By Dale S. Laszig
The changing payments landscape could be compared to three-dimensional chess: a multilevel playing field where every move simultaneously impacts players on every board. Over time, players are eliminated, leaving only the most strategic who can execute three-dimensionally. In a similar way, each payment transaction reverberates through a multitiered ecosystem as the payments industry rolls along, like a mighty river, absorbing companies and shedding players.
Allen Kopelman, co-founder and CEO of Nationwide Payment Systems, has seen consolidation at all levels of the payments ecosystem. Recalling the early shock waves in the 1990s, when Super ISOs began acquiring smaller ISOs, he said the trend was just getting started.
"All these super ISOs gobbled up smaller ISOs and moved on to major processors," he said, citing Global's $4.3 billion acquisition of Heartland Payment Systems in 2015; Fiserv's and First Data's merger, which generated over $4 billion in cash flows in 2019; and FIS' $43 billion acquisition of Worldpay in 2019, which became a $17.6 billion spinoff in 2023. "Each time a major processor is taken off the table, it leaves larger, high-risk merchants with fewer choices."
Mergers and acquisitions affect downstream relationships, Kopelman added, stating that with each acquisition, there's a new sheriff in town, who wants to rip out and replace everything. "They want to renegotiate contracts; they want to renegotiate the costs," he said. "I saw one ISO send out letters to the merchant level salespeople [MLSs] who left after they began raising merchant fee structures and delaying residual payouts, begging them to come back."
Consolidation impacts all levels of commerce, Kopelman noted, including processors, technology and POS service providers and payment facilitators. Technology-level players are buying multiple gateways, and POS brands are getting into payment processing, he added.
"After ISOs and MLSs helped leading POS companies build their businesses, we've seen them turn their backs to us and sell direct to merchants," he said. "Even the card brands, like Visa and Mastercard, have evolved beyond their original business models into technology companies."
Visa Acceptance Solutions, for example, is designed to help acquirers create custom payment solutions, Kopelman stated. The company's website describes the platform as a community hub that connects global technology and payments leaders and helps them build custom solutions. "A regional acquirer needs to create a custom payments solution for their merchants, some of whom offer subscription services," Visa representatives wrote, stating that Visa Acceptance Solutions connects acquirers to the company's partner ecosystem, broader Visa Acceptance Platform and variety of leading-edge capabilities and solutions.
Payment transactions have evolved from one-and-done sales to real-time interactions between customers and brands, experts have noted. This new digital commerce world has pushed transactions out of their cocoons and into tech-driven solutions. By directly embedding transactions into products and services, independent software vendors (ISVs) transform standalone tools into supporting features of verticalized solutions.
Payment Technology Trends ISOs and ISVs must watch in 2023, a report published by NMI in February 2023, noted business models changed in the early 2020s when consumers and businesses shifted to digital and touchless commerce solutions. Demand for innovative new payment technologies is growing, according to NMI researchers, who found most of the 1,000 consumers they surveyed in October 2022 were eager to try new payment solutions.
"As a payment solutions provider or software vendor, your clients expect an integrated solution with a variety of features and payment methods," NMI researchers wrote. "ISOs and ISVs who provide POS solutions, loyalty programs, CRM applications, and payment methods like contactless payments, BNPL and biometric payments will differentiate themselves as merchant-first providers."
Ruston Miles, founder and CEO of Payfactory, agreed that flexible commerce-enablement platforms can help consumer-facing brands and B2B enterprises attract and retain customers. In addition, he pointed out that automated, self-attended technologies enhance both B2C and B2B commerce models by creating real-time interactive customer experiences.
"Payments have evolved significantly from being stand-alone solutions to being embedded in various verticals through a process driven by technological advancements, changing consumer preferences, and the need for seamless and convenient transactions," he said. "After the dot-com bust in 2002, many software developers, including myself, started creating web-based software to manage real-world businesses more efficiently."
These early efforts created the cornucopia of vertical SaaS "system of record" companies we see today, many of which offer an array of practice management and donor management systems, Miles noted. He founded Bluefin in 2002, he noted, primarily to serve these ISVs with payment gateway and payment security services, and went on to establish Payfactory in 2020, to bring payment facilitation-as-a-service to these same companies.
