The growing complexity of technology is forcing payments providers to ask whether they are better off becoming one-stop shops or building a network of partners to fill out their offering.
The cloud commerce provider Avangate prefers to be a merchant's sole provider. "Everyone is looking for full solutions, not just access to a payment rail," says Michael Ni, head of products and marketing. "Companies that move beyond payments and into full cloud commerce with security and fraud prevention will succeed."
eBay Inc.'s payments unit PayPal, by contrast, sees itself as just one link in a chain of companies providing cloud-based services.
"There are some services we believe we can deliver directly to merchants, such as demand-generated platforms, working capital initiatives, and loyalty to wallet," says Brad Brodigan, vice president of retail for PayPal. "But the difference between us and other players is that we don't want to compete with our partners, we want to enable our partners."
Under that business model, San Jose-based PayPal steers its merchants to service providers in which PayPal payment acceptance has already been integrated.
"Whether it is an online checkout basket or a reservation system, or order-ahead for a quick-serve restaurant, or various [mobile point of sale] partners, we have a list of online and offline certified partners," Brodigan says. "We have worked with them to integrate our payments system into their platform."
Redwood Shores, Calif.-based Avangate says it chose a different approach because it can take several months for a client to try to piece together all parts needed for its commerce model, Ni says. Merchants often find themselves in the middle of "an interesting tug of war between vendors and the wallet providers or other payment methods out there," Ni says.
Avangate can help merchants establish a cloud-based commerce system in about a month, Ni says. "We've been in this market a long time and started in 2006 as a payments gateway for the digital space, but moved very quickly into the commerce world."
Avangate currently has more than 3,000 customers using its self-service dashboard of cloud commerce components. Depending on the business, this dashboard might include payments, billing and subscription management, online and multi-channel capture and business management tools, Ni adds.
It is becoming increasingly critical for merchants to embrace commerce across mobile, online and other channels and for payments providers to deliver it.
Mobile's share of online sales during the 2013 holiday shopping season rose nearly 50% from the previous year, with consumers using smartphones to browse websites and using tablets to complete purchases, according to Keynote Systems Inc., a mobile and Internet performance reviewer. Overall, online sales powered about 10% of the $601 billion in holiday shopping sales in the U.S., Keynote says.
"The age of omnichannel retail is here," Keynote states in its outlook for 2014. "Retailers are chasing consumers as they search on one device, make selections on another, and press the 'buy now' button on still another."
PayPal's strategy serves another purpose for the company. PayPal has been moving aggressively into new channels such as the physical point of sale.
"We want to make sure our customers can use PayPal everywhere and merchants can accept PayPal everywhere," Brodigan says. "We integrate with the most popular POS solution providers out there today, and many are new cloud-based POS solutions."
PayPal also offers merchants a chance to reach an international audience, handling compliance concerns in 193 markets and payments in 26 currencies, Brodigan says.
This ominchannel push is vital to the company's growth, says James Wester, research director for global payments at IDC Financial Insights.
"Scaling is hard, but scaling is necessary in payments since revenue is such a small part of processing volumes," Wester says. "At $180 billion in processing volume, PayPal has clearly figured out how to scale. Plus, they seem to have figured out how to squeeze revenue from that volume."