A look forward for payments and acquiring banks
This will be a transformational year for acquiring banks that are focused on improving the value they offer to merchants while protecting consumers’ privacy. As the evolution of payments technologies continues, mergers and acquisitions are going to create new opportunities to improve payment solutions and value-added services.
Acquiring banks, also known as merchant acquirers, allow businesses to accept credit and debit card payments. They serve as intermediaries between merchants, card issuers and payment networks, and provide a range of services for merchants that include charge authorization, clearing and settlement.
Here’s how current trends could continue in 2020 and what acquiring banks should do to make the most of them.
More crowding in the acquiring ecosystem
Payment partners like independent sales organizations (ISOs), independent software vendors (ISVs) and fintech-enabled payment facilitators (PayFacs) will continue to grow their share.
By typically serving specific industries, ISOs and ISVs have developed deep expertise in merchants’ business models. This specialization enables them to go beyond industry-agnostic acquisition, customer service and payments technology.
PayFacs are catering to the needs of smaller merchants by grouping them under a single merchant identification number to simplify and open up the onboarding process. For example, Square has evolved from a mobile-phone add-on to a full-service point-of-sale terminal.
Analytics will allow acquirers to identify underperforming merchants and proactively address issues like decline rates and transaction sizes. Data insights to identify areas where funds should be reallocated will also be critical – one payments processor recently increased profit by $10 million by determining where its new point-of-sale system would work best and then deploying it solely to those merchants.
Privacy becomes inherent
New regulations, such as the EU’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA), will impact how acquirers handle data.
Complying with new standards on data anonymity is now top of mind globally, where acquirers are moving to a privacy-by-design approach. This means embedding privacy into product design and working within the spirit of regulations, respecting consumer privacy and leveraging robust data anonymization.
Acquirers are equally at risk of losing their merchant customers if they cannot ensure the privacy and security of their data. This trust will be as crucial for acquirers as for their ISO, ISV and PayFac partners. As payment intermediaries, acquirers are no different from other third-party providers.
New technology to transform payments
Merchants now reach consumers through multiple channels, including mobile, kiosks, chatbots and call centers. This ecosystem changes the payments status quo and blurs online/offline distinctions.
More than a third of retailers have merged the online and offline experiences through “buy online, pick up in-store” services, according to a recent Mastercard report incorporating research and analysis from The Economist Intelligence Unit. Amazon PayCode allows international consumers or those who prefer to use cash to buy online at Amazon and pay at Western Union branches.
Technological advances are also affecting points of sale. Samsung, for example, has recently partnered with MobeeWave to enable NFC (near-field communication) contactless payment acceptance on phones without additional hardware. Financing options at online and offline points of sale are also growing.
The proliferation of alternative payment methods represents an opportunity for acquirers to identify areas for improvement. Using flexible integrations like prebuild shopping carts and checkout pages, acquirers will be able to help merchants push sales and reduce cart abandonment.
Value-added services to stave off commoditization
The traditional focus of acquirers on providing a streamlined payments process has begun to expand. Their multi-industry expertise – combined with flexible, industry-specific partnerships with ISOs, ISVs and PayFacs – provides an opportunity to help merchants manage and improve their businesses.
For example, along with providing restaurants with point-of-sale services and online ordering, Toast now offers them reporting and analytics, kitchen display systems, delivery interfaces and loyalty programs. SumUp is supplementing its invoicing and bookkeeping services by allowing its merchants to create online stores and sell on multiple eCommerce platforms. Stripe is expanding its offering into business loans and corporate credit.
Acquirers will see success in using aggregated and anonymized transaction data to offer reporting on store performance, often incorporating trends and spend patterns across different regions and industries, and to assist merchants in consumer segmentation, loyalty solutions, fraud prevention and financing. These insights will, in turn, inform merchants’ strategies across marketing campaigns, network expansion and promotions.
Mergers and acquisitions will continue
The acquiring space saw 49 mergers and acquisitions in 2018 worth more than $10 billion, according to Nilson. But this total value was dwarfed by several megamergers in 2019, including FIS acquiring WorldPay for $34 billion and Fiserv’s $22 billion acquisition of First Data. Smaller deals also continued unabated.
The deals are extending beyond just acquiring and processing. Changes in how payments are made and handled will have an impact on how they should best be processed. Acquirers will need to keep track of such changes in their partner industries to best serve merchants that are employing these platforms and solutions.
Competing business priorities are an inevitable result of mergers and acquisitions. This pertains as much to existing practices as to future initiatives. Businesses will benefit from conducting tests across different business functions to establish which ideas are the most profitable.
Success will come from identifying synergies, rather than simply continuing along the path of the acquired business or building new solutions and offerings from scratch. Meanwhile, competitors of newly merged companies will thrive by focusing on their distinct value propositions in an increasingly complex payments environment.
TJ Sharkey is SVP of financial institutions, acquiring and processing at MasterCard.
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