The Payments Experts Podcast
Expert payments attorneys discuss the electronic payments industry from a legal perspective.
The Payments Experts Podcast
The Future of ISOs: Adapting or Dying? | With Special Guest David Leppek of SignaPay | PEP042
The traditional payment processing landscape is undergoing seismic shifts, and this provocative discussion with David Leppek, CTO of SignaPay, examines what many in the industry have been whispering about: are Independent Sales Organizations (ISOs) facing extinction?
Major processors like First Data and Fiserv have been systematically pushing out their ISO channels, preferring direct relationships with software companies that now serve as the true acquiring partners. This consolidation creates a troubling gap in merchant services - who will advocate for higher-risk merchants when ISOs disappear? The legal experts at Global Legal Law Firm alongside Leppek explore how this shift might drive legitimate businesses underground or toward less regulated payment methods.
The conversation delves into card brand policies that increasingly favor issuers over acquirers, creating fundamental conflicts of interest in how payment disputes are handled. A fascinating case study emerges around Visa's acquisition of Verify, which transformed a free chargeback prevention tool into a $45 per inquiry service - effectively killing a product that helped merchants avoid costly disputes.
Cryptocurrency looms as a potential disruptor, though the panel debates whether its limited adoption after 15 years suggests inherent limitations or active suppression by incumbent payment networks. As one panelist memorably puts it: "My worst investment was getting into crypto. My second worst investment was selling it."
For payment professionals, merchants, and financial technology innovators alike, this discussion illuminates the power dynamics reshaping how money moves in our economy. The future of payments may depend less on technology than on who controls access to the networks where value is exchanged. Ready to navigate the changing payments landscape? Subscribe to the Payments Experts Podcast for more insights on how legal and technological shifts affect your business.
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**Matters discussed are all opinions and do not constitute legal advice. All events or likeness to real people and events is a coincidence.**
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Payment processing is undergoing a fundamental shift as major processors push out ISOs in favor of direct relationships with software companies, leaving high-risk merchants increasingly underserved and potentially driving transactions underground.
• Independent Sales Organizations (ISOs) face extinction as First Data, Fiserv and other processors cut ties with their sales channels
• Software companies have become the new acquiring partners, eliminating the need for traditional ISO sales forces
• Banks lack appetite for servicing high-risk merchants despite having the capability to do so
• ISOs traditionally serve as merchant advocates, helping businesses navigate complex compliance requirements
• Card brands' tightening fraud policies across multiple BINs make it harder to serve merchants with higher chargeback ratios
• Visa destroyed their Rapid Dispute Resolution system by acquiring Verify and turning a free service into a $45 per inquiry fee
• Chargeback systems show clear bias toward issuers over acquirers, creating conflict of interest in dispute resolution
• Cryptocurrency adoption remains limited despite being around as long as Uber
• Card brands likely want to position themselves within crypto ecosystem rather than be displaced by it
• Innovation in payment processing often gets shut down when it threatens established revenue streams
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A payments podcast of Global Legal Law Firm
We used to fight about this all the time, because people would ask me questions like what about crypto? And I'm like ask James, because I'm just not into it, I don't see it, and most of it was because it was speculative. But he would say, oh yeah, it's doing really well and I would say, yeah, what can you spend it on, bro? Like it's not fungible at all, like where are you going to spend it?
Speaker 2:That's great gonna spend it like that's great, that's a bigger number in the ledger.
Speaker 3:You did okay. In the end, though, james, I have. What I say is like my worst investment ever was getting into crypt, or no. My second worst investment was getting into crypto. My worst investment was selling it. Yeah totally.
Speaker 4:You don't own any crypto any longer, only.
Speaker 3:Only the stuff that I can't get out.
Speaker 2:Welcome to the Payments Experts Podcast, a podcast of Global Legal Law Firm. We hope you enjoy this episode. Today we have in studio managing partners of the law firm, James Huber, as well as Christopher Dryden, and special guest joining us remotely, David Lepick, Chief Technology Officer at CignaPay. David, welcome to the podcast.
Speaker 3:Dave, when we were talking you sent over, we were banging around topics on this and I actually the one that stuck out to me is you said death of an iso, like is. Does the iso still exist from our perspective? Yes, because it's. You know 90 of our clients, but over the last couple years in particular this is what I've been saying, you know with first data pushing people out, card connect, continue to push them out. It's weird that the biggest processor in the world seems to not care at all about their entire sales force.
Speaker 1:Yeah, I think that's. The acquiring partner today is the software company. So the question becomes why do I need a salesperson for the software company? Maybe, I don't know, really interested in your take on it for sure.
Speaker 4:Well, 90% of your customers. It's 100% of my experience and career. But it demands some attention because T-SYS is now 99% direct competitor with their ISOs Fiserv, as you said, have been essentially eating their lunch forever.
