Acquiring, Payments Moving Slow in the Fast Lane
The payments and financial technology world is moving ahead at high speed. But an acquirer may feel like the only one on the road obeying the speed limit while other companies zoom ahead.
Despite the rapid pace of innovation, it has been "very rare to see breakthrough strategies in acquiring," said Marc Abbey, principal at First Annapolis Consulting Inc. "I've been doing this 25 years, and I have seen maybe a few during that time," Abbey said during a presentation at last week's Midwest Acquirers Association conference in Cleveland.
It seems more likely that acquiring and payments will continue to face incremental changes over many years, rather than dramatic or radical changes in a short time frame, Abbey said.
But many moving parts are at work in bringing incremental changes, he added. The payment facilitators model is driving such change, with new technology, alternative pricing and business models that didn't exist a few years ago, Abbey said.
These facilitators are taking their place in the payments ecosystem as integrated software vendors or value-added resellers, finding new homes and avenues through open networks and integrated payments.
"It's only the second inning for this part of the business, but it is a rising distribution model that has a whole lot of advantages, and you can see that phenomenon having the potential to really change the market," Abbey added.
Calling radical change a "tipping point," Abbey said the card networks continue to carry the most tipping-point potential because of their "rule-changing powers." Such a tipping point could also be generated by regulatory bodies like the Consumer Financial Protection Bureau or the Federal Trade Commission.
It will be increasingly difficult for ISOs to stand by and operate in the same manner they have in the past and view the payments and acquiring landscape in broad, general strokes, Abbey said. "For most acquirers, it is going to mean developing a niche business model" in vertical markets with a more specific focus, Abbey said.
Acquirers realize their industry is changing in all facets from pricing to technology to distribution. How to measure that, and what next steps to take represent the tricky part.
"Mobile and all of these other things — that is just how the payment gets from one place to another," said Mary Winingham, president of the Midwest Acquirers Association. "It's everything else behind it that can get an ISO in trouble [if they are not aware]. It's the changes in the pace of our payments and the associated risk with that."
And there are enough opportunities, obstacles and concerns to go around.
"The challenge is that the merchants are in the crosshairs, too, regarding change and compliance," Winingham said. "It's not like the ISO is fine and someone else is going to 'get it' and face the problems. It's all of us, it goes up and down the industry."
Doug Small, national sales director for third party sales at Dallas-based super ISO Cayan, said the ongoing changes make it critical to share knowledge as directly as possible.
"The challenge is trickling knowledge from the independent software vendors and those who develop new systems down to the people who sell it, and then onto the merchants that have to use it," Small said.
Even if the industry is not facing major tipping points, the incremental changes are coming at "lightning speed," said Bryan Wine, vice president of business develop at Cincinnati-based Vantiv.
Since acquiring Mercury Payments two years ago, Vantiv has moved aggressively into the integrated payments market, giving it a good vantage point as to how this transformation is unfolding. Last week, the Vantiv Integrated Payments unit revealed its ONE Network for expanding collaboration with app developers.
"Years ago, it was mostly sales people getting into the ISO landscape, but now the younger people are coming in and they are all about technology," Wine said. "They know a lot about that technology, and the older ones in the industry are feeling challenged."
Some of that consternation occurs when processing and acquiring companies merge with or another business in the industry, such as Vantiv buying Mercury, TSYS buying TransFirst, or Global Payments buying Heartland Payment Systems.
"It leaves many ISOs wondering where they fit in, or if they might be left out," Wine said.
But there is hope that ISOs' skills will remain relevant in the new world.
"I remember 10 years ago, some were saying to not be thinking about POS terminals any more because they will be gone in 10 years," Wine said. "And here we are, and we still have a lot going on with terminals. It's just different now because it is all software-related."