No Margin for Error: Acquirers Must Now Master the Art of Reinvention [Q&A]
The digital transformation of banking and growing competition within the industry is rapidly changing the world of global acquirers. Long gone are the days when an acquirer’s primary role was simply to facilitate an acceptance ecosystem for credit card payments. As part of its new “Prime Time for Real-Time” report, ACI recently published No Margin for Error, an eBook looking at the changes — and challenges — facing acquirers. I spoke to Ruth Fornell, our executive vice president – consumer payments, about the key insights, why acquirers are being forced to rethink their business models and what the future may hold.
Katrin Boettger: The world of acquiring is changing rapidly. In your view, what are the key trends driving that change?
Ruth Fornell: I think it is fair to say that acquirers are going through the most significant change in their history. I see three main reasons for this. First, there is a huge increase in payment types and options all around the world, which puts pressures on acquirers. Second, new banking regulations that were introduced over the last few years, especially in Europe including PSD2, GDPR and SCA, have increased workloads and costs for acquirers. And third, there is more competition; new fintech players are challenging traditional business models, offering more choices to merchants. Acquiring is a business with thin margins and because of these changes, margins are getting squeezed further — acquirers need to reinvent themselves.
KB: How will the global advancement of real-time payments impact acquirers?
RF: Being aware of global real-time payments trends is crucial to understanding both the pressures acquirers are under, and how they should react in order to thrive. Obviously, the nature of this pressure varies across the world: each country has its own drivers for real-time adoption, as well as different regulations and mandates, creating impetus for change.
Acquirers in established markets, like the U.K. for example, will need to find ways to transact more efficiently, maximizing the profit from each payment, while also meeting market demands by developing value-added services to find new revenue streams and retain merchant loyalty.
In contrast, the U.S. is still very much a developing market: it has three real-time payments types and its transfer limit per transaction is far lower than in the U.K. ($100,000 rather than $319,000). However, the quantity of U.S. real-time transactions is set to increase six-fold by 2024 to 4.2 billion. And the launch of additional payment schemes, like FedNow, will likely drive up volumes even further. Here, acquirers will need to be ready to process a serious uptick in transaction volumes and enable merchants to accept account-to-account payments.
KB: So, what could this new era of acquiring look like?
RF: The new era of acquiring is driven by the digital-first consumer. No one could have predicted the speed at which consumer behavior in relation to payments has changed. A few years ago, it was difficult to imagine that consumers would happily pay large sums with a tap of their mobile. However, the global use of mobile wallets has grown massively. In Brazil, for example, mobile wallet adoption increased from 7.4 to 57.5 percent between 2014 to 2019, and in India from 22.3 to 83.6 percent during the same period. In Kenya — a highly underbanked population — mobile wallet usage is as high as 93 percent. Going mobile presents many possibilities, but also challenges for acquirers.
To maximize their own profitability, merchants need to be able to accept as many payment methods as possible — going beyond the traditional debit or credit card towards modern payment types, such as digital wallets and mobile cards. In many countries, real-time payments still lack ubiquity and maturity, and merchants are reluctant to accept new types of payments. But as we have seen in countries like India, once new payment types reach a certain acceptance level and critical mass, there’s no stopping. Merchants and acquirers need to be prepared for these changes.
KB: When planning for the future, where do acquirers start? And what do you think the impact of the COVID-19 pandemic will have on any plans?
RF: Acquirers need to make sure they invest in the future with the right technology — nimble, agile, configurable — these are today’s buzzwords. But the change in software should also bring a change in mentality and operating models; speed to market is crucial in the new world of acquiring.
I also believe that the COVID-19 pandemic will accelerate the digitization of the entire economy. Just imagine what we would do in the current situation without high-speed internet, Zoom calls, eCommerce and digital payments! The crisis is also going to speed up the move to software deployment in the cloud, as more financial institutions come to realize that the cloud is secure and cost-efficient. In the new era of mobile apps and digital payments, acquirers have access to modern reference architecture, offered by cloud providers, which allows them to easily develop and integrate new merchant services without disrupting their core business.
KB: What do you think the future holds for acquirers?
RF: It will not be the end for traditional acquirers, but they won’t have the monopoly they once had. The new world of acquiring will be made up of new players, as well as traditional players that have succeeded in reinventing themselves. There will be a share of the cake for everybody, but who gets the biggest slice remains to be seen.
To learn more about how global acquirers can tackle these challenges, download our eBook, No Margin for Error: Why Acquirers Must Change Their Business Models to Thrive in the 2020s.
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