Speaker 1:Yeah, no, no, no. We saw a long time ago where it was sort of like that when payment tech split apart a long time ago and First Data took the ISO channel and then they just jettisoned it off and nobody wants an ISO these days. What do you think the cause potentially is for that?
Speaker 4:Well, I mean, the cause is just everybody's swimming upstream. The problem is that each one of us, as we sell our ISO, end up saying, okay, let's go ahead and start it over after we've waited off a non-compete. And when we do it, we're finding that it's harder and harder to go ahead and strike the same kind of deals because they just don't exist anymore.
Speaker 3:Right, yeah, I mean I've seen it in anybody who wants to be a FSP agreement, like the FISERV FSP agreement. I look at people I'm like why would you even sign this? The pricing's horrible, retail deals better than this. But they want to be able to board their own merchants. So you know, we've been looking at clients who are sitting on you know an old first data, you know finals called a first data agreement and I'm going this is worth a lot of money if you can do it.
Speaker 4:But then they get in your way and they don't even really let you do that either.
Speaker 1:So you're exactly right, though you your way, and they don't even really let you do that either, so you're exactly right, though You're almost at a point where you have to seek out the legacy agreements that you can still kind of back door into. Yeah, I actually see that because I work on the transaction side and where people have had a difficulty especially technology getting direct deals, they're starting to buy their way into the market and the interesting just to directly board. And the interesting part is is that historically it's hey, I want to get into an FSP agreement, wholesale ISO, I want to carry risk. Now it's gotten to the point where I want to buy a retail ISO just so I can board because I can't get a direct deal.
Speaker 4:It's the old story of buying a bar just to get the liquor license.
Speaker 1:Yeah, totally, and I guess my question would be is what do you see as market forces really pushing that? I mean, is it like you know you have the benefit of working what I call having worked inside right? I mean, you have a much better perspective and view of the upstream entities than James and I do, because we've never had the benefit to work directly for them. We're always on the other side of the fence and so we can only surmise a lot of times and how things operate or what they look like on the interior. But having had that perspective and knowing that entity a little bit better than we probably do, what do you think is really driving that?
Speaker 4:I mean, I think each one of these companies have their own ideal client and as that client evolves with their capability and the various channels that they've purchased or pursued, it becomes more and more difficult for the historic guy to come in and say I'm just going to go ahead and set up a brand new deal and start with relatively little capital to do something that isn't just very focused on one particular vertical.
Speaker 3:Yeah, I've seen that a lot of preferential treatment of we've got our guy, this is our honeypot, we're betting the farm on them. And I've seen that from the banks in particular. Yeah, you know, even the, the, the banks that were big for a minute, got in a whole bunch of trouble. They've said I just like this person here and we'll say he'd be like this person. They're the one that caused all the issues. They're like right, but you know we made a whole bunch of money and now we've increased their prices and I mean the nice part is you know everybody's getting better over time, right At you know limiting liabilities and things like that. You know getting good merchants in. You know getting bad merchants in but making them look good and things like that.
Speaker 1:Or bad ISOs in, and learning, underwriting and risk associated with particular verticals. Right, I mean, we've seen banks literally take on an ISO with a lot of over-promise, under-deliver, just to glean the system that they use in the vertical that they primarily focus in.
Speaker 4:I think I know exactly what you're talking about.
Speaker 1:You may yeah.
Speaker 3:Yeah, yeah, we've seen that a couple of times and I've actually been warning people a little bit about this of like, yeah, they're promising you everything, they're going to keep you on here. But I would think, you know, I always kind of wondered the banks well, you know, banks don't like to really do anything except for lend money but I've always wondered you know why they're not capitalizing on this more? They could be making so much more money and they could be doing it themselves, because the rules say they're actually supposed to be doing everything, or a whole lot more than they do, and they just outsource it all to these people, you know, to the ISOs. And I'm wondered, you know, are the banks, are the banks moving that direction? Is that one of the reasons?
Speaker 4:Well, if you think about the history of why an ISO exists in the first place, it's because of the fact that the bank isn't a very aggressive business. Having once worked for a bank myself, I remember reading D Hawk's book on the creation of Visa that this is a place where a lot of people go to retire. You take a job at a bank and you just sleep the rest of your life. I'm not that type of person, so I didn't last very long at a bank, but a lot of times I think the reason the ISO is chasing these different verticals is because the banks won't. You're right, the bank has the capability to do it. There aren't a lot of banks that have the appetite to do it Right.
