A Vision for the Payment Acquiring Function
The acquiring market is on the move, with forwards and backwards integration by payment channel members such as payment terminal vendors, schemes, acquiring processors and acquirers being announced on a regular basis. Managing the complete chain of services is necessary in order to determine the content of the offered services and the acquiring relationship.
The manager of the transaction initiation point determines who the acquirer involved is. Furthermore this manager can also create market power through wholesale deals with acquirers. Due to this important central role in the e-commerce transaction chain, payment service providers (PSPs) fetch high prices in merger and acquisition (M&A) deals.
The ongoing harmonisation within the payments industry (specifically in channels as e-commerce and point of service (POS)) reduces the added value of the single channel but also of the single brand acquirer. The single channel is a PSP that also acquires the payments (A-PSP). Current PSP’s pricing structure causes relatively high costs for the merchants involved, not only are the PSP’s own services fairly expensive but so is the mark-up they charge on acquiring products such as debit and credit cards. The margins for the A-PSP are higher than the margins of the acquirer who invested heavily in the product development and licenses. Acquirers face wholesale deals with A-PSPs, resulting in reduced revenues due to the intermediate position of the A-PSP. The e-commerce payments market itself has reached a mature transaction volume and maintains a steady double-digit growth level, which it achieved even throughout the financial crisis.
Current PSP solutions were built during the first internet ‘wave’. They are aimed at servicing webshops. To be competitive in this market, cost effectiveness is king. This is typically a high volume low price market. Current PSPs should invest heavily in order to rationalise their application and interface infrastructure. As the first movers, they now face huge ICT and commercial reengineering efforts and investments in order to stay competitive. We expect it to be hard for the traditional PSPs to comply with know your customer (KYC) rules as they do not know or screen their customers as well as financial institutions.
The next generation of internet payments will be mobile, on interactive televisions, in computer games, in applications, etc. The vision of Chess is that the distinction between the ‘internet world’ and the ‘physical world’ will disappear. The smart phone plays a central role in this transition. This device enables an e-commerce transaction via mobile internet, a remote mobile payment and a proximity payment at the physical POS. This is a green field with potential for many new business models. In this field, the PSP role will transform into a trusted transaction service provider that facilitates transactions such as ID verification, payments, loyalty, access, ticketing, closed payments, delivery, invoicing, etc.
A major market change is driven by the migration from the PIN brand to Maestro (and VPay). Within the Dutch acquiring market, the main banks will become the acquirer for Maestro as the successor brand of PIN. This has as an important side effect, in that it opens up the market for international acquirers. The main Dutch banks are expected to also become MasterCard and Visa acquirers for credit cards, in order to anticipate international competition and to offer a complete portfolio for their merchants. In the coming years, contactless payment by NFC proximity with smart phones and cards, as well as remote mobile payments, will be added to the portfolio.
In the e-commerce transaction channel, the Dutch acquiring banks introduced iDEAL, which has become a successful online payment method. The online portfolio will also be extended with MasterCard, Visa and, in the future, e-Maestro is expected to become a EU online standard. This is an excellent basis for a multichannel acquiring portfolio for the main banks. In addition, they offer offline payment methods such as the single euro payments area (SEPA) direct debit (SDD) and credit transfer (SCT). E-invoicing related payments are also on the horizon, which will help with compliance to payment scheme ruling and acceptance.
Integration of payment channels is visible in many current cases and offers a serious opportunity to regain market share from the A-PSPs, who are mainly focused on a single channel. For the multi channel acquirer, it becomes very feasible to combine its services and offer single contracts and better terms for any channel. In an integrated merchant services solution, both open and closed loop POS environments as well as e-commerce and m-commerce acceptance can be offered.