Core payment processing has become commoditized over the last decade, putting pressure on merchant acquirer margins. Providing merchants with value-added services and solutions for facilitating e-commerce is going to be their future development driver. Nowadays, merchants are willing to pay for commerce-enablement services. Merchant acquiring in a variety of industries will need to efficiently serve SMBs. Acquirers should use a combination of four tactics to achieve this.
Enhance ISV partners’ performance
ISVs are putting pressure on merchant margins and diminishing their share of the wallet. Due to this, the majority of major acquirers are looking for ISVs to work as distribution or product partners. Acquirers are increasingly serving merchants through ISVs, therefore their partners’ performance should be enhanced across key channels.
We’ve discovered common challenges with ISV sales and production paths that acquirers should avoid based on our experience and discussions with industry participants. Acquirers can use a set of best practices to assist in preventing problems for each class of issues.
Target a larger share of merchants’ expense wallets
Recognizing that payments account for a small portion of the SMB wallet, disruptive merchant services providers are focusing on far larger potential in software and services. Payment acceptance accounts for less than 10% of a typical SMB merchant’s software and service costs. The remaining funds are used for a variety of services, including loyalty advertising, logistics, point-of-sale (POS) and business-management software and insurance. With the growing integration of acquiring and software, delivering these bigger sets of services is getting simpler. To boost their revenue per merchant served, ISVs may now integrate payments, finance, and a variety of other goods into their platforms.
The larger the share of residuals that incumbent acquirers hand over to their ISV and bank partners, the more important it is for them to target a broader portion of merchants’ expense budgets by expanding their offering. Whether they have direct-to-merchant access or a merchant-facing portal or interface, rather than relying on other platforms and ISVs to contact SMBs, determines how efficiently they may do so. To increase product penetration, those having direct-to-merchant access should expand their product suite with proprietary or third-party products and change their economic and sales models. Those who serve merchants through ISVs could create solutions that their ISVs can white-label and cross-sell. In established SMB acquiring markets, the chance to target a bigger share of wallets is high. In other markets, however, merchants’ expectations are on the rise and local solutions are emerging.
Consider specific industries
Payments providers supporting SMBs have recently begun to structure their products, services, and go-to-market strategies by industry. Merchant acquirers and ISVs can now supply integrated industry-specific solutions thanks to the convergence of payments and software, as well as merchants’ desire to purchase solutions from a single vendor.
Whether merchants are reached through proprietary channels, independent sales agencies, or banks, acquirers must concentrate on businesses where they can offer bespoke solutions that go beyond payments. Providers who want to pursue industry-specific strategies must also adjust their products by area. The degree to which industries are digitized will partially determine their economics, scale, and attractiveness.
Given the constant investments that in-house platforms and software solutions must make to remain competitive, sector concentration can hinder scalability.
Create platform-specific solutions.
By 2025, acquirers will probably handle 50% – 70% of digital commerce, though this may vary by market. This move is likely to affect a variety of businesses, including media (like TikTok), retail and travel and hospitality.
Acquirers must provide specialized marketplaces tailored solutions, such as cross-border disbursements and submerchant onboarding, to flourish in this industry. Instant payouts and seller financing, for example, constitute a substantial and underserved value pool that acquirers can tap into through an increasingly consolidated collection of marketplaces. In addition to offering increased platform reliability, merchant acquirers with access to sellers can also provide them with enablement solutions like liability protection and continuity insurance.
As social commerce becomes more mainstream, social platforms and creative platforms will have different needs that acquirers might target. There are untapped opportunities in areas like facilitating micropayments, facilitating creator disbursements, and more efficiently monetizing payments, both within platforms or for suppliers who support creators.
Merchant acquirers will need to expand beyond core payment acceptance to provide merchants tools for enabling e-commerce if they want to keep expanding. With disruptive players already investing extensively in this space, failing to move quickly could result in a significant loss of revenue.