Speaker 3:I think another I mean another problem for the ISO is a huge problem we don't have to get too far into it because we talk about a lot on this podcast is it's not just the lack of getting good terms for, let's say, a startup ISO. There's also, you know, a whole bunch of other things. But one of the biggest problems that the ISO is having right now and it's always been the problem is where to make their margin. And with the surcharging and the cash discounting rules making it way harder to make a margin, I guess where I want to go with this is what does it mean? If the ISOs can't survive, what happens to the industry?
Speaker 4:Yeah, so that's a great question because as these processors are going upstream and they're building more and more direct feature functionality as software becomes more a component of it, you get more of these entities that are just looking for the merchant to come self-sign up, self-manage, and I tend to bet on the entrepreneur that they're going to come up with better ideas and better ways to go ahead and reskin a business model in a way that draws more attention in. So I guess, optimistically, I don't believe that the ISO ever will die, but I do believe that people are actively working in a way to try to limit the ISO's opportunities.
Speaker 1:Yeah, I always go back to the fact that if you look to see in the progression of the ISO how it went from sales to more full service, I still think that there's a lot of those ancillary services that go with the processor relationship all the way down to the merchant, where they just do it horribly in comparison to the merchant. And so unless you can see some sort of change as to, I mean, servicing is the big one, right? I mean, you know so many times you know, will Fiserv pick up the phone? Will the person have some sort of knowledge base or just be someone in a call center who has no idea about what Fiserv really does? Can they really assist? How many people do they have to put that ticket up to for a change to occur?
Speaker 1:Like we're talking about electronic payment processing here, when something goes I mean, look at the Clover debacle, right, I mean, like Fiserv and Clover it was a great idea, but at a certain point in time that titanicness of Fiserv got in the way of really adequately servicing equipment which was necessary for a merchant to operate. And so I think where the opportunities have generally landed for the ISO is where the processor and the bank. But the bank doesn't do much, but the processor just doesn't perform well operationally, and so I still think that there's always that place. I just don't know how that stays coupled with sales to make sure that that component is there for true margin.
Speaker 4:Yeah, I mean again. I believe that the entrepreneur is going to come up with the way to make a model that works. But it's more and more difficult when you've got the consolidation throughout the industry that makes more and more of these technical solutions just part of the big animal.
Speaker 3:I see a huge problem being that a lot of merchants won't be able to get processing. A lot of online merchants well, every merchant's online, but I've been told that visa they're lowering the fraud caps so you've got to have way more low risk business. But all the low risk business will go. Isos are probably start taking it at a loss leader, which a lot of people do already. But all that business is going to self sign up software and everything like that.
Speaker 3:And where the ISOs nowadays thrive is helping these underserved merchants who have trouble getting processing. They have a lot of chargebacks. They need help. You know mitigating that, you know beating friendly fraud and things like that. So all of those businesses I mean there's a lot of merchants out there that are actively looking for processing all the time and they think they know how to run their business but they don't. And so where the ISOs and the advertisers and the affiliates kind of fill the gap in there a little bit, I think 99% of the latter is actually a problem.
Speaker 3:But where the ISO has really strived is being merchant's advocate, explaining to the banks hey, this business is actually OK. A lot of times we get hired for that of. Here's the legal opinion letter of what these guys are actually doing is fine. You know they're not transmitting money because they never take it, and things like that. So I think in that area, this could really hurt the you know, the economy in whole of you're having a lot of people missing out on transactions and when 75% of our economy is on consumer spending, this is something that you really shouldn't be messing with.
Speaker 4:Yeah, no, I agree, but you make a great point when you talk about Visa in particular and the rule changes that they made to chargebacks. I'm not an expert on what those rules are, but as I understand it, they're starting to combine it across the bid and so a big aspect. A lot of the ISOs have done over the years have been juggling and managing their bins with their individual bank relationships for chargeback to sales ratio. Well, now, all of a sudden, you're being evaluated across the board. It's going to make it that much harder for somebody to go ahead and facilitate the merchant that, due to their industry or other idiosyncrasy, is going to find themselves in regular problems Travel, for example.
Speaker 3:Right, and think of the banks that have the higher tolerance for that. They're going to be out of the business, exactly, or out of the business. They'll still be in business, most likely.
Speaker 1:Or it'll force people to go underground. I see that as an issue, too, where, you know, I watch all of these technology solutions back end into card payment acceptance through somebody like PayPal or Stripe, but there's really like a lot of merchant of record whatever that term may actually mean Right, but there's a lot of merchant of record aspects that are taking place where people are basically money transmitting I mean far more than I think that they ever have before and I see the lack of flexibility to allow merchants and ISOs of space to find processing being just another driver of people trying to find problems with the architecture and the system to circumvent it, and that's not going to help things. I mean, I think they're seeking compliance and what they're going to get in return is a lot of people just trying to circumvent the safety protocols in there, and now, all of a sudden, you're finding things that you never even dreamed of, that were inadequate from a safety perspective or a fraud prevention perspective.
