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Table of Contents

Lead Story

How to keep tabs on reps, merchants – Part 2

News

Industry Update

Report tells acquirers how to stay in the game

Name for ATM payment hub

Trouble for UC in the U.K.?

Bitcoin kiosks enter marketplace

'Hands-free' payments beckon

Selling Prepaid

When Big Data meets fulfillment

Features

Opportunities on mobile horizon

Views

Visa's new third-party registration fees – unintended consequences

Ken Musante
Eureka Payments LLC

Tackle risk vectors to improve portfolio performance

Ross Federgreen and Ed Barton
CSR / G2 Web Services

Education

Street SmartsSM:
It's not what you say

Dale S. Laszig
Castles Technology Co. Ltd.

Busting myths about change

Jeff Fortney
Clearent LLC

Evaluating payment gateway performance

Chandan Mukherjee
PayCube Inc.

Company Profile

Cutter LLC

New Products

Funding approval in minutes

CAN Mobile Funder
www.capitalaccessnetwork.com

Seamless QuickBooks integration

ePNSync
www.eprocessingnetwork.com

Inspiration

Roll out the welcome mat at work

Departments

Letter From the Editors:

Readers Speak

Resource Guide

Datebook

A Bigger Thing

The Green Sheet Online Edition

September 23, 2013  •  Issue 13:09:02

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Report tells acquirers how to stay in the game

It is no surprise that pressures on the traditional acquirer business model have caused major disruption in the payments industry. From complex regulatory intervention to upstart technology firms eating away at acquirers' margins, the list of industry disruptors is long. A new impact note from Aite Group LLC throws into sharp relief the extent of those pressures and conveys the dire warning that acquirers remaining on the path of standard POS terminals and price differentiation strategies are destined for extinction.

In Transform, Consolidate, or Die: U.S. Acquirers on an Unsustainable Path, Aite Senior Analyst Rick Oglesby said the traditional merchant acquiring business has become commoditized, with players no longer able to differentiate themselves. "If a payment terminal is analogous to a telephone, acquirers have increasingly become the dial tone, comparable to a wired telephone company that lacks significant differentiation from competitors," he wrote. In comparison, newer, technology-focused firms, such as Square Inc. and PayPal Inc., have innovated with cloud- and smartphone-based schemes that offer merchants highly differentiated options, Oglesby added. The result is that product-driven solution providers are on the rise, to the detriment of traditional acquirers. Oglesby warned that acquirers who do not recognize this dynamic and fail to take action "are likely to end up either out of business or swallowed up by larger players."

Key challenges

Aite's research, based on interviews conducted with 26 executives from 22 U.S. merchant acquirers, concluded that the key challenges faced by traditional acquirers involves margin compression, business transformation and regulation.

Oglesby called margin compression a "vicious cycle" of increased competition, consolidation and emerging technology players that work in concert to erode revenue. Revenue needed to invest in new technologies to combat margin compression is thus in shorter supply. Oglesby characterized that downward spiral as the "path to oblivion" for acquirers.

Oglesby said acquirers recognize they need to change but are uncertain of which path to take. The competitor most on the minds of the research respondents is Square. Acquirers both admire the firm for its innovation and are concerned about the threat it poses to them. Oglesby quoted one acquirer as saying, "Square is pulling the industry along," by disrupting the marketplace with innovative mobile payment solutions and causing acquirers to play catch up.

According to Aite, most acquirers report that the debit card interchange cap imposed on the industry by the Durbin Amendment to the 2010 Dodd-Frank Act has increased profits for them. However, they don't believe future regulation will do the same. "Rather, they expect a continued back-and-forth process between the card brands and regulatory bodies, and they expect to be caught in the middle," Oglesby said.

Extinction avoidance strategy

Aite's research noted that acquirers are focused primarily on expanding product offerings to combat these downward pressures and avoid extinction. Solutions being developed include:

Oglesby said the industry must undertake a "technological renovation." But even as acquirers navigate this difficult process of reinvention, they must be aware that technological transformation is merely "the first step and that it may be the least significant one," he said.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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Spotlight Innovators:

North American Bancard | USAePay | Impact Paysystems | Electronic Merchant Systems | Board Studios