Helping merchants thrive in the eye of the storm

Thanks to colossal strides in payment technology ingenuity, the world of merchant acquiring has changed drastically over the past ten years. Tried and trusted business models have been reshaped by widespread M&A activity, the pace of transition to e-commerce, and an influx of non-bank fintech competitors.

A huge global upswing in e-commerce and the adoption of digital payments brought about by the pandemic, only served to hasten an already well-established trend of consumers and businesses increasingly transacting online. In 2022, e-commerce channels were said to account for around two-thirds of all acquiring growth. In many regions, this increase was a direct result of SMEs moving online to cater to an expanding global consumer base.

In fact, according to McKinsey, approximately three-quarters of all new revenue growth in merchant purchasing over the previous three years came from SMEs, and unsurprisingly, acquirers now find themselves in a desperate fight for their attention. Subsequently, squeezed pricing, stricter demands for regulatory compliance, and intense competition is placing huge pressure on acquirers around the world. 

With so many acquirers competing for their business, merchants can afford to be picky in their search for the best rates, value-added services, and customer support. This is true for both traditional merchant verticals such as retail, as well as more niche segments that are quickly gaining a larger share of payments made through digital channels.

Pricing pressures place more burdens on businesses

So, what are the pressure points that acquirers need to address in order to succeed in a market that is becoming ever more competitive? According to McKinsey, expanding the array of payment methods and servicing transactions through e-commerce channels will see the cost of accepting payments for merchants increase by 6–10% – to an anticipated $15 billion – in 2023. 

As global online businesses confront increasing fraud risk, higher cross-border and foreign currency costs, lower acceptance rates, and higher decline rates, the cost of receiving payments continues to rise. However, the growing volume of e-commerce is only one piece of the puzzle.

At the pandemic’s onset, payment schemes and many governments around the world capped interchange fees for online payments in a bid to support SME merchants in weathering the economic, storm, helping to keep the cost of accepting e-commerce payments in line with traditional point of sale (POS) systems.

However, while the impact of COVID-19 has diminished, a new storm is brewing, with payment giants Visa and Mastercard introducing hikes in interchange fees applying to card-not-present (CNP) transactions between the UK and European Economic Area (EEA) following the UK’s exit from the EU. According to the UK’s Payment Systems Regulator, as of 2022, Visa and Mastercard interchange fees on some EEA payments have since increased five-fold, with smaller businesses in particular facing higher costs as a result. Smaller businesses may be threatened with extinction because they lack the negotiating strength of their larger rivals to reduce acceptance costs.

Amid this, more recent global economic turbulence is placing even more strain on cost models, with some research showing a 222% increase in customer acquisition costs since 2013 – in the current climate, it may be more cost-effective for some businesses to focus on retaining existing customers, rather than go all-out to attract new ones. 

However, acquirers are also under pressure to give merchants even more value. Those who can provide merchants with highly individualised pricing based on their circumstances will succeed in attracting new clients. A small merchant's choice of acquirer can be greatly impacted by fees of even a few tenths of a percent.

Size matters? Customised client service is even more important

Boasting extensive scope and variety of services, a top tier of pan-regional giants has been produced via acquirer consolidation over the past ten years. In fact, there were around 100 mergers and acquisitions in the merchant acquiring and processing industry each year since 2020 alone, providing unequivocal proof of how quickly evolving e-commerce trends are fuelling intense competition in the market.

But as acquirers grow in scale, they are also burdened with several legacy systems and solutions that compete with one another, as well as old payment gateways and core systems that are often difficult to customise for individual markets or merchants. Some large acquirers have as many as two or three different regional payment gateways or platforms, each with its own set of payment options, services, reporting options, compliance requirements, and levels of complexity that must be managed by the acquirer and implemented by the merchant. Often, having too many options can be detrimental; increasing costs and making it more difficult to provide specialised services.

The uniquely customised, client-centred services that merchants desire cannot be effectively tailored to by larger acquiring entities, despite their ability to benefit from economies of scale and set non-negotiable pricing. No merchant wants to be treated uniformly by their acquirer.

Acquiring in the modern era goes beyond hardware

As a result, acquirers are spending more of their revenue on value-added services, while merchants are requesting feature-rich, data-driven, value-added services in order to compete. Merchants are willing to pay more for positive results including greater checkout conversion rates, better consumer payment experiences, and higher authorisation rates. These data-driven insights are treasure troves for SMEs seeking global growth.

In order to eliminate all merchant acquiring pain points, a series of white-label payment gateways have surfaced that handle the most frequent operational responsibilities for acquirers – such as end-to-end fraud control, dispute management, and data reporting. These gateways provide customisation for unique acquirers to grow and tailor services for businesses. In order to ensure regulatory compliance, onboarding procedures can be streamlined for enhanced AML demands, and designed for certain markets or sanctioned nations.

Such platforms speed up the slow, labour-intensive requirements of fraud prevention and control, dispute management, and other operations that would often require an army of in-house workers. By automating all of the complex activities acquirers typically deal with, reports that would often take hours or even days to generate can now be made available quickly thanks to real-time data drilling that can produce actionable insights.

Acquirers may onboard more revenue-generating merchants much more quickly across a variety of verticals by combining the new breed of unified payment gateways with specially tailored value-added services. Acquirers can assist SMEs to scale swiftly, get new services to market more quickly, and increase merchant stickiness thanks to dynamic technological platforms that can change in accordance with market demand. For both merchants and their acquirers, that kind of added value is priceless.