Speaker 4:Yeah, absolutely.
Speaker 3:I mean the agents. Well, it's a good point because let's go down a level. The agent, their role is really the operator at the switchboard, connecting the right people to the right place, because there's payment processing out there for everybody. Maybe not, I don't know, coke dealers get processing anywhere.
Speaker 3:They might call it someone yeah, they might yeah, so, but there's processing out there for for everybody. So you can't and I looked at you specifically why so? But if they're, if that they're shut out of the system, you know, because there's no margin for them anymore. There's no way for them to even get an agreement again. The problem is you're going to have people not having no idea how to start a business, where to get the payment processing, and then, yeah, maybe it goes underground and it goes all to. You know the North Korea cryptocurrency. You know Right.
Speaker 4:This is a threat.
Speaker 3:By shutting down the ISOs, you are aiding terrorists.
Speaker 4:I love to believe that that's true.
Speaker 1:Me too, me too. Well, it's funny too. Like to touch back on something that james was talking about where you've got the, the real margin and and and what is being targeted by the iso to make money. You know, I saw for a long time it was understanding how transactions were processed and routed and you know, when we were talking about this, I loved it because you gave all of the subject matter topics of like hey, what should we focus on? And when I looked at it, I'm like we should focus on all of this because I think all of it is relevant. Right, I don't know how deep we can get in a podcast, but I think touching on a lot of the subject matter you raised was really important. But, like you were talking about Durban, too, 2 and did it miss the mark and is it really effective? And I agree with you, but I'd love to hear your thoughts on that a little bit more.
Speaker 4:Well, I remember Durban 1 and how angry I was that they're trying to make the argument that you can differentiate a regulated large bank from a non-regulated small bank for the purposes of a government-regulated interchange category.
Speaker 4:What it did is it threw a bomb into the industry, making everybody having to try to figure out a new way to go ahead and calculate how everything was going to go ahead and be billed, what the risk portfolio was, and at the same time, simultaneously encourage a merchant moving away from a more secure pin-based transaction to a less secure signature-based transaction where there are higher chargeback risks and other problems that come along with it. So the latest iteration of Durban 2, talking about having multiple credit channels for the credit industry I don't know where we've landed on it, but it we're going to take it and go home. Here's FANF. You can't take $9 billion out of the ecosystem and expect that they aren't going to make it up someplace else, and they ended up making $10 billion by going ahead and creating a convoluted billing mechanism that, to this day, very few people still fully understand.
Speaker 1:Yeah, I came across something. It's a little bit of a transition, but I came across something recently that I was surprised at. So we were doing some surcharge analysis and there was some communications between Amex and the merchant about surcharging Amex cards One. I look, I'm not an Amex cardholder. I didn't realize that Amex has a debit card. That was something that was very new to me.
Speaker 1:I always thought that Amex was solely credit, but the interesting part was that Amex, when I went and researched it, may be exempted from Durban on that level, because they were saying oh, you have to surcharge all the cards uniformly. And I wasn't even aware that they had a debit card. But then I also found out that they are. Because they're a closed loop system, they're most likely exempted from Durban in regards to surcharging a debit card. But I thought that that was really weird because most people's access to Amex is through the OpBlue program, through traditional processing with Visa, mastercard on the front end, and I thought that that was so strange that they could get exempted out through that program. So long as it's you know under what, is it under a million dollars for Amex Outblue on a processing annually. But I thought it was strange that your direct sales people don't have the same ability as what they're selling, you know who you're partnering with. I just thought that that was really weird.
Speaker 4:Yeah, amex has only had a debit card plus or minus some historical stuff in Europe since November of 23. And I would bet that if you were to take a list of all of the people who have an Amex debit card, 99% of them work for Amex.
Speaker 3:Exactly I want to circle back just to be clear. When we're talking about Durbin part two, we're talking about the Credit Card Competition Act that's being brought back up. And I want to circle back even further is I don't like the effect of the Durbin amendment one, but I liked the idea because at least somebody was touching this. At least we have one piece of legislation. Every time we give a presentation on what are the regulations that affect the processor and the ISOs and the cardholders and this and that the other thing. There's a couple kind of related to banking. There's really only one.
Speaker 4:So you're telling me you like regulation.
Speaker 3:I love regulation. We're attorneys we want if there's clear rules. I love the clear rules because then I'll tell you how to break them. But that's not true though.
