Visa Consulting & Analytics

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 global pandemic, and its lasting impact on how merchants and their customers interact, has increased the need for acquirers to enable merchants with new digital solutions.

As a result of these changes, many acquirers are reassessing their strategies and business models to determine how best to serve their clients in this rapidly evolving landscape.

In this paper, Visa Consulting and Analytics (VCA) looks at five key acquiring trends and suggests responses for traditional acquirers to remain competitive in this exciting evolution.

TREND #1

Technology players have revolutionized acquiring

Over recent years, tech-savvy players have entered the market and, together with the most tech-forward acquirers, transformed it.

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 independent software vendors (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.

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.

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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 start accepting payments within minutes. Meanwhile, even small and micro-businesses are demanding capabilities like cross-border, omni-commerce, data and analytics, and differentiated user experiences. | | 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, for example, there were more than 30 mergers and acquisitions within the U.S. acquiring space. Some notable mega-mergers included Fiserv and First Data, FIS and Worldpay. These mergers and acquisitions aren’t just about scale; they are also about extending capabilities with merchants. |

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, particularly in the U.S. market. By April 2021, one out of every 10 Visa point-of-sale (POS) transactions in the U.S. was conducted with tap-to-pay.

• Card-not-present (CNP) year-over-year (YOY) growth outpaced card-present (CP) growth by nearly 30 percentage points.
• YOY processing growth at acquirers with >50% CNP volume was 5x higher than other acquirers.
• YOY CNP growth at businesses processing $100M or less outpaced CP growth by over 20 percentage points.

Taking stock – and selecting the right response

For bank acquirers, this post-pandemic context has made a complex and competitive sector even more challenging.

Despite the challenges, significant opportunity remains for acquirers to succeed and carve out a differentiating, value-creating role. Bank acquirers in particular have an opportunity to create value by capitalizing on their natural advantage to offer a full suite of solutions, including merchant services.

How should bank acquirers respond? Here are five key steps:

STEP #1

Understand and quantify the strategic value acquiring can create

This will depend on the nature of your existing acquiring business. For example, acquiring can play an important role in your overall merchant value proposition and retention strategy.

STEP #2

Formulate a clear strategy

A fundamental requirement is to decide on the strategic function that acquiring will fulfill.

STEP #3

Know where you can compete and win

Be clear about your competitive strengths and weaknesses, including your existing strengths by vertical, geography, and segment.

STEP #4

Know how to compete and win

The end game is to construct a compelling value proposition and establish the critical capabilities that will support it.

STEP #5

Determine the necessary resources, capabilities, and infrastructure

Put careful thought into your operating model and how it will be constructed.

Five characteristics of best in class acquirers

Through our work with high-performing bank acquirers across the world’s most competitive and developed acquiring markets, we have identified five characteristics:

CHARACTERISTIC #1

They embrace technology to deliver unique and seamless experiences.

CHARACTERISTIC #2

They target key verticals and segments with a well-defined target audience and value proposition.

CHARACTERISTIC #3

They own – and invest in – what is differentiating.

CHARACTERISTIC #4

They focus on the customer relationship and the frontend user experience.

CHARACTERISTIC #5

They harness the power of data to optimize their business and deliver value to their merchants.

In the acquiring ecosystem, with so much happening so quickly, there is an imperative to set the right course – but also an opportunity to create winning strategies that drive growth while adding value to merchants and the broader organization.