Software and payments have been merging for some time and have created a true fintech experience of embedded payments in software, he added.
In the payments industry's haste to implement real-time transactions, experts are warning of unintended consequences such as increased risk of errors and fraud. A Nov. 1, 2023, report by AutoRek, a financial services software provider, found a majority of U.S. and UK enterprises lack the infrastructure to support faster payments.
In fact, 23 percent of executives surveyed were in favor of delaying RTP implementation due to lack of internal skills and technology, according to AutoRek's report Payments industry outlook 2023: strategic priorities, operations, regulation and data.
After polling financial services executives, software developers and IT specialists to gauge their firms' readiness for real-time payments, researchers found 54 percent of respondents agreed that inefficient back offices were the biggest roadblock to meeting real-time payment demands.
Nick Botha, global payments manager at AutoRek, called real-time payments a double-edged sword for businesses that facilitates speed and convenience but creates operational obstacles. With growing customer demand for instant payments, he urged firms to increase efficiencies now and get ahead of the curve.
"Firms that do not adapt their operations could find themselves in a world of regulatory hurt," he said. "Eliminating the bottlenecks to delivering real-time payments starts with upgrading the old-school legacy infrastructure that is no longer fit for purpose." A copy of the report is available at www.autorek.com/report/payments-industry-outlook-2023-strategic-priorities-operations-regulation-and-data.
On the fraud front, attacks on authorized push payments (APP) are escalating. This is according to the UK's Payment Systems Regulator's latest APP fraud report, published Oct. 31, 2023, which found criminals exploiting faster payment methods to access transaction and accountholder data.
Chris Hemsley, managing director of the PSR, affirmed the PSR will continue to report on this issue while collaborating with the UK's Financial Conduct Authority to identify areas in need of improvement.
"Our commitment to transparency and the forthcoming mandatory rules are key to strengthening efforts to prevent these frauds from happening in the first place," he said in a statement. "Over the coming months, we will be bringing all payment firms into new reimbursement arrangements to give more consistent protection across the board. This is important because we can see from today's report that this has not always been the case."
Evgeniy Ivantsov, chief marketing officer at FYST, characterized the PSR's APP fraud report as both a wake-up call and a report card for payments and financial services providers.
"The PSR's decision to release performance league tables for payment companies on the issue of APP fraud underscores the growing importance of transparency and accountability in safeguarding consumers and businesses," he said, noting that the league tables show those who excel and those who perform poorly in fraud prevention.
Roger Fisher and Bruce Patton's business best-seller, Getting to Yes: Negotiating Agreement Without Giving In, was reissued in 2011, 30 years after its initial publication, to address a flatter, faster and connected world in which the authors had observed a paradigm shift from pyramids of power to networks of negotiation where participants negotiate on different levels. "At one level, negotiation addresses the substance; at another, it focuses – usually implicitly – on the procedure for dealing with the substance," they wrote.
Following this logic, early payments might be considered single-level negotiations between a POS device and processing host that were ferried back and forth over a dial phone line. Over time, payments industry stakeholders layered additional technologies and value-added services on top of these transactions, creating multiple playing fields.
Fast-forward 40 years or so, and transactions are played on multiple boards by ever-evolving entities. As experts have noted, today's supervisor or channel partner may be tomorrow's direct report or direct competitor. And through it all, moving pieces on all the boards and even the rules of the game keep changing for payments industry stakeholders.
In this dynamic environment, transactions live everywhere, as features of verticalized software and as ongoing conversations among consumers, merchants and brands. Even declines are not final, according to FlexCharge, a fintech startup that transforms declines to approvals in real time and at no cost to consumers.
FlexCharge is one more example of the everchanging, multilevel game of payments where there is no final answer, because tomorrow's transactions will always be smarter, faster, more secure and more transparent than the technologies we know today. 
Dale S. Laszig, senior staff writer at The Green Sheet and founder and CEO at DSL Direct LLC, is a payments industry journalist and content strategist. Connect via email dale@dsldirectllc.com, LinkedIn www.linkedin.com/in/dalelaszig/ and Twitter https://twitter.com/DSLdirect
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