Speaker 1:You're talking. There's only one attempt at federal regulation. State regulation's out there. I mean, California is crazy that we have something called the Beverly Song Act which has been around since, like I think, 19, late 1960s or 1970. And that's been regulating credit transactions for a long time and it's constantly updated depending on how the point of sale operates. I mean, there's a ton of laws around it and now with surcharge, you know it's gonna. I think that'll expand. I don't know if states will combine with one another to create some sort of uniform. You know, credit card or debit card processing is like they unravel federal, the federal apparatus. But there's other legislation out there.
Speaker 3:I mean, I just at the federal level?
Speaker 3:Yeah, there's nothing. And the other reason I like it is because he clearly sees that Visa and MasterCard are making way too much money and have a monopoly on it. Now you can see, kind of, how much money Visa in particular spends on lobbying, and I think they put just about everyone else to shame and I always use the comparison for the NRA, but they actually don't spend that much money, you know Visa does, though. Yeah, no, it's an insane amount, every single state, every single level, and that's why we are seeing that the state legislation, like New York, their legislation follows exactly what visa says for surcharging, and so we've made the argument in our complaint against visa of they're basically a state actor because they're sitting up here, strombolian the place.
Speaker 4:Yeah well, I mean, I think a lot of the original card brand rules fell along the lines of federal and state regulations, but then it kind of reversed itself, because when Visa was in a position of having to create rules that hadn't been considered at the state and federal level, they made up their own mind. And then they've gotten themselves into some trouble and happened to back out of it and change it, and for years Visa would tell you we're not the police, we're not the Visa police. They would look to the bank to go ahead and enforce it, which I've always thought was a huge fallacy because, as we've already said, the bank isn't very aggressive about doing anything. So Visa's coming into the bank and saying here's our program, please package it up and put a bow on it. And then Visa is mad that they're not enforcing those exact same rules when they themselves aren't aggressive enough to go ahead and pursue them.
Speaker 1:Well, they do if there's a profit motive for it, right? I mean, like it is amazing how much pushback I get when I do an agent ISO agreement and it talks about oh, you're responsible for all fines, well, which fine? Is it the fine that was initially assessed and oh, you won't show it to me? And is it the amount? Or is it the one that you negotiate after you take the original amount from my residuals, right? So yeah, I do believe that there's a lot of things that happen behind the scene that we don't have any sort of visibility on. Look, if it's about making money, they're going to keep it hidden and they're not going to say anything about it.
Speaker 4:Yeah, I think you're right. I mean, we all know of multiple cases where maybe somebody was fined and it just never made the light of day. And if it did make the light of day and if it did make the light of day, then it would stop it. I personally had an incident where a merchant was being fined for a credit card breach that was never actually breached no money was stolen, Nothing was ever lost and yet Visa fined them, the ISO put them on match and the merchant was essentially out of business.
Speaker 1:Well, it's the same focus with secret shoppers, right? I mean, a lot of people don't know this either. Like G2, I think it's wholly owned by MasterCard, right, and this is one of the primary tools to do web crawling to figure out, you know, are people actually in line with their merchant processing agreement? Are they subject to a fine? You know, like a ton of secret shoppers out there, and then the fines don't necessarily correlate to what the offending behavior is, and so I always wonder how much money visa is making outside of interchange, with all of the extra, and I I would say they're ticky tack, but they're really not.
Speaker 3:I mean, it's pretty extensive, yeah yeah, oh no, it's very extensive well, let's go when we're speaking of the the uh company, these companies being owned. I think it's actually a decent trans transition and jeremy was kind enough to put your topics. They're taped all. There's like five copies in front of us.
Speaker 4:You, you're welcome, james, yeah.
Speaker 3:So I'm interested in this because we work, you know, we deal with, you know, issues with merchants that have a whole bunch of chargebacks, of course being in the legal field. You wrote how Visa destroyed the rapid dispute resolution, or RDR as we call it, by selling it through the acquisition of Verify.
Speaker 1:Yeah, tell us what your opinion on that one, because I think you're right.
Speaker 4:Yeah, tell us what your opinion on that one, because I think you're right. Yeah, no, in the early days of VDMI, vmpi, vmpi, visa Merchant Purchase Inquiry, this was a free API. We could basically essentially create a webhook, have a listener and get notification that we're about to get a chargeback, and in select industries, you can go ahead and process the refund and say no, no, no, don't issue the chargeback. We've gone ahead and refunded this chargeback and for select industries where the cost of the chargeback is higher than the cost of the product or whatever the case may be, there are all sorts of merchants that would rather have paid that fee to do that. When Visa released it, we were one of the ISOs that coded to it and we sold it to our merchants as an advantage.
Speaker 4:About two years into it, visa starts coming back saying hey, we've decided we're going to start charging for this. And I'm sitting there, starts coming back saying, hey, we've decided we're going to have to start charging for this, and I'm sitting there raising my hand saying how much are you going to charge? And initially they're saying $0.05. And then I start asking who are you going to charge? And they said, oh well, the merchant. You don't have a relationship with the merchant. You have a relationship with the bank. Ok, we're going to charge the bank. Well, does the bank need to do a contract amendment with me, the iso? So they're being charged and I'm being them.
