The European card market is thriving. Replacement of cash, the shift to digital commerce, and new channels for card acceptance all contribute to the continuing success story of the cards business. Aite Group expects that the turnover on EU cards will reach EUR 4.4 trillion in 2022 (Figure 1).
Source: Central banks, Aite Group analysis
These multinational merchants are aiming to centralise their acquiring solutions across multiple countries, working with a limited number of acquirers to serve all their markets for both face-to-face and online transactions. By adopting a centralised approach, merchants can reduce complexity in their operations and have better control over their payment flows.
Acquirers are responding to this trend by offering customised, multi-country solutions to their top tier clients (Figure 2).
Source: Raiffeisen Bank International
Advantages of cross-border acquiring
The advantages for merchants to centralise acquiring include the following:
Volume discounts: By combining its purchase volume across multiple countries, the merchant can generally negotiate a better price for acquiring services than it can for individual countries. Cross-border acquiring also allows the merchant to standardise its terminal infrastructure and negotiate better deals with terminal providers.
Single reporting: Reconciliation of payment settlement files is greatly simplified when working with a single acquiring partner.
Improved liquidity management: Centralisation of acquiring provides a single account view on liquidity. That makes it easier for the company to manage working capital for the group and its operating companies.
Single point of contact: Working with a single acquirer provides a single point of contact for solution definition, customer service, and dispute handling. This allows the merchant to standardise and optimise processes, thus improving transparency and reducing operational cost.
Access to state-of-the-art technology: All countries and group entities can have access to the latest technology, as provided by the acquirer and its partners. Application of such solutions across the group will provide better and more consistent results.
Challenges of cross-border acquiring
Merchants and their acquiring partners that want to implement cross-border acquiring are facing a number of barriers in the European market, due to local specifics and market inefficiencies:
Arbitrage of card scheme fees: Card scheme fees are fees charged by the card schemes to acquirers, and are passed on to merchants. These fees are only levied on transactions that are processed via the card networks. That means that domestic banks won’t pay these fees for on-us traffic. In some markets, particularly in Central and Eastern Europe, this issue is being considered as market distorting. It results in the situation that cross-border acquirers cannot match the price of local acquirers. Card scheme fees are rising in Europe, which aggravates the situation.
Local requirements: Local requirements continue to exist for payment processing and include local payment methods, national regulation, tax law, local currency settlement, and central bank reporting. The situation has improved over the past decade due to EU regulation. Still, acquirers have to deal with local requirements for the countries in which they are active.
Domestic schemes: Domestic card schemes (such as Girocard in Germany, and Carte Bancaire in France) have their own rules, terminal protocol, and security requirements. Scheme fees are low, which puts them at a considerable advantage against international brands for large-volume processing. Acquirers that compete for the business of large retailers have no choice but to accept domestic scheme cards or work with a local partner that does. Standardisation efforts by organisations such as nexo standards have the potential to improve the situation. Through nexo, the terminal protocol and security requirements would be standardised, allowing true centralised acquiring for all cards.
Merchants will also face internal challenges. For instance, companies with a decentralised decision-making structure will need to convince their country’s organisations to release control over the payment function. Another internal barrier for merchants is their legacy systems. Each country may have its own POS systems that can only work with a specific type of terminal equipment, making it more costly to migrate to a common terminal infrastructure.
Cross-border acquiring: the verdict
Despite the challenges, cross-border acquiring is becoming an attractive proposition for an increasing number of European merchants. Aite Group research has shown that the value that merchants can get from the cross-border acquiring proposition more than compensates for the slightly higher price that acquirers may charge for the solution compared to domestic providers (see: European Acquiring: Opportunities and Challenges).
This editorial was first published in our Payments and Commerce Market Guide 2018-2019. The Guide presents the key trends and developments in global and regional payment methods by highlighting the innovation, challenges, and developments in the use of the most important payment methods across geographies and verticals.
About Ron van Wezel
Ron van Wezel is a senior analyst for Aite Group’s Retail Banking & Payments practice. His research covers market and regulatory trends in the payments space, with a focus on Europe.
About Aite Group
Aite Group is an independent research and advisory firm focused on business, technology, and regulatory issues and their impact on the financial services industry. Headquartered in Boston, Aite Group works with its clients as a partner, advisor, and catalyst, challenging their basic assumptions and ensuring they remain at the forefront of industry trends.
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