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Challenges for acquirers as payment industry evolves

NOTE: This is part three in Aviso’s series of blog posts focusing on the evolution of the payment industry

As the payment industry evolves, acquirers realise that they need to offer their merchants more, which means access to value-added services, increased protection from fraud, and the ability to accept multiple payment types.


In an increasingly competitive industry the key is merchant retention. The aforementioned offerings can only improve acquirer-merchant relationships. The knock-on effect for merchants is that they then have the ability to engage and build worthy relationships with customers, leading to loyalty benefits in the long-term.

And so the complementary payments ecosystem evolves: acquirers offer value, merchants provide value, and customers are valued.

For many the pace of technological change is glacial, but every now and then an iceberg breaks off causing a ripple in the ecosystem. Could Apple Pay be this iceberg? Perhaps it is the growth of P2P payments, the increased demand for real-time payments, or beacon technology transforming brick-and-mortar merchants.

Challenges for acquirers

A recent Capgemini report (2013) highlighted key areas for acquirers to focus so as to meet the evolving demands of the payments industry.

The key challenges for acquirers can be distilled as follows:

Changing payment needs of merchants

Omni-channel approach – merchants need a single platform to support multiple payment types.

Merchants are being inundated with new, and evolving, payment types: there’s the traditional payments cards, loyalty cards, e-wallets, and mobile payments. Acquirers need to offer their merchants the ability to accept all these types, and more. Systems need to be future-proofed to keep apace with technological change.

What merchants also need, and what acquirers need to offer so as to retain merchants, are value added services that allow merchants to engage and build meaningful relationships with potential customers.

In reality the ‘e’ in e-commerce is fading as the line between online stores and brick-and-mortars begins to blur. In-store shopping is increasingly influenced by first perusing online for price comparisons.

Brick-and-mortar stores are only just beginning to use data analytics, via beacons, that have become the norm online. Physical stores use these beacons to engage and build relationships with customers.

Crucially, beacon technology requires potential customers to opt-in to use, therefore they don’t impact on a customer’s privacy. The data collected by beacons allows merchants to analyse how their potential customers act in their stores.

Consumer’s preference to shop online

An increasingly mobile consumer is migrating to online shopping. They are becoming more familiar with the options available to them and they feel more secure.

In Europe B2C e-commerce grew by 16.3% in 2013. It’s a sector that is now worth €363 billion per annum. There are an estimated 645,000 European online businesses and some 264m e-shoppers. That’s one third of Europe’s population.

In the U.S. the figures for B2C e-commerce hit $431 billion in 2013, an increase of 13.5% from 2012.

Indeed global b2C e-commerce is estimated to hit $1.5 trillion in 2014 – fueled by emerging markets, with Asia-Pacific overtaking North America to become the world’s largest e-commerce market.

A rapid increase in mobile commerce

During the recent Black Friday sales extravaganza mobile commerce continued to grow.

IBM’s Digital Analytics found that the 2014 mobile commerce percentage of sales on this day were up 28.21% versus 2013, and percentage of site traffic from mobile devices was up 25.1%.

The acceptance of mobile payments (e-wallets) should now be a key element of any acquirer’s strategy. The above figures show how digital-savvy consumers are migrating to mobile payments. This sector of the payments industry has, of course, recently received a serious shot in the arm with the launch of Apple Pay.

Emergence of non-banking players

Joint ventures with non-traditional banking firms (such as the BBVA Compass link-up with Dwolla) reduce time to the new markets and give the acquirer control of the technology. For the likes of Dwolla it gives them access to millions of bank account holders, previously out of their reach.

The clash of traditional and the so-called disruptive technologies such as real-time payments can be viewed as a great opportunity.

There is a need for payment industry stakeholders to innovate in order to drive new revenue streams. Time to market is the key driver. The payments industry is in a state of flux. Friction is being reduced and real-time payments are in demand.

Acquirers are also facing regulatory compliance pressures (EMV)

Acquirers now have to deal with SEPA requirements in Europe. The goal here is to create a harmonized payments infrastructure throughout the SEPA countries. This is achieved through the common use of payment instruments and standards, supported by a regular and accepted legal structure.

EMV chip card adoption in the U.S. has been set a deadline of October 2015. On this date the liability for all fraud at the POS terminal switches to the least compliant part of the payment process. As this is an EMV mandate (in other words from the card schemes) the most vulnerable part of the process will be the brick-and-mortar merchants.

