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Merchant Acquiring

Acquirers Are Embracing Potential Competitors, Study Shows

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The acquiring industry's established players are concerned about tech companies entering the business, but they're doing something about it – often by joining forces with the new kids.

Those are some of the finding of a survey released this week by the Electronic Transactions Association and Goldman Sachs Investment Research.

"Displacement risk is the main concern for incumbents," says Jason Oxman, the association's CEO.

Jason Oxman

Jason Oxman

That's why almost everyone rooted in the acquiring business plans to take action in response to new players and new smartphone payment technology, Oxman says.

Some 47% of survey respondents say they'll react to the industry's new players either combining forces with them or acquiring one of them, the survey shows.

Another 34% intend to develop their own approaches to mobile payments, according to the study.

About 10% plan to take "other" unspecified action, while 5% expect to lower prices to cope with industry developments and 4% anticipate no change in strategy, the research indicates.

Researchers also asked established players who plan to work with new entrants why they've made that decision, Oxman says.

In that group, 45% indicated they believe cooperating with new entrants would lead to "stickier" relationships with merchants, he says.

Some 35% of that group saw working with new entrants as a way of making money in ways that go beyond transaction processing.

About 14% of the group view working with the new players as a way to gain an advantage in competitive bidding.

However they decide to approach the changes in the industry, nearly all of the acquirers surveyed plan to offer smartphone- or tablet-based payments in the next 12 months, the survey shows.

Fully 87% took that position, while just 6% responded with an outright "No." Some 7% didn't seem ready to provide a yes or no answer.

Among those saying yes, 31% plan to provide wireless payments with the help of their current point-of-sale hardware providers, 29% are developing their own hardware and 27% are seeking help from a hardware supplier they haven't used before.

"Whatever internal resources they're devoting is validated by this survey" because so many of their colleagues and competitors are similarly engaged, Oxman says.  "The industry has embraced innovation and the need to deploy new services."

Tech companies are not always willing to cooperate. Groupon, for example, says it bases its pricing on being able to use its own sales force instead of partnering with an independent sales organization.

Asked to rank new players by order of importance, survey respondents chose PayPal as No. 1, followed by Square in second place and Intuit in third.

The established companies' willingness to deal with those and other new entrants to the industry falls into line with the association's recent push to bring tech companies into the association, Oxman says.

Tech firms that have joined the association in recent months include all four mobile carriers (AT&T, T-Mobile, Sprint and Verizon); Panasonic; Neustar, the company that maintains the database of all cellular phone numbers; and Ericsson, which builds infrastructure for cell phones.

The association wants to provide established members with opportunities to work with the industry's new entrants by bringing both groups together at conferences and meetings, he notes.

To that end, the association has established a mobile-payments zone for exhibitors at the trade group's annual expo in late April and early May.

"Eighty-five percent of the mobile-payments space sold out by the time we announced the zone publically, and over 90% of it's sold today," Oxman says.  

For the survey, the association defined established companies as independent sales organizations, acquirers and point-of-sale providers.

Goldman Sach has produced research for the association a number of times, Oxman says. For this report, the company surveyed 80 association member companies by email in November.

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