Re-imagining acquiring: How should bank acquirers respond to the rapidly evolving acquiring market?

Driven by a surge in innovation, an enthusiastic community of new entrants, and a proliferation of new payment experiences, today’s acquiring landscape is more dynamic than ever before.

The past 18 months has increased the need for acquirers to enable merchants with new digital solutions. Here are five key acquiring trends and suggested responses for traditional acquirers to remain competitive.

Trend #1: Technology players have revolutionized acquiring

Over recent years, tech-savvy players have entered the market – transforming the acquiring value chain, redefining the merchant journey, and simplifying pricing structures and merchant experience across the lifecycle. Fintechs like Adyen, Stripe and Square, in addition to processors, software vendors, gateways, payment facilitators, value-added resellers, service organizations and point of sale vendors are all vying with acquirers, and each other, to create new value for merchants and their customers.

As a result, there is now a proliferation of new go-to-market business models, payment experiences, and acceptance points.

Trend #2: The rise of independent software vendors (ISVs) has required acquirers to re-imagine partner and vertical strategies

One of the most important developments has been the emergence of ISVs providing end-to-end software platforms to specific and tightly-defined merchant segments – such as Shopify for e-commerce merchants, or Lightspeed for restaurants, to outfits like Mindbody for yoga studios, Housecall Pro for field services, or Gingr for pet services.

By integrating payments into their business management platforms, ISVs have tremendous influence over the payment provider selection process. For example, 87 percent of U.S. merchants choose a payment provider at the same time or after selecting their business software, and 90 percent rate the ability to integrate payments into their software as important or very important.¹

The power of ISVs makes it critical for acquirers to not only develop their own segment-specific merchant strategies, but to also develop partnership strategies and robust value propositions to serve relevant ISVs and optimize engagements and integrations.

Trend #3: Merchants, large and small, are demanding more from payment providers

Years ago, acquiring sales were face-to-face, and merchants had to choose from a handful of pricing structures. Today, everything has been democratized. Merchants can select the solution that suits them, under the terms that are most relevant, using the mix of devices and technologies that are most appealing. Applications are submitted online, devices are plug-and-play, and merchants can accept payments within minutes.

Even small businesses are demanding capabilities like cross-border, omni-commerce, data and analytics, and differentiated user experiences. With increased investment in technologies such as digital applications, onboarding and servicing, the ecosystem can now serve them in scalable, cost-effective ways.

And while price remains a top priority, merchants of all sizes are placing greater value on simplicity and frictionless experiences - from simple pricing, onboarding, and set-up, to robust, intuitive self-service portals for account management and detailed reporting options.

Trend #4: Increased competition has driven consolidation

In the past five years, the industry has seen a wave of mergers, acquisitions, and investments. In 2019 alone, there were more than 30 mergers and acquisitions within the U.S. acquiring space.² Some of the more notable mega-mergers included Fiserv and First Data, FIS and Worldpay, and Global Payments and TSYS. In the five years preceding these mega-mergers, First Data Corp, Global Payments, TSYS and Worldpay spent a reported US $10 billion on acquisitions to boost their integrated payment efforts.³ These mergers and acquisitions aren’t just about scale. They are also about extending capabilities with merchants.

Similarly, these and other acquirers are making acquisitions to capitalize on the increasing value of integrated payments. In recent years, several leading ISVs, including Instamed, Axia Technologies, and Zego, have been acquired by top U.S. acquirers.

Many acquirers have also invested in acquisitions to strengthen their e-commerce and omni-commerce capabilities. While the shift to online payments has been ongoing, these investments became even more important as this shift accelerated in 2020 when payments volume continued to increase despite widespread business shutdowns.⁴

Trend #5: The shift to digital payments has accelerated

Globally, e-commerce purchase volumes rose significantly. This has led to a rise in unified commerce, and a blurring of the lines between online and in-store payments. At the same time, we have seen the continued rise in contactless payments, including especially in the U.S. market. In the U.S. in Q3, we surpassed 370 million tap-to-pay enabled cards, and we now have three cities above 25% face-to-face tap to pay penetration, New York, San Francisco, and San Jose.⁵ All the indications suggest that the changes will continue – driven by consumer demand and enabled by acquirer-side investment and innovation.