Speaker 1:Eventually they buy, verify and that five cents became 45 dollars yeah, the alert prices were psycho, right, I mean just to get an alert. It was like yeah, 40 for sure. Well, and it's such a revenue driver.
Speaker 4:They bought Verify and Verify had a revenue stream dealing with high-risk merchants, so they had to go ahead and justify Verify's cost structure right that could continue to use. This product now was one that was essentially committing some sort of horrible transaction almost fraudulent that they could afford a $45 per inquiry cost. Basically, it killed the product for all of my merchants. We had to turn it off because everybody would rather pay a $25 chargeback fee than a $45 inquiry fee chargeback fee than a $45 inquiry fee.
Speaker 1:Right, I actually heard of what I'll call SubISO that we represent. They were trying to get RDR turned on for their merchants and they wouldn't turn it on. Their upstream vendor wouldn't turn it on and I didn't know what that was all about. Is that something that now it's being made unavailable in its entirety?
Speaker 3:Maybe because there's blowouts on it and people don't pay it.
Speaker 4:Well, not to mention, remember, Visa considers the issuer above the acquirer, and so if you have an industry where one issuer is being targeted with a whole bunch of chargebacks that they're not going to go ahead and get the benefit of in the price they might decide, you're not qualifying entity for RDR.
Speaker 1:Yeah, explain that they favor the issuer over the acquirer. What does that mean for more lay people out there?
Speaker 4:Well, what I mean is that if an issuer, through any of the processes for mitigation of chargeback 3D, secure, vmpi or RDR end up costing the issuing bank more than the acquiring bank, they can just say look, we're not even going to let you qualify for this program because the cost to our issuing bank is going to be so high that it doesn't make sense for us to let you enroll in this program.
Speaker 1:But doesn't that show a show, a true conflict.
Speaker 4:It does. Yeah, aren't you guys the lawyers who would tackle that?
Speaker 1:Well, we try, but I don't know how many people listen to us on it Like it's. You know, I I I've said this for years in the chargeback regime that it's run by the card brands and there's a cost, there's a cost associated with it, there's all these fees around chargebacks. And yet if the data was available, I guarantee you that it would be far skewed in the issue, or the cardholder's favor Right in the issue, or the cardholder's favor right. And my elementary logic to that has always been well, how much money do they make on charging cardholders and how much money do they make on interchange? And there's a disparity between those two things and because of that disparity, there's always been favoritism to the issuing side.
Speaker 1:Now, that's just me talking. Do I have any proof of that? No, not at all, but it just seems logical to me that that's probably what's taking place. But I don't. I mean, I'm so far down into the weeds, potentially on that. I'm not really sure if people even understand what I'm talking about, but I do think that it's ironic that an entire section that is more prominent today than it ever has been of our financial services industries here in the United States is run by private, quasi public actors who have conflicts of interest that are apparent on their face and nobody's saying anything about it and it's not just conflicts of interest.
Speaker 3:You're promulgating fraud, you're allowing're allowing it to happen. I mean it's gotten a little harder, but in five, ten years ago we had one case. It was we were just local council for american express. The guy went on an eighty thousand dollar vacation across europe. Had him on video going into the hotel signature amex, it was.
Speaker 1:It was Amex, amex Exactly Going to hotels and they were still.
Speaker 3:He's still going, it's not me, it's not going to pay. And I think they eventually like, maybe pay like some small amount of it too, like he totally got away with it and so, yeah, so you're looking at that. You know they made all their money, made all their money. What do they care? And I'm going well, I have my card, you're supposed to be protecting me, and so you could go under the guise of oh, I'm protecting the consumers from fraud because you know you use your car and you should be safe. But what about all the businesses that are getting defrauded? You know we've got a client who just got destroyed, selling, you know, not destroyed, he's doing fine, but he's selling, you know, high end products, and he got hit by a clear scam ring and he's going, hey, I need my money back. They're going. Tough luck to him when there's the bank that failed, the processor that failed, like nobody caught this, and they're like well, why didn't you catch it? And he's like, well, how?
Speaker 3:am I supposed to do that how am I supposed to do that. Yeah, you guys have all the tools. You were the ones that knew there were eight card holders from the same bank all buying things around the same time like processor.
Speaker 1:You saw this, in fact not only yeah, not only like I'm, I'm contracting with you for those tools that you promoted yourself about, right Like and then they just fail, but it's my fault that they failed and there's no other game in town for people to go anywhere.
