Disruptions in Merchant Acquiring Domain
The entire payments business is scale-based. However, the simple days of calculating growth using the economies of scale are long gone. Today Merchant Acquiring, along with every other business, is undergoing exponential changes. In fact, disruption remains the top business strategy in the current COVID scenario. Most market disruptions start with customer dissatisfactions. In the case of merchant acquiring, they are just as much about the changing government regulations too. Changing customer needs, cost streamlining, search for revenue growth paths, data security and compliance are all driving the change waves in the industry.
The global purchasing power is undergoing a change of guard. The contemporary customer is a young decision maker backed with technology and money. More and more, they are located in the emerging economies of the world. The traditional customer profile no longer holds up to scrutiny. The financial services, on the other hand, are facing increased compliances and regulations. The regulations, while driving the economy towards increased digital payments, are also affecting the revenue. The compliance costs are known to have gone up as high as 5% of a financial firm’s overall revenue in the year 2020. The merchant and hence the merchant acquirer, sitting between the customer and the bank, are facing changes at both ends. For the business to grow and strengthen, technology has to be used in a meaningful way. A merchant needs to identify its market, its core competencies and deploy the relevant technology that grows it.
Let us take a look at the top market disruptors in the merchant acquiring space.
COVID induced e-commerce:
After a year of the COVID pandemic, there has been an axial shift towards digital payments in all walks of life. Consumers and businesses have gone online. The health and safety concerns first drove the global population towards digital-Only transactions, as that was the only way to proceed. The transparent advantages of time saving, and accountability led to a digital-Preferred economy. Now the businesses and the customers play to the tune of digital-First. From e-commerce to OTT platforms to tele-healthcare, education, and online banking, today digital is inseparable from the physical. The pandemic has created an all-round shortfall of money, leading to features like Buy Now, Pay Later, or Point of Sales loan. Request To Pay solutions are replacing direct debits.
The digital network brings the aggregators and the marketplace to the fore. They enable the customer and the merchant to have a meaningful relationship. The data analysis and history give context and ease of transaction. Since the pandemic began, seller sign-ups have seen increases of 70% to a whopping 150% on merchant platforms. In short, there is no going back.
Payment Technology Disruptions:
The digital payments segment has a global transaction value of USD 5000 billion in 2020 and is the largest segment within FinTech (Source : Statista). Better experiences and lower costs have driven many customers to technology-first payment systems. Cash, checks and even cards are giving way to digital payments. The traditional banks are evolving fast by partnering with FinTechs or building technologies inhouse. However, the tech giants like Amazon, Google, Apple, Meta and Microsoft have also entered the payments space. They give the banks a tough competition with their deep pockets and their big data. Their cloud services, digital wallets, P2P payments on the messaging services, all lead with secure authentication services and pose a significant disruption index in the long run.
Blockchain, in addition to the most obvious use case of crypto currency, has as yet depths to be explored in the areas of know-your-customer, fraud detection, loan processing etc., all leading to increased efficiency. Instant payments have now become a table stake.
Robotic technology, Artificial Intelligence, Data Analytics are all disruptive technologies to be utilized in the play for a bigger market share.
Globally, regulations have reached a high point. The very agility of the FinTech industry results from its separation from being a regulated financial institution. Regulations likelike the EU Payment Services Directive (PSD2), EU Interchange Fee Regulation, UK Financial Conduct Authority fintech regulations are paving the way for disruptions in FinTech operations. Starting with Demonetisation in 2017, the consumer market in India has been disrupted and nudged progressively towards digital payments.
Change is everywhere. Of all the strategies deployed in the acquiring business, the most relevant today is that of disruption. The current COVID crisis has enlivened and glamorized even the most meticulous acquiring practices.The acquiring side, in addition to capture, authorise, process and settle the transactions, now has to be on the look-out. The source of the next value proposition could be anywhere, and a digital strategy to capture the resulting business has to be ready and waiting. Merchants agree to higher fees and give margins where the value is proven, like increased security or a better conversion rate due to better payment integration. The current management has to face right into the next digital disruption and be ready with resources and approaches.
Depending on the size of the market they aim at, the players must choose the niche to muscle in with their technological arm. Loyalty, cyber security,
FInTech partnership models are ever shifting. This is the right moment for financial institutions to define their role in the future of payments. The merchants need to map out their technology path and redefine user experience for their customers. The banks with their deep industry knowledge and financial prowess need to introduce the latest technology and agility in their enterprises. The viability of the ecosystem relies on the symbiosis of payments platforms-as-a-system (PPAS) disruption models with the traditional pillars of economy.