Cross-Border Acquiring: Issues and Opportunities for Corporates
Cross-border acquiring is coming of age in the single euro payments area (SEPA) environment, offering a number of opportunities for corporates looking to streamline their card acceptance and drive scale efficiencies. It has been around for a while due to the breakdown of barriers a result of the euro (reducing currency complexity), the advent of borderless selling facilitated by the Internet and e-commerce, and the arrival of increasingly broad licenses set up by Visa and MasterCard.
Historically, corporates operating on a pan-European basis had multiple relationships across Europe, usually servicing their face-to-face retail business. This offered some benefits as local acquirers knew their markets intimately and were able to offer a full, local service. As in other areas of cash management, however, such a fragmented supply chain also threw up issues of cost and service, together with differing levels of SLAs, reporting and contractual terms. For some corporates, this meant managing perhaps as many as 15 different relationships with their different acquirers across Europe, hardly an efficient supplier management process.
The e-commerce pioneers were the first to see an opportunity to centralise through their use of shopping cart payment pages offered by payment service providers (PSPs). Starting from a green field site, or at the very least with up to date technology, and not needing to manage a switch of their existing processing from local to European made e-commerce an obvious place to start. Already relatively centralised and accepting the international scheme cards of Visa and MasterCard, they were able to reach into a pan-European market from a single location, through a website offering a multi-lingual experience to the consumer and the ability to pay in his or her domestic currency, be it the euro or, for example, the Polish zloty. But a few of the more traditional bricks and mortar corporates began to join the e-commerce wave. They were looking to achieve a more centralised acceptance solution across Europe, often taking advantage of their own centralised shared service centres to drive greater efficiencies internally, in treasury centralisation or chargeback processing, for example. And of course the combined volumes meant that they were able to demand finer pricing from their central cross-border acquirer and a more strategic level of support from their single relationship point.
The early adopter companies were commonly seen in the travel business, e.g. car rental/hotels, or in the petrol retail sector. The pan-European solution was by no means perfect, though. The central acquirers could not universally acquire local debit card products and technical standards could differ country by country. This meant that a fully centralised, single acquiring solution was simply not possible, resulting in a hybrid model between local and centralised.
The SEPA Cards Framework aims to change this. In the SEPA world, there will be a greater level of harmonisation and lower barriers to cross-border acquiring. There will be more choice for retailers as a result. For example, a cross-border acquirer could acquire local debit cards, new European schemes could emerge, and multiple schemes on one card will compete with each other. Point of sale (POS) terminal standards and message standards should harmonise across Europe, resulting in a simpler technical environment for pan-European businesses The work to create these harmonised standards within SEPA is making progress, although such progress is slower than some would like.
Standardisation has winners and losers, so it is important to include the views of all stakeholders in the decision-making process. Even once agreed, EPOS users will need to consider new standards against the investment profile of their current solution – a change over of integrated POS is not an overnight activity. In addition, the international card schemes are finding it tough to reach the right incentives to be able to attract corporates to accept their product over the local debit product. This means that no acquirer today can offer a complete solution across Europe, encompassing all payment types at a highly competitive price and across all channels. Global acquiring seems even further away, despite the requirements from some global corporates.
Beyond the issues discussed in this article and the disappointment of the pace of SEPA so far, what benefits can a central acquirer offer today? E-commerce offers the best opportunity to take advantage of centralised European volumes, as several acquirers have developed PSP capability that routes local payment products to the domestic market and allows centralisation of other products to achieve volume efficiencies. And for bricks and mortar card acceptance, a few acquirers are building or buying businesses to be able to offer a strong proposition in the major European markets – creating a full domestic capability which can also form part of a pan-European capability. Barclaycard has recently opened up an office in Milan, for example, and through this local presence is able to offer Visa and MasterCard acceptance in Italy as well as the local Pagobancomat debit card.
The resources of a larger, international acquirer mean that it can offer the benefit of industry specialisation, multi-lingual servicing and relationship management, multiple value-add services such as prepaid cards, contactless, mobile phone top-up, etc as well as a strong voice with Visa and MasterCard – particularly if the acquirer is also a card issuer. As such, centralised cross-border acquiring is here to stay and seems highly likely to become more prevalent as SEPA increasingly comes to life and more corporates look to realise the substantial cost benefits that it can bring and the back office streamlining it can enable.