Few global markets are quite as dynamic as merchant acquiring
“Alongside the clear opportunity to enable the growth in online payments, there is considerable scope to displace more cash payments in the face-to-face environment, to benefit from new point of sale technologies, to better integrate the virtual and the physical worlds with seamless omnichannel payment propositions, to respond positively to the sweeping regulatory changes, and to create new value for merchants by delivering a suite of payment and payment-related Value-Added Services (VAS)”.
Walter Lironi, Head of Visa Consulting & Analytics, CEMEA, Visa
Customers expect digital first, contactless payments
“It seems that a touch-free shopping experience is here for the long-term. Now 85%2 of consumers expect digital options when they shop in person. We’re seeing new modalities like virtual reality shopping, smart living everywhere, and connected loyalty. Furthermore, our latest edition of Visa Back to Business study3 revealed that only 17% of consumers say they would revert to their old methods of payments even after a vaccine is widely available, despite it making physical payments safer. With the availability of the vaccine in their local community, 49% of shoppers would not change their new shopping preferences.”
Neil Caldwell, Head of Merchant Sales & Acquiring, CEMEA, Visa
Five imperatives for forward-thinking acquirers
The large merchant segment is a complex, at-scale business that is more and more controlled by sophisticated at-scale providers. However, we still see significant and profitable opportunities for banks to offer differentiated and diversified acquiring services to the micro-merchant and small-to-medium merchant segments.
The specifics of the response will be determined by the bank’s circumstances, the size and characteristics of its commercial and business banking portfolio, and the nature of the retail environment in its home markets. However, Value-Added Services will play an increasing relevant role in terms of differentiating factor and revenues driver. To this extent we have compiled five imperatives that, we believe, are relevant to any acquiring bank operating anywhere.
- Invest in the right technological and digital capabilities - an excellent SmartPOS ecosystem (including the physical device technology and an app marketplace) is a pivotal requirement. Also, strong digital capabilities are needed to deliver mobile-based Value-Added Services (including a laser-like focus on the elegance and simplicity of the user experience).
- Resolve the ‘make or buy’ dilemma - strategic decisions relating to buy/partner/build should be made with a full understanding of the investment and agility required to succeed
- Monetize the new data flows - one of the main benefits of a ‘Make’ strategy is the ability to harvest and retain all of the data that is generated by the Value-Added Services usage. This data can be monetized in many different ways – one of the most notable opportunities may be the enhancement of credit scoring and monitoring.
- Assemble a relevant Value-Added Services (VAS) - a complete set of advanced VAS are a ‘must have’. Our experience at Visa Consulting and Analytics is that, day-by-day, price competition is becoming less relevant when compared to the range and quality of VAS offered to merchants.
- Build a strong pool of Value-Added Services (VAS) developers - even when pursuing a largely “Buy” strategy, it is still necessary to assemble a strong pool of VAS developers. It is necessary to stay 100% focused on VAS updates and innovations. And, again, time-to-market is crucial in the new environment, requiring the capability of an autonomous reaction.
Acquirers hope to generate ~40% of revenues from Value-Added Services by 2023
Some interviews1 conducted by Visa’s Central Europe, Middle East and Africa (CEMEA) Strategy team revealed that acquirers in CEMEA hope that Value-Added Services can contribute to almost half of their revenues. This is driven by two factors:
- Contracting processing revenues
- Growing share of lower volume SMEs, and a need to enhance monetization of this segment
When it comes to Value-Added Services priorities, acquirers highlight:
- Priority #1: Value-Added Services falling under the “Consumer Offers” banner, such as loyalty & campaigns, installments, gift cards & coupons, etc.
- Priority #2: Analytics & Reporting: main focus is on risk management, authorization optimization, as well as consumer behavior analysis, etc.
In this Opinion Paper, Visa Consulting and Analytics Team consider the main trends, the responses from both traditional and new players, and the type of opportunities open to today’s acquirers.
For more insights please read our full opinion paper here. To find out how we can help you address any of the ideas discussed, please get in touch with our Visa Consulting and Analytics team.
All brand names, logos and/or trademarks are the property of their respective owners, are used for identification purposes only, and do not necessarily imply product endorsement or affiliation with Visa.
1 Source: Visa, Acquirer interviews and desktop research, October 2019 - March 2020
2 Visa, "The Visa Back to Business Study 2021 Outlook"
3 The Visa Back to Business Study (Third Edition)