Acquirers are the lynchpins of the payments process; the bridge between merchants and the card networks.
As the payments process morphs into a more fluid real-time everyday process this position is being challenged. Payment methods are converging; technical standards are being streamlined; there’s more regulatory pressure (PCI, EMV, etc) to bear, and the acquirer’s strategic position in the payments process is threatened by digital transformation, as the new disruptors on the block look for a slice of the acquiring action.
For every one of these threats, however, there’s an opportunity. Those acquirers that evolve within the new payments industry can position themselves to take advantage in relation to mobile commerce and real-time payments.
The current landscape brings pain-points, but there exists core requirements for acquirers to excel at to remain relevant and outstanding in their space. The key, of course, to staying relevant is to first understand their customer’s pain points.
For merchants, accepting payments is becoming an increasingly perplexing process. There are a plethora of payment options, all adding separate layers of complexity when all they want to do is accept and instigate the payment process. Handling this complexity is a great opportunity for acquirers.
The ongoing fusion of in-store, mobile, and eCommerce means acquirers must transform their business models to benefit their merchants. This omnichannel approach will lay the foundations for the digital payments of the future.
This approach should see acquirers become more than just card-related, as the payments process turns increasingly digital. Payments need to be seen as a service with the use of APIs and SaaS technology creating omnichannel payment platforms for merchants. This path is of significant benefit to merchants as there is no infrastructure for them to maintain and – in many implementations – no PCI compliance to be concerned with.
As payments converge in the digital ecosystem they also become faster. The debate – such as one that took place at Sibos 2015 – around real-time payments within the banking industry is no longer about whether to offer them, but how to do so.
Harmonization of standards
In the ‘right now economy’, the payments system becomes a question of everyday issuing and everyday acquiring.
On this front efforts are intensifying in numerous jurisdictions to create a ubiquitous, real-time payments system (akin to plans by The Clearing House in the U.S.). These plans are driven for the most part by the ISO 20022 harmonization standard, the new business language between banks and their clients. It has been designed to simplify global business communication and is to be adopted as the standard for real-time payments.
As of August 2015, only 18 countries are ‘live’ with some semblance of a real-time payments system, 12 countries are in the exploration/planning phase for the introduction of such a system while another 17 are exploring this move via a pan-European initiative.
Without this impending harmonization of an international real-time payments system there is the potential for fragmentation and the risk of multiple versions being adopted across various markets, leading to higher implementation costs for all involved in the payments process.
SWIFT has agreed to play a coordinating role in the introduction of ISO 20022 as the standard for an international real-time payments system. In a statement released on the SWIFT website in October 2015, Marcus Sehr, Managing Director at Deutsche Bank, stated that: “By taking a standardised global approach to ISO 20022 implementation, the industry as a whole will be in a much better place to manage and lower costs, ensure efficient implementation, and most importantly, keep the focus where it should be – serving our customers.”
In short, merchants need this real-time support to meet their customers’ shopping habits while acquirers need to offer this support to maintain their own relevance and lay the foundations for the digital payments platform of the future.
Take a deep breath and take this list in: PCI compliance, EMV migration in the U.S., SEPA Card Clearing, PSD I & II, card network-specific regulations (such as Visa Europe’s Acquirer Monitoring Program), and the proposed ISO 20022 harmonization standard. All regulations that when combined really ratchet up the pressure on acquirers as they are faced with the task of enabling a smoother payments process for their merchants, and to ensure their own regulatory compliance. All of the above affect an acquirer’s revenue stream, while also exerting internal pressure on resources, both financial and staff-wise.
Of course, more regulatory pressure is expected these days as governing bodies – card industry-specific as well as country-specific – amend regulations and laws in an attempt to mirror today’s fluid payments system. As laws, standards, and guidelines are altered the acquirer’s ability to comply with the plethora of new rules and regulations is complicated further. Merchant onboarding has now become a critical component of every acquirer’s internal processes.
This revealing PaymentsSource piece shows how MasterCard in the U.S. are addressing a problem with merchants operating a website while accepting payments as a different business. For example, a website might indicate a company sells flowers, but it is really accepting payments for marijuana. “MasterCard calls it transactional laundering, and that’s exactly what it is,” said Joan Herbig, CEO of ControlScan.
Hence the need for improved merchant onboarding processes from the acquirer’s end.
However, acquirers can, and should, find opportunities amid this turbulent regulatory environment. A 2014 MasterCard white paper urged acquirers to embrace the potential benefits of the October 2015 EMV migration. It explains how acquirers that develop strong EMV core competencies will “differentiate [from competitors] and provide an opportunity to gain market share through enhanced service offerings, high-quality EMV migration support, and supporting new mobile Near Field Communication (NFC) acceptance as well as value-added service opportunities.”
Mobile payments now account for 21% of all transactions at 4,000 Starbucks where the coffee shop giant’s Mobile Order & Pay app is accepted. This is merely another illustration of how consumer behaviour is changing as they become more mobile due to smartphones becoming more powerful. Merchants need to retain their relevance to these consumers by offering the required payment acceptance systems, this means acquirers must embrace digital transformation.
Acquirers can aid this transformation in offering services such as First Data’s Clover Station mPOS. Clover is a cloud-based mPOS service that allows a merchant to accept all kind of payments, provides key business intelligence, and claims to increase customer loyalty via a digital rewards program. Solutions like Clover are the key to attracting the increasingly mobile consumer, a mirroring approach that aligns with their consumer’s purchasing habits.
Acquirers now need to adopt a digital-first mindsight. A good first step is to embrace the technology that underpins digital transformation: such as tokenization. Tokenization copper-fastens card payment security by replacing a consumer’s payment card details with tokens, meaning the merchant never sees or stores the consumer’s card data. Apple Pay uses tokenization and in mid-October 2015 MasterCard revealed the first use of tokenization in online payments. Users of MasterCard’s MasterPass wallet will benefit from tokenization when making online – or in-app – payments. Vib Prasad, Group Head of MasterPass Global, told Pymnts.com that the new service was in line with what MasterPass has stood for all along: “Connecting consumers to their banks, driving toward tokenization and EMV and, of course, it’s going to work across every device and every channel.”
Every device and every channel; every day issuing and every day acquiring, the right now economy.
The convergence of payments, the ISO 20022 harmonization standard, multiple regulatory demands, and the need to embrace digital transformation will inflict short-term pain on an acquirer’s business model, but implementing the relevant changes will also lay the foundations for the digital acquirer of the future.
At Fexco we partner with some of the world’s leading acquiring banks across the globe and as a result are uniquely positioned to understand their pain points and concerns.
Fexco Intelligent Solutions offers future-proof solutions that positions acquirers with the tools necessary to avoid disintermediation and ensure they remain an integral part of the payments eco-system.
Our solutions utilize the latest payment device and integration technology to bring together a wide range of payment sources from both physical and non-physical environments resulting in a truly Omni-channel solution. Please contact us to discuss your payment transaction needs.