By John Tucker
Editor's Note: Unanticipated professional developments necessitated John Tucker's resignation as Street SmartsSM author. We wish to thank him for his contributions and will welcome his future submissions as time allows. In the next issue, we will introduce a long-time friend of The Green Sheet Inc. who has stepped in to replace him going forward. Stay tuned.
According to CBInsights, total credit, debit and prepaid card processing volumes in the United States are approximately $8 trillion today. Looking at recent research compiled by The Strawhecker Group, some of the largest U.S. acquirers include (not in any particular order) Chase, BofA, Citigroup, US Bancorp's Elavon, Wells Fargo, FIS, Fiserv, Global Payments, Square, Adyen and Stripe.
Despite there still being between 500 and 1,000 companies in the U.S. merchant processing arena, the top 10 companies control over 80 percent of U.S. transaction volume, creating a sort of monopoly. This is due to mergers that have taken place over recent years, such as FIS buying Worldpay, Fiserv buying First Data, and Global buying both Heartland and TSYS. The analysis clearly shows what companies are dominating the space today and predicts where The U.S. payments industry is headed in the next decade.
The big banks are the biggest, baddest players in the payments space. They are using payments as a value-added solution to their standard business banking and financing solutions in order to create an integrated package for merchants.
It's difficult to switch payment providers to save on rates or get better customer service when your line of credit, business loans and business bank accounts are tied to the company that's providing your merchant processing. Thus, it looks like big banks will continue to monopolize the market with more acquisitions and more market share.
FIS and Fiserv offer an array of integrated commercial financial services, sold as a bundled offering, to merchants that go well beyond payment processing. Then there are payment facilitators (payfacs) like Square and Stripe, which I believe will be one of (if not the biggest) threats to the monopoly big banks hold on payments. Both FIS and Fiserv have services that help software companies roll out payfac solutions.
I expect more payfacs will be high up on this list as we approach the end of the decade. Payfacs can bring merchants not just a more simplified payments experience, but they can also bundle other financial services in a white-labeled fashion. For example, Square funded $2.3 billion in small business loans in 2019 and despite the COVID 19 pandemic, Square still funded about $1 billion in 2020. In addition, in March 2021, Square became an FDIC-insured bank, enabling the company to bring forth innovative business banking products.
One thing of note, though, is that most big banks on this U.S. acquirer list have concluded it's better to partner with fintechs than to compete with them. So while I have separated innovative fintechs from the big banks, there isn't a huge separation because said big banks are embracing fintechs wholeheartedly, realizing that if they don't, they'll provide too big of an opportunity for more market share to go to these emerging fintech players.
While it might be a hard pill to swallow, it's clear the industry has changed. This means that if your strategy today is still leveraged on selling basic bankcard services tied to stand-alone terminals and leading in with rate savings (which includes cash discounting), you are likely to run into trouble. Matt Bruno, vice president of strategic partnerships at Payment Logistics and Green Sheet MLS Forum member mbruno, spoke to this in the forum.
"As with everything, it comes down to value – if the merchant believes there's value, you will board accounts," he wrote. "There are always going to be accounts that you can pick up with lower rates, better service and free hardware. Effectively that model morphed into cash discount, really.
"The crux of this question is the hardware – specifically, are we talking basic EMV devices or a POS system? For basic EMV devices as the primary hardware – I don't think this model is sustainable. If however POS systems are the free hardware – it's possible to do a lot more than survive. The better the system, the better the new person in the industry can fair."
It's far too easy for a competitor selling some sort of integrated package from a big bank or innovative fintech to steal a merchant who is using your stand-alone terminal. The reason is that all they have to do is combine more aspects of the merchant’s business into an integrated/centralized solution, stacking it with other valuable financial services.
Big banks stack such valuable financial services as bank accounts, lines of credit, loans and more into their offering. And going forward, disruptive fintechs are likely to stack other financial services into their offering as well, such as business loans, credit cards, insurance, compliance solutions and bank accounts—all in one integrated solution package.
So what should you do going forward to—as Marc Beauchamp, former Street SmartsSM author and founder of the Bankcard Life community, would say—"survive and thrive in the merchant services industry"? Well, I would recommend that you shift from thinking like a traditional bankcard rep and start thinking like a fintech rep.
Here are some ideas on how to do that:
The industry has changed. This is not the industry of your grandfather or your father anymore. This has become a millennial and Gen Z-driven industry powered by digital, integrated and embedded solutions. Now is the time to pivot because, as H.G. Wells said, either you will adapt or perish.
John Tucker is U.S. enterprise sales director for TreviPay (www.trevipay.com) and has over 14 years of B2B sales experience in commercial finance. Tucker is an MBA graduate and holder of three bachelor's degrees in accounting, business management and journalism. To connect with him, feel free to send him a connection invite via LinkedIn at www.linkedin.com/in/johntucker99/.
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