Speaker 1:I mean, look, this is a real segue into something else, which is when does crypto really take hold right, I mean, and why does it take hold hold, right, I mean, and? And why does it take hold? Because these are the exact reasons that people have really latched on to cryptocurrency and said I don't have to deal with all that bullshit well, I don't think I heard something the other day.
Speaker 3:I said basically it's never going to happen. It's been around as long as uber. It's been around as long. It's been around for 15 years and people still aren't using it for anything other than to speculate on its value.
Speaker 1:I think POS systems are starting to actually integrate it.
Speaker 3:But no one's using it.
Speaker 1:We'll see. I mean, I think the big banks have to figure out where their place is with it.
Speaker 4:The early days of crypto, the problem were technical getting consensus in a time that made sense, the fluctuating value of it, and I would try to equate this to anything else you trade. The only reason that the US dollar seems stable is because we're looking at it from the perspective of the US dollar. If you were looking at it from perspective of the Japanese yen, it would be jumping all over the place. If you were looking at it from perspective of the Japanese yen, it would be jumping all over the place, and so cryptocurrency looks to jump all over the place. So people look at it as a speculative resource. But the other problems are operational. You know cryptocurrencies like Ether that allow contractual terms. I'm going to hire you to mow my lawn, but you're not going to get paid until the lawns actually mowed my satisfaction. Things like that, those operational things, need to be properly vetted out before you can start baking it into a point of sale and other solutions.
Speaker 3:Right, yeah, I just. But it kind of struck a nerve with me because I was all in on crypto in the beginning. This is the future. This is great. And people were starting to buy it when it was going wham way higher. Because they're going, you know, great, I get to buy a free tesla because my money went up. Oh great, I can go to this business and no one in my family who looks at the bank of statements will know what I did there, um, and things like that. But hearing you, it's been around as long as WhatsApp. Yeah, I've been forced to start using WhatsApp right now. I don't know why people can't just text, but it's fine. But Uber, same thing. People are using these. Nobody's using this for anything. So you know gold, people use it. Ask my wife. You know everything else. People are actually using these investment vehicles. I mean like Forex. I guess you're not using that, but that's you know betting, yeah, but you want to know something?
Speaker 1:It's not used because the card brand shut it down. We have a client that is a tech guy guy and he found a disparity between the exchange rate and Argentina and he was selling in here and he was selling US digital coin and then selling it off to people around the world and then they would convert it in Argentina and the exchange rate was so beneficial they were doing arbitrage off of it and like the minute that I think he was with Stripe and the minute that they found out, it was like smack, boom, done Right, and not only that, you owe us $5 million, you know, I mean, it was kind of crazy, but the guy's thought process was so entrepreneurial about hey, I see a weakness in the marketplace that I can leverage. How is that any different than the stock market? Right, I mean? But when he started to do it with currency trading, they just because of the use of oh well, now you're a money transmitter, hold on, I'm buying it.
Speaker 1:It's staying at the mint for US digital coin. It's US digital coin. I'm never taking possession of it, and then I'm wholesaling it out to other people even though I own the right to it. It was almost like you buy a right to sell a house and you hold that right for 30 days on some sort of option and then you find a subsequent buyer and you make a little money between what you bought the option for and what you sold the option for for somebody else to exercise. It was the same sort of thought process that anybody does in business and yet, because the initial transaction involved a card brand issued card, the minute that they saw it they just cut it.
Speaker 3:Well, I've heard the card brands say maybe I haven't heard them say, but I think they've issued statements of we're not worried about crypto. You know one they've said you know, if crypto somehow got a hold of 3% of people doing money, it would be one of the biggest successes of all time. It's nowhere close, but it's still. How are you going to get your money onto crypto? It's somehow you have to get it on there, and so the card brands aren't going away. I don't think you know they're not worried about it, because I think they're looking at it, you know, from a more pragmatic. It's not. You know, we're too big to fail of just we're. We're still in play here, we're still gonna have a role, and I think adoption is. I'm looking at it as I don't I don't see it happening.
Speaker 1:We used to fight about this all the time, because people ask me questions like what about crypto? And I'm like ask james, because I'm just not into it. I don't see it, and most of it was because it was speculative. But he would say, oh yeah, I'm like this is it's doing really well. And I would say, yeah, what can you spend it on, bro? Like it's not fungible at all, like there's, there's, where are you going to spend it? Like that's great, that's a bigger number in the ledger you did okay.
Speaker 2:In the end, though, james, I have what I say is like my worst investment ever was getting into crypt.
Speaker 3:No, my second worst investment ever was getting into crypto. No, my second worst investment was getting into crypto. My worst investment was selling it. Yeah totally.
Speaker 4:You don't own any crypto any longer.
Speaker 3:Only the stuff that I can't get out. Still own some of those.