Acquirers need to work with U.S.-based merchants to ensure that they achieve EMV compliance before October 2015.

Of course, this is a major undertaking and will have cost repercussions. Here at Aviso we have developed our EMV wrapper to alleviate a lot of the cost pain associated with this EMV upgrade.

This solution enables our customers to achieve EMV compliance without the need to modify or replace existing technology. It surrounds the existing payment system and handles the complexity of EMV whilst leaving existing mag stripe applications unaffected.

Continued fraud and security concerns

Card-not-present (CNP) fraud is an ongoing worry for all involved in the payments industry. It is an area that the aforementioned EMV mandate does not address. As terminals across the globe become more secure hackers have migrated to online fraud, or CNP fraud.

The Capgemini report stated that: “As the market for mobile payment acceptance is expected to increase, and the merchants look for solutions for the existing security challenges, the acquirers must design and deploy robust acceptance solutions and ensure that all authorizations are processed so that the fraudulent transactions are tracked.”

“Also, the acquirer should have the capability to identify unique fraud patterns for mobile payment acceptance, which will enable acquirers to capture a greater share of the market.”

Emergence of new payment methods

Advancements in technology have led to the emergence of new payment methods such as contactless cards and near field communication (NFC). And, more recently, there’s the emergence of Apple Pay.

Merchants are grappling with point-to-point encryption (P2PE), self check-out, tokenization, mPOS, NFC, contactless cards, Apple Pay, and a number of other technology initiatives.

Acquirers must concentrate on enabling their merchants to provide the best POS experience for their customers, who are increasingly using mobile smartphones for payment.

Outsourcing technological projects

Acquirers are increasingly looking to outsource technology projects so that they can remain focused on their core business activities.

The idea of outsourcing many of the payment processing functions has increased dramatically in the past decade. There are many more PSPs between merchants and acquirers and more additional services. Barclays, for example, used to do everything in the payment processing chain. That is no longer the case – they outsource everything.

It all comes down to planning – what makes sense to an acquiring bank is not the same for a retailer or a payment processor.

How Aviso can help

A modern retailer has to have the functionality to accept all types of payments. New payment methods spring up every other day, such as m-commerce wallet options and mobile vouchers. These payment types need to be accepted. Businesses can’t afford to be left behind as consumer payment methods change.

Here at Aviso we understand that the merchants need a helping hand to scale this mountain of regulation, encryption and standards.

Aviso’s Novate product offers simple technology that is easily integrated with a customer’s existing payment processing system. In essence, it is a single cost-effective solution to all payment needs.

The operational simplicity of Novate makes it possible for organisations to insource their processing and eliminate the cost of external payment service providers.

Novate’s ability to handle very large transaction volumes cost-effectively makes low per-transaction revenues more sustainable. Built to take advantage of open technology, Novate reduces ownership costs and can be modified and maintained by customers using commonly available technical skills.

We have a range of solutions that are cost-effective, involve minimal integration work, and reduce cost and time to market.

Let’s, for example, take the beacon technology that we referenced earlier. This technology is fast becoming a must-have value added service (VAS) for retailers. Here at Aviso we are acutely aware of the potential that these services offer to our clients.

Fostering a long-term relationship with your customer should be a key part of any strategy and beacon technology enables, and indeed enhances, this approach.

Novate/VAS connects your payment system to value-added service providers – helping you profit from your payment system. It provides a flexible interface that can be used to enable merchants to offer sophisticated value added services to their customers, as well as giving value added services providers a single point of access to large numbers of merchants.

There are also issues around compliance with standards, mandates, and regulations that acquirers and merchants must navigate around. The mandate that is attracting most headlines is the October 2015 EMV mandate for U.S. merchants. Here, again, we have a bespoke solution.

Our EMV Wrapper provides EMV compliance without changes to existing applications, significantly reducing our customers’ migration risk. Our EMV Wrapper can sit anywhere in the payment stream to manage EMV compliance for our customers be they merchants, issuers, and/or acquirers.

The key point about acquirers in payment innovation is their necessary understanding of consumers’ changing habits so they can then enable merchants to provide a valuable service.

Next week

In the last part of our series of blog posts on payment innovation we focus on how life is changing for merchants.

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