The Acquiring Industry Stays on Its Top-Heavy Course

The rich in merchant-acquiring market share got richer last year, but nearly everyone got a little poorer when same-store sales are the measure, according to the latest annual study of the acquiring industry by Mercator Advisory Group Inc.

The top five acquirers processed 74% of U.S. general-purpose payment card charge volume in 2009 and the top 10 processed 87%, according to Mercator senior analyst David Fish. Those market shares are up from 71% and 86%, respectively, in 2008, and they continue a consolidation pattern that’s now about 20 years old. Maynard, Mass.-based Mercator compiled its numbers and conclusions through analyses of available data and interviews with acquiring executives.

The top five U.S. acquirers in 2009 were First Data Corp. through its direct acquiring operations and alliances with bank partners; JPMorgan Chase & Co.’s Chase Paymentech; U.S. Bancorp’s Elavon subsidiary; Fifth Third Processing Solutions LLC, and Global Payments Inc. Fish would not divulge the acquirers’ charge volumes.

Coming out of the recession, few merchant acquirers are seeing notable organic growth—increased business from existing merchants. “I think the market is top heavy where the largest players seem to be growing share mainly through inorganic growth—mergers and acquisitions, etc.,” Fish says.

In fact, acquirers suffered through drooping same-store sales in many retail segments last year. Citing figures compiled by the U.S. Department of Commerce’s Census Bureau, Fish notes that retail and food-service sales were off by 6.3% in 2009 versus 2008. “A lot of acquirers had declines in bank card volume in 2009; same-store sales were down considerably,” says Fish. On the flip side, the report notes a number of merchant segments that the Census Bureau says are still growing or at least resisting the downward pull of consumer spending cutbacks, including drinking establishments and used-merchandise retailers. While many restaurants suffered big drop-offs in business or even closed during the recession, the full-service restaurant segment has remained flat, Fish says.

The consolidation trend is evident well down the merchant-acquiring ladder, with independent sales organizations and private-equity firms buying smaller industry players. Often the acquired company has technology, a processing platform, or a specialized merchant base that the new owner finds valuable. In one recent example, the big ISO North American Bancard LLC bought Vesta Corp.’s Point and Pay, a payment processor for municipalities and other public-sector merchants. In another, the growing ISO FrontStream Payments Inc. bought Fast Transact Inc., whose products include payment gateways for online merchants and specialized services for non-profits and churches (Digital Transactions News, March 22).

Fish sees little to stop consolidation “without entry by new players.” Such players might include the various alternative payment systems or social networks. New technologies such as mobile payments and the so-called EMV chip-card system, now widespread in much of Europe and Asia and in full development in Canada, also could upset the acquiring apple cart. “The looming presence of EMV in the U.S. market could be a huge disruption,” Fish says, noting that acquirers could see more liability for disputed transactions shift to them from card issuers.