The curse of in-differentiation 
During a product briefing a couple of days ago a merchant mentioned to me that payment services providers and acquirers became an easy exchangeable commodity in the supply chain.  He explained that the PSP’s more and more converged to an indifferent mass without any value added services to distinguish themselves from one another. 

Obviously I disagreed, however I continued listening carefully. 

He further explained that the offered services, from implementation to continuous support or risk management prevention, are equally unsatisfactory. Reporting and reconciliation are often inadequate and settlement periods are way too long. Chargeback information and 3D Secure issues regarding conversion rate are mostly ignored and help to dispute chargeback’s unavailable. The fact that we are trading in a fragmented European payment landscape and its local payment methods doesn’t help and often makes it more confusing. Not to mention the PayPal’s and wallet solutions of this world.

I am wondering how many more merchants out there have the same opinion about their Payment Service Providers and how many Payment Service Providers that read this can identify themselves.

Complacence leads to stagnation
Having worked for a leading PSP for several years, my gut feeling and experience tells me that there must be plenty of merchants out there that share the same frustrations. I will not go into discussing the self-perception of PSP’s, but obviously it’s not matching with the merchant’s conception. It reminds me a bit of the banking industry and its DNA seems to have spread into former creative and dynamic organisations. They will just acknowledge that something doesn’t quite match anymore when it’s too late.  

What are the consequences of PSP’s ignoring their merchant’s needs and not distinguishing themselves form one another? 

Well, let me first address the consequences for PSP’s; Indeed, when you listen to their sales reps you will hear that the only differentiator nowadays is the price. They are not competing with value added services anymore which results in dissatisfying business partnerships on sides, demand and supply. The pressure of cost reduction on one side leads to service reduction on the other. The price erosion has the consequence that strategic partnerships are dissolving and service propositions as well as developments are discontinued. Formerly successful PSP’s become just another faceless product in the mass.

Flying budget can get very expensive
For the merchants the consequences are even more dramatic than for PSP’s as payment processing is not their core business even though when talking to them you could think it is. Not just, but especially when it comes to fraud prevention.  

I was flabbergasted when following some of the presentations and breakout sessions at the Merchant Risk Council this year. Some merchants went even so far to develop their own in-house risk management solution which supports their internal fraud teams that are manually going through orders.  If a merchant has to create its own fraud prevention department, it shows me that something is not quite right. Just think about the investment they have to make, the total cost of ownership and the resources it’s binding (financially and human). 

Their success stories are remarkable though and the payment industry could learn a lot, if they would listen. Unfortunately, it’s a one way street and findings such as fraudulent credit card transactions, identified local fraud-rings etc. are not fed back into the payment industry. One reason for that is that PSP’s, Acquirers but specially credit card issuing banks don’t seem to be very interested in fraud prevention. Watching them carefully one could get the impression that their drossiness acting in a dynamic environment is a tactical move to avoid investments.

Another example is 3D Secure; If used you lose up to 30% conversion rate, if not VISA/MasterCard abandons the merchant and even threaten him with penalties if the fraud rate increases. PSP’s don’t offer corrective measures and if, many of them do not have the implementation teams or knowledge anymore to assist effectively. 

In-different or wrong differential?
There are a dozen existing value added services at PSP’s that I know off and could be offered to their merchants immediately but they are not. Why? Because: 1.Many PSP’s are infected by the banking DNA and inherited their attitude of being reactive 2. They reduced resources and staff to respond to the pricing pressure of the merchants 3. Many of their sales reps are not even aware of their own solutions as they are selling their services as ‘boxes’ now instead of ‘tailored solutions’. Further discussions with the demand side about their industry, business strategy or target markets etc. are avoided as it would prevent them from closing the deal. After all it’s all about money, no?  On top of it they need to take care about the risk assessment, KYC and other regulatory requirements before a merchant can transact business.  Due to the pressure of both sides to ‘go live’  and their expectation to  generate revenue immediately a lot of things, that are essential in selecting the right PSP and Acquirer, are left out. As a result of this we can go back to the starting point in the beginning of this paper.

Devaluation of service
The sad thing is that there are perfectly good solutions out there, but due to the lack of communication and price pressure they shrivel in PSP’s propositions without being utilised. Both, demand and supply side have to acknowledge that the crux is that cheap transaction pricing leads to cheap services. Especially the merchants need to understand that cheap can become very expensive in the long run. Quality comes with its price and if not paid indeed PSP’s will become a merging, exchangeable, indifferent mass.