners PowerCode and Alianza to provide VoIP that works at every ISP, including wireless ISPs (see Alianza Opens Channel, Hopes to Reach Smaller ISPs).

"We would like to be a one stop shop for wired and wireless ISPs," says Sisk. He's looking into adding hardware distribution to the VoIP, help desk, and other services he offers.

IP Pay
Sisk is very enthusiastic about IP Pay, the service that Charles Wu of CTI discussed in detail at Spring ISPCON. "When we moved our own merchant processing to IP Pay, we saved $1,000 per month in credit card processing."

Now Sisk is using the IP Pay channel program to sell credit card processing to his customers.

Is he worried that cutting out middle men will increase the risk of fraud? "No. The reporting is the same."

Sisk is most enthusiastic about Wu's understanding of the way he does business. "We bill for a bunch of ISPs. We need to have a unique name for each ISP. We need that ISP's name to show up on the customer's credit card bill. With other merchant account providers, you need to open a separate merchant account for each ISP. IP Pay allows us to bill as many different names as we want to a single merchant account."

Sisk says that when he explains this capability to prospective ISP customers, they're ready to sign on at any price, and that the IP Pay discount is just an added bonus.

How it works
So I call Charles Wu to learn more about IP Pay. He points out that the ISP industry does not register on the radar of most merchant account companies. They're more interested in gas stations and retailers and restaurants.

In an e-mail, he writes:

"Traditional Credit Card processors still view E-commerce as a high-risk emerging market. This industry barely registers on the radar for large incumbents like First Data, RBS WorldPay, Chase Paymentech and TSYS, Instead, they outsource "gateway" services to a variety of third-parties and resellers like Authorize.Net and Paypal.

There are many factors that determine the discount rate that is charged a merchant for the privilege of accepting credit cards. The potential risk for fraud in the card-not-present payment processing space is one of the chief drivers behind the determination of this rate.

The ISP business model differs dramatically from the traditional telephone-order catalogue/e-tailer in that the nature of the business results in a large number of repeat recurring transactions billed on a monthly basis. 95 percent of the ISPs monthly credit card transactions are from existing customers who use credit cards to pay their monthly recurring Internet, phone or TV bills, while 95 percent of an e-tailer's transactions are from new customers who are purchasing something for the first time. From a risk analysis standpoint, it obvious that the probability of fraud and chargeback is much lower for recurring as opposed to new transactions.

In lieu of this, the Visa and Mastercard have developed specialized "Telco" credit card programs that apply towards recurring transactions and address the specific needs of the Telecom industry. The larger players like Verizon, AT&T and Comcast have enough volume to deal directly with the Card Association and generally participate in these programs.

The smaller guys, the ISPs, CLECs, phone, and regional cable companies ranging from small companies like ServerPlus to medium sized organizations like IKANO, get lost in the larger pool of e-commerce and mail/telephone order retailers. These companies utilize third party gateways like Authorize.Net who forward the transaction information to a First Data front-end for processing and are thus categorized into a common "high-risk" e-commerce pool.

Although there currently are a variety of resellers and gateways that service the ISP space, IP Pay is unique in that it offers a complete gateway, front-end processing and back-end settlement solution custom tailored for this space. The specific Visa/MasterCard requirements for clearing enhanced data required to participate in this programs require a level of control that is impossible to maintain when trying to coordinate multiple third party vendors, IP Pay is one of the only players able to offer this solution to this space. IP Pay is able to profitably deliver this offering due to the fact that it is a bundled product line within CTI which allows it to leverage shared resources to create an economic scale model that a stand-alone merchant processor would be unable to sustain."

There's more to it, of course. The credit card transactions need to flow seamlessly through your billing system. Wu says that IP Pay has integrated its solution with Platypus, PowerCode, Freeside, and Optigold billing systems and is working with other ISP-focused billing service providers.

So I talk to Grant Spradling, product manager for Tucows' Platypus Billing System.

Spradling says that he appreciates the fact that IP Pay answers the phone. Many readers of this website have the same advantage over the phone and cable companies: you answer the phone and they do not.

"With IP Pay, we know that someone will work with us to solve any customer problems," says Spradling. "I think ISPs are going to be pleased to have a point of contact at Platypus and IP Pay who doesn't point fingers at the other guy."

Spradling says that the IP Pay relationship offers reduced costs for ISPs and that in the future, he plans to be able to offer extra services. For example, tracking expiring credit cards can be a hassle for an ISP. Spradling, working with IP Pay, hopes to give ISP owners an alert or a list of credit cards that are due to expire soon, helping the ISP be proactive. Providing this service is obviously possible (as opposed to, say, IPTV with caller ID for incoming phone calls, which is technologically complex).

Did Spradling have to change the Platypus software to accommodate IP Pay? No, he says. Platypus has been processing credit cards for years.

Spradling has a clear idea of what customers want. "Our ISP customers consider credit cards to be like a commodity, in that they want to charge credit cards and get the lowest rates and have no technical problems. We're focused on helping our customers provision services and get paid for them."

Credit cards are a key component.

The big picture, Wu says, is that companies like CTI and ServerPlus and Tucows that provide services to the ISP industry need to increase the breadth of their offerings to help their customers grow. "Many are saying that the ISP market is saturated and declining. In fact, many of our competitors have moved on from the ISP market and are trying to penetrate new verticals such as government or healthcare."

The solution, Wu believes, is to sell more services (in bundles) to your small business customers. "At many retailers, you cannot replace the phone lines without also offering a fax solution and a credit card solution. If a restaurant has four phone lines, it will have one for the telephone, one for the fax machine, one for the credit card point of sale device, and a backup line for the credit card point of sale device. Retail VoIP providers are getting killed because they cannot do credit cards. If you can’t provide an IP-based processing solution, your customer will need to keep two POTS lines with the incumbent."

The electronic payments industry is huge. If Wu can help ISPs obtain a part of that market, he says, the ISP industry will grow, and, "we'll bring the ice sculpture back to ISPCON."

— End