The merchant acquiring industry faces continuing pressure from shrinking margins and disruptive competitors, but it has used the past five challenging years to seek out a position of strength.
Facing thinner transaction revenue and the torrid advancement of technology, many acquirers have stuck to the basics while also embracing digital products and security services to maintain their status in the payments food chain.
Merchants are becoming less receptive to re-pricing tactics, so acquirers can’t rely on interchange-plus pricing, bundled rates or flat-rate pricing to turn that tide, Annapolis said.
Yet, chief financial officers of acquiring companies say they are optimistic about the future for their industry and that margin compression is not a life-threatening issue, according to a separate report from payments research firm Double Diamond Group.
“Margin is really revenue and cost combined … revenue continues to go up, though a little less with each incremental transaction, but costs stay largely the same,” said the report’s co-author, Richard Oglesby, senior analyst at Double Diamond Payments Research.
The acquiring industry has dealt with a wave of new entrants and new technology the past few years. The landscape was again reshaped in recent months with the launch of Apple Pay and the consolidation of Google Wallet and Softcard.
In addition, Samsung acquired LoopPay before unveiling Samsung Pay on its newest Android phones, while PayPal is stepping up its acquisitions by purchasing Paydiant and CyActive ahead of the company’s separation from eBay.
“The threat was overblown a bit,” Oglesby said. “The acquirers have to distribute these services and there’s nobody out there that can distribute the way acquirers can.”
But even if these new threats were not instantly lethal, it would be foolish to ignore them for too long, Oglesby said.
“Acquirers don’t have to adapt to the speed of technology; they have to adapt to the speed of their competitors,” Oglesby added. “The reality is, acquirers and payments in general don’t change that quickly.”
ISO & Agent, March 12, 2015
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