Payments acceptance, as a business, is slowly disappearing. Over the last few years, it has become commoditised, squeezing the margins of acquirers, with profits alarmingly vanishing. Merchants no longer demand from their acquirers just the capability to accept payments – this is no longer sufficient.
So, what do merchants really want from their acquirers? What type of services do they feel bring real value to them? Whilst merchants are increasingly questioning the costs of payments processing, they are more and more willing to pay for business-enablement services, such as loyalty programmes, gift cards, or accountancy packages, as well as for payments performance enhancements such as transaction monitoring and chargeback management. This change is even more evident in those areas where digitisation has accelerated more recently, such as hospitality or groceries.So, as acquirers begin to offer services focused on commerce enablement via software integration, they are no longer considered purely ‘financial providers’ and, therefore, are tapping into broader areas of merchants’ budgets, where there is a higher perception of the value of services. Merchants negotiate aggressively over merchant discounts but are prepared to pay generously for business-enablement solutions that help drive more revenue. And it is the acquirers’ responsibility to listen to their merchants, understand their needs, and deliver solutions to meet them.
Payments acceptance represents just a small proportion of the merchants' budget. A typical mid-sized merchant spends circa 9% of its total services wallet on the capability to take payments. The remaining amount goes to all the other services that help them manage their business end-to-end.
Although in the payments industry we usually refer to these services as ‘value-added’, the truth is that, in many cases, they are as core to the merchants’ business as payments acceptance is, and often their whole model is based on these ancillary services. These can range from invoicing software to loyalty programmes, accountancy services, logistics, or insurance.
This range of merchant services can only be delivered via the integration of software and payments acceptance solutions. Acquirers rely on third parties and partners (often referred as Independent Software Vendors, ISVs) to provide the services that sit outside the core payments acceptance proposition and integrate their software services into the payment gateways.
But which of the infinite value-added services should acquirers focus on? Restaurants require services such as integration with delivery platforms, QR-enabled order at table, order modification, click and collect, and bill splitting, for example. Meanwhile, health clubs and gyms require services such as loyalty programmes, family accounts and integrations with health management apps.
More and more, payment providers organise their products and go-to-market strategy approach by industry or segment. The convergence of payments and business-management software into merchant services, together with merchants’ appetite to procure their business solutions from a single provider, has paved the way for acquirers and partners to deliver integrated solutions tailored to specific merchant segments.
However, it is not enough to solely focus on what the merchants are selling; acquirers need to also consider how is the merchant selling their products or services: face to face, online, over the phone, or a combination of some, if not all of them. To remain relevant, merchant acquirers need to offer omnichannel merchant solutions. It is critical to offer a unified commerce proposition that makes the consumers experience seamless, regardless of how they chose to shop.
By nature, paying is not an appealing consumer experience; they demand nimble payments made easy, almost invisible to them. There is no coming back from the improved shopping experience of buying something online and returning it in-store, ordering food and drinks at the table using a smartphone’s QR reader, or using the ‘in-store’ mode of a merchant’s app to obtain or spend loyalty points whilst shopping for groceries.
Connected commerce solutions also allow merchants to see all transactions in the same place, following their consumers across all the merchants' sales channels. Only this way merchants can fully understand and serve their customers, unlocking the full potential of data. Data is no longer the new gold: it no longer is a luxury, it has become a necessity, indispensable for business survival. Data is the new water.
In summary, there is no new formula here. It ultimately goes down to listening to our customers, which are the merchants, to understand their needs and also those of their customers, which are the consumers. Merchant acquirers need to expand beyond core payments acceptance to offer, via partnerships, integrated merchant services solutions. Merchants require these solutions to enable connected commerce and seamless payment experiences, and they want them tailored to their business needs.
We hear that payments acceptance, as we knew it, is no longer sufficient and that this is the new Minimum Viable Product that merchants are prepared to accept.
This article was first published in Payment Methods Report 2022, the most updated overview of trends and developments in the payment methods space and the innovative technologies that these methods work upon, emerging consumers habits, and strategies on how to win at conversion and retention.
A proud Madrid-born Londoner, Diana has an extensive international career focused on building payments solutions via innovation. After Visa, Santander, HSBC or ServiRed, she currently serves as MD, Merchant Services for Lloyds and as NED for Wirex. She has been called as an SME Advisor to several regulatory initiatives and invited as a guest lecturer at the University of Cambridge.
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