Making Sense of the Relentless Tech-Driven Changes in the Merchant-Acquiring Industry

It might be a cliché, but the saying that the more things change, the more they stay the same has some validity for merchant acquirers despite the rapid introduction of new technologies and the entrance of new competitors in recent years.

For example, the top 10 U.S. merchant acquirers in 2015 had between 85% and 90% of the market, little changed from the share they commanded 10 years earlier, according to C. Marc Abbey, managing director at First Annapolis Consulting Inc., an Annapolis, Md.-based firm that works closely with acquirers. And the only change in that exclusive club in a decade has been the replacement of iPayment Inc. by Worldpay, Abbey said.

Abbey led a session titled “Tipping Point or Death of 1,000 Cuts: Is Acquiring Facing Radical or Incremental Change?” on Thursday that closed out the MidWest Acquirers Association’s 2016 conference in Cleveland. One of his points was that despite the seeming appearance of rapid change, or tipping points, the effects of such change may take years to become apparent.

“Tipping points are never instantaneous, even if they have great impact,” he said.

One major example is the recent appearance of so-called payment facilitators, or software-as-a-service providers that offer merchants business-management applications along with payments as just one more service, in contrast to merchant acquirers whose primary service for decades has been payments. These facilitators, frequently referred to as integrated software vendors or value-added resellers, still account for only about 10% of the acquiring industry’s market, but they’ve captured about 50% of industry growth, according to Abbey.

Whether the payment facilitators, whose representatives include Vantiv Inc.’s former Mercury Payments subsidiary and Global Payments Inc.’s OpenEdge unit as well as ride-share app developer Uber, represent a tipping point for the industry or incremental change is unknown, but Abbey expects their influence will be strong.

“That distribution model has a whole lot of advantages…you can see that phenomenon having the potential to really change the market,” he said.

At the high-volume end of the industry, JPMorgan Chase & Co. has shaken things up by creating its own closed-loop payments service called Chase Pay, which leverages the banking company’s huge merchant-acquiring and cardholder bases. “Effectively, they’ve moved a lot of market share up at the top of the enterprise merchant level over the last several years,” said Abbey.

While industry executives and researchers and consultants can debate the pace of change, there’s no question that acquirers, no matter what their size, can’t stand still, according to Abbey. He urged his audience of independent sales organization executives to move away from being generalists in payments—“those days are going to be behind us shortly, I suspect”—and concentrate on profitable specialties. Such concentrations could focus on vertical markets, such as restaurants, or horizontal ones, such as businesses owned by Hispanics, he said.

Using a baseball metaphor, Abbey recommended that acquirers “look for the fastball and react to the curve ball. I think you have to prepare your company for a scenario of rapid change.” And even if change comes more gradually than expected, “you’ll be no worse off,” he said.