How emerging payments impact merchant acquirers
By Tracy Metzger, COO, Vesta Corporation
With the landscape of payments acceptance constantly changing and new disruptive technologies entering the market, a merchant acquirer must be constantly looking at how to adopt these solutions. Merchant acquirers must assess the impacts of implementation to their platforms and the consequences of passing on an emerging technology.
Even though some emerging payment technologies are not widely accepted or even broadly adopted by consumers, the acceptance of these technologies can create opportunities for merchant acquirers to differentiate themselves in a highly competitive and relatively commoditized industry. Every acquirer accepts the major issuing brands and debit cards, but not all acquirers accept these new technologies.
The consumer is king and he drives what merchants need to support, attract and retain him as a customer. Thus, if an acquirer's offerings can't help a merchant meet its consumers demands, that merchant may take its payments business elsewhere.
It stands to reason that offering more emerging payment technologies can help acquirers attract and board additional merchants. These days, many merchants seek to offer Apple Pay, Level Up or more mainstream alternative payment elements like PayPal. Despite their lower acceptance levels, the consumer demand is still there.
Accepting these forms of emerging payments can impact the acquirer's platforms by requiring them to rethink how a payment host works and interacts with the point of purchase—whether online, mobile or in-store. A credit or debit card transaction is a straightforward request, but the response protocols of some emerging technologies require a completely different user experience. They can force changes in merchants' APIs, SDK or other points of interface with a payment host, introducing potential service and adoption challenges.
Too much rapid change can lead to outages and customer attrition if not handled with the proper attention. Much thought must be put forth to seamlessly fold these payment types into the existing methods of acceptance while not disrupting the base of customers using their platforms.
Merchants and acquirers can struggle to determine if the revenue lift from offering an emerging technology will surpass the costs to implement and support said new technology. Both merchants and acquirers must have defined, reliable methods for measuring the usage of these technologies to review their ROI.
With so many emerging payments options popping up, how do merchants and acquirers go about evaluating and selecting the solutions best suited for them?
Emerging payment types that do not leverage existing payment acceptance hardware based on magnetic stripes, chip or contactless readers such as QR codes require additional hardware investment, immediately adding more cost to card-present merchants' solutions, and inhibiting adoption. Acquirers that provide the acceptance hardware free of charge in exchange for the merchant's payment processing need to factor these costs and benefits into their overall offering. Traditionally, the solutions that ride the rails of existing technology—such as Apple Pay, Samsung Pay and other similar mobile wallets—gain higher acceptance.
Great companies like PayPal have tried their own approach with mixed success.
Consumers have adopted PayPal's online solutions with high acceptance, and in certain regions of the world, PayPal has driven as much as 15 percent of all online purchases. At the same time, its in-store attempts have flamed out.
A few years back, PayPal's push for its mobile wallet as a form of in-store payment—and the associated photo check-in product—created friction for a number of merchant acquirers. While PayPal subsidized much of the adoption effort before discontinuing the offering, it lost time and resources that could have been funneled toward innovation in other arenas. Unfortunately, innovators must weigh such risk when defining their own product roadmaps.
Other online payment products like Amazon have received wide acclaim for reducing payment friction, and they are driving other emerging payment products to follow their lead. But is this wise given new regulatory hurdles that may change the way even Amazon is accepting payments? It may be too early to tell, but early indications are there. The regulatory environment—fraught with potential roadblocks that have yet to materialize—can impact merchant acquirers' appetite for emerging technology adoption.
Simultaneously, some merchants are unaware of their ability to accept and implement these technologies, as their acquirer chooses to adopt them broadly and fails to make them part of the standard marketing program.
I can't count the number of times that I have had to educate a merchant while at the checkout about what they can accept, because as a payments industry veteran, I'm usually an early adopter of these technologies.
I confess to taking some satisfaction when I see the look on a merchant's face when I wave my phone in front of their terminal and hear, "No sir, we do not accept that phone thing," followed by my response of, "Oh yes you do, let me show you!" It's a look of amazement when it works and I've even seen it spark interest with people in the checkout line behind me. Clearly, there's opportunity for acquirers to communicate with their merchant base and provide them a positive "no cost" enhancement message instead of the normal, "your interchange rates are going to be increased," message so often heard.
With so many choices and so many channels to choose from, the merchant acquirer needs to do careful research, listen to customers and closely follow consumer trends. There is no slam dunk with emerging payment technologies, but ignoring them will most definitely lead to lost opportunity.