Speaker 4:I got a call the other day from the company out of the UK, the Ledger, the Nano, the little cryptocurrency storage wallet. Apparently, I had something like 11 cents worth of ADA on a Nano device and somebody figured out a way to hack it, and so they called me and they wanted to send me a free Nano device and help me transfer my ADA.
Speaker 3:Yeah, probably not worth it. I bought one of those. I never used it.
Speaker 2:Yeah, that's right, james. Yeah, you never went to the cold wallet. No, really quick, guys. If I can interject a question, while the system here looks like it's kind of updating, David froze for a second there. David mentioned the operational hurdles to crypto. Chris, you had said, said you know, because we talked to julie douglas just the other day and she mentioned that through her system they might be taking crypto payments in 2025. It seems to me that if it was an operational thing by with all of the resources behind the banks, behind visa, mastercard, wouldn't they have figured it out by now to james's point, which scares me to think that it's not ever coming is what I'm trying to say. What do you guys think about that?
Speaker 3:I think they have it figured out. It's just getting people to use it.
Speaker 1:I don't even think it's that. I think I disagree with the 3% thing that you just said about it being a great success story. I don't think, and I used to think it was maybe the banks, but now maybe it's. I think it's the card brands. They can say whatever they want. They don't want this disruptor in the marketplace. There's no way they have to figure out how they're going to somehow align with it to continue to make money from it by creating something that combines crypto and traditional card acceptance to allow Visa MasterCard to continue to be the pimp in the payments world.
Speaker 3:Well they are. I mean, one of the big ones is XRP, and they've partnered with Chase, so they'll just get a piece of it.
Speaker 1:That's what I'm saying and I think that that's where you're going to see it, where you know, and then it'll convert over to stable coin and I don't know how much ability to speculate out that there will be but there's none but the.
Speaker 3:Yeah, we don't hear about the usdc anymore. I know we were all terrified of that, of us getting them making us use that money. And then who was it? I think it was on one of these podcasts, or they're like alan. Yeah, alan, like what? If they put an expiration date on your money, you have to spend it. By this you're speeding tickets paid automatic, everything like that. I didn't like that. You know, kind of orwellian outlook. But I'm kind of glad we haven't heard about that and yeah, but they can't do that.
Speaker 1:It's the same thing as a gift card you throw something on, it stays there until it's no longer there hey, it's our money, it's our government. You know watch, you know watch what happens now yeah, but didn't we pass laws about stuff like this? Maybe on the state level, we passed a lot of laws okay all right. Well, look, what else do you think is going on in the payments world that people, that the the 45 people that regularly listen to this podcast would be interested in?
Speaker 3:Three of them being our parents. Yeah, three of us here, yeah, yeah.
Speaker 4:Truly, I don't know what else is going on. There's all sorts of things going on. Consolidation's driving everything. The current political administration is defunding the CFPB. What's the result of that going to be, other than, potentially, another four years of successfully not having to worry about it?
Speaker 1:We need a lot more high-risk processors. That's what I'm saying.
Speaker 3:Yeah, yeah, why not, david? We never asked what you do, what's your role. Why don't you fill us in on that and how people can get in touch with you if they want to?
Speaker 4:Well, I'm the chief technology officer for Signapay and I've actually been here for one year now. Congratulations. Signify is, of course, famous for Paylo, which is their dual price pricing model Used to be cash discount, ie surcharge. We're working on a bunch of technology infrastructure to improve our transaction processing and fixing things like rounding errors, which have always been a big problem for the surcharge world.
Speaker 3:That's right. We can't surcharge on our software because of rounding errors.
Speaker 4:I can help you fix that we wish you could help us fix that.
Speaker 1:No, actually we're using two systems right now because we're testing something else out for our firm, like our firm management software, but I don't think we got a response back. But we're asking them if we can have our own payments company api into the to the firm management software we have. I don't think we've gotten a response back but jeremy's phone's gonna start ringing now yeah everyone's listening to this global processing's available.
Speaker 3:Every single one of our clients hits us up we might multiple times.
Speaker 2:It's looking promising, chris. Believe it or not. You hear that? Yeah, we'll see. I'll let you know we did get an email s bitter gets it all right.
Speaker 3:David, do you want uh people contacting you for any reason? You want to give?
Speaker 4:oh, your email out there.
Speaker 3:All right, great. Well, this has been great.
Speaker 1:I love it. Yeah, he's like look, my phone rings enough. I got 10 people outside my office right now. Yeah, awesome, well, thanks for joining us All right, thanks, dave, really appreciate it had a great time.
Speaker 2:Thank you for listening to this episode of the Payments Experts podcast, a podcast of Global Legal Law Firm. Visit us online today at wwwgloballegallawfirmcom.