Payment Service Providers Face Pressures from Many Sides, as Merchant Expectations Rise
The payments industry is more dynamic than ever, and despite the advances that innovation brings, the speed of change is undeniably putting pressure on traditional business models. The roles of acquiring banks and payment service providers (PSPs) – previously quite clearly defined – are blurring, and merchant demands are becoming technologically more complex.
So far, PSPs have fared well, but many are now experiencing the effects of rising merchant expectations. Merchants are asking their PSPs not only for secure and reliable payment processing, but for an extensive toolkit that will support any number of different growth trajectories; from mobile to omni-channel, from domestic optimization to cross-border expansion. PSPs need to be able to offer their merchants such a toolkit – either by building it themselves or by forging a strong partnership with a technology provider.
Key trends in eCommerce that are shaping merchant demands
Cross-border sales reached $300 billion in 2015, which is 25% of total global eCommerce, and this share is expected to increase. Merchants – especially those in digital goods such as gaming and media – know that cross-border expansion is a proven path to rapidly scale their business, but they need a PSP that can support them on this path. This includes having the right fraud prevention strategy in place, tailored on a country by country basis.
Another trend is that alternative payment methods continue to grow in importance, and in some markets have already overtaken card payments. North America is still card-dominated, but the picture in Europe and Asia is much more diverse. While it’s now a given that global expansion requires merchants to enable locally-preferred alternative payment methods, merchants should also be considering how they can optimize the payment mix within their domestic market. Optimization is a never-ending process, but even a slight increase in conversion rate as a result of optimization can significantly impact revenues.
On the technology side, there is a trend towards ‘open’ technology platforms, with RESTful APIs as the gold standard. Payment platforms utilizing such infrastructure are being sought out by merchants that know that the only constant is change, and are choosing to work with PSPs whose solutions are based on open platforms. The flexibility and adaptability that open infrastructure offers reduces the likelihood that a merchant will ‘outgrow’ their PSP, and have to reevaluate vendors as their business grows.
Pressure from new market entrants
PSPs are also facing pressure from new market entrants, as non-PSPs adapt their payments offering in a bid to win market share. Acquirers, logistics companies, banks, and card schemes are all encroaching on the traditional services offered by a PSP, cognizant of the fact that merchants – when it leads to efficiencies – prefer to work with fewer vendors and streamline their operations. In this highly competitive environment, it is critical for PSPs to develop a differentiated product portfolio. This may be via a range of value-added services, or by becoming highly specialized in a certain niche, vertical, industry or region.
Importantly, PSPs should ensure that they are backing up their offering with outstanding customer service. On the technology front, what is next-generation today is standard tomorrow, but superior customer – clichéd as it may sound – is timeless. It should remain a top priority.
The eGuide, “The Brave New Payments World for PSPs” details the trends shaping today’s eCommerce payments landscape, the major challenges facing PSPs, and how they can be overcome.
Related Blog Posts
Dedicated Followers of Fintech: Why Transaction Banking Never Goes Out of Fashion
Taking part in a panel at a recent corporate treasury conference, I was introduced as a ‘consumer payments expert’ – not an obvious qualification for sharing stage-time with serious corporate liquidity and cash management folk, but as the talk track was on mobile wallets and Open Banking, I had some reasonably safe and relevant content on which to fall back.
Sibos Preview: The Five Trends Transforming Real-Time Payments
Real-time is now a reality, with more than 30 schemes live around the world. And real-time is in the spotlight as banks and financial service providers make their way to Sydney for Sibos 2018. What better time to look ahead at the key trends that are going to shape the ongoing development of real-time payments.
API Management: The Reason Digital Open Banking Can Fly
When it comes to thinking about the different roles that an API Manager can play for an organization, I personally think that an airport provides the perfect analogy. The customer is the passenger, the third-party organizations using a bank’s APIs are the airlines and the airport itself is the bank. I also think this analogy helps to visualize the variety of API management capabilities – including the role of an API gateway.
Can Corporate Banking be as Easy as Ordering Pizza?
ACI recently hosted Greenwich Associates on a webinar to discuss corporate banking. While not a topic that would usually make attendees salivate, the discussion turned toward ordering pizza (maybe, because it was close to lunchtime) and Greenwich highlighted how corporate banking should be as easy as ordering pizza.
Modernizing Cross-Border Transfers with SWIFT gpi
The customer experience for domestic payments – retail and corporate – has recently undergone a complete transformation. There’s still plenty more that could be achieved, but the advent of real-time payments in combination with open APIs has seen the launch of Request for Payment services and direct eCommerce instant payments in the UK and Europe. And it’s not just the PSD2 push in Europe that’s driving change – in the U.S., Zelle is moving beyond standalone P2P payments to become an integrated part of the retail banking app experience, as well as being included in new kinds of corporate disbursements.
Instant + Open Payments = A Winning Combination
I recently joined a panel discussion at EBAday 2018, alongside representatives from across the payments ecosystem, and the clear consensus was that real-time payments will be the new normal. This was evidenced by some of the interactive polls carried out.
Maintain Vs. Invest: What the Digital Era Ushers in for Banks
Taking place this week in Brussels, the European Credit Research Institute (ECRI) will host a high-level debate on how policymakers can build on the process of digitalisation of banks to raise competitiveness in light of increased competition from fintech start-ups and tech giants.
How the Merchant Payment Ecosystem Can Create Value in Instant Payments
Recently, ACI conducted some research into the appetite to make use of instant payments among corporates. The results were overwhelmingly favorable, but when we think about the benefits of immediate payments for corporates, it does seem obvious that they would want to leverage this new payment type.
Real-Time Payments Will be Europe’s Most Dominant Payments System – Are You Ready to Realize the Full Value?
Since the launch of the SCT Inst rulebook in November 2017, many more banks are live and offering real-time payments to their customers, with most of the rest committed to 2018. The buzzword at the recent ECB #TIPSapp Event in Frankfurt was ‘Interoperability,’ or as my friend José Beltrán from STET would say, ‘Reachability.’ No-one expressed this more clearly on February 6th than Javier Santamaria, President of the European Payments Council, when he reiterated his message from Il Salone Dei Pagamenti, the day after the SEPA launch; "We have launched the Pan-EU scheme, now it is up to you in the audience and beyond to take advantage of it and make it work."
The Hammer Finds Its Nail: Open Banking and Commercial Cash Management
Globally, the Open Banking story has been shaped by Europe, thanks to PSD2 (The Revised Payment Services Directive) and the effect that it will have on us as everyday consumer banking clients. This will forever change our experience with financial tools for the better.
The banks that have traditionally served us will modify their models to support the foundational layer of a new ecosystem of co-invention and partnership. This story is all well and good, but so far most – if not all – of the discussion has surrounded the consumer experience and has neglected where the most fertile ground for change and disruption lies—corporate and commercial banking.