Issuer and merchant processors alike acknowledge the high speed of technological change is the new pace car in payments, forcing traditional industry players to hop on board or be left behind.
Those along for this ride embrace new services outside of traditional processing, focusing more on technology development and viewing the consumer as a far more powerful and influential player.
Such a change in business strategies has led to a more competitive payments landscape for processors and acquirers, one in which new players elbow their way in. But also one in which a past atmosphere of cooperation amongst companies has turned into an every-man-for-himself environment.
"The large players used to cooperate with each other, now it's not so clear that remains as much in place," says Bob Baldwin, vice chairman of Heartland Payment Systems Inc. "Some have said, 'I'm not playing with that other guy' for various reasons."
One example is Verizon Wireless balking at working with Google Inc. on its mobile wallet, and instead entering into its own venture (Isis), Baldwin says.
"The whole business model is changing for processors because they are also acquirers now," says Brian Riley, senior research director and analyst with Needham, Mass.-based CEB TowerGroup. "Ultimately, they are now establishing those direct relationships with merchants."
Moving into merchant acquiring represents a major shift for a processor because it involves developing new products while also dealing more often with daily services and making sure all of the daily functions of the payments network are operating properly, Riley says.
"It makes for a bigger sense of urgency because you are dealing with a complicated market on an individual basis," Riley adds.
Richard Oglesby, senior analyst and mobile pay expert with Boston-based Aite Group, says industry changes, dating back to when Visa Inc. and MasterCard Inc. became public companies rather than associations, have resulted in a "land grab."
"Previously, all of the companies participated in a fairly orderly industry," Oglesby says. "But now the definition of traditional roles is dissolving and there is a lot less clarity because everyone is competing with everyone else."
In the past, the card networks could establish rules and "everyone would play by those rules," Oglesby adds. "Now there is more opportunity for players to disrupt and shake up the whole game."
PayPal was not a payments network originally, but it evolved into one because the landscape of mobile payments opened doors for new players, Oglesby says.
But processors can't sit back and bemoan the potential end of a brotherhood of payments because of infiltration from fast-moving technology companies.
"Processors view themselves as nice incumbent vendors with an incumbent infrastructure, and it is their market share to lose," says Andrew Jeffrey, chartered financial analyst for Atlanta-based SunTrust Robinson Humphrey.
As such, the pro-active processors have moved into various new services, including advanced data security, mobile payments, merchant rewards and loyalty programs.
"I'm not sure if any of the changes they make will be successful, but it keeps the processors one step ahead of the marketplace," Jeffrey says.
It all adds up to "a very exciting time to be in the payments space," says Mark Herrington, executive vice president of global product management and innovation at First Data Corp.
Herrington says his company is "acutely aware of the changes and new players" and understands it is an industry that is likely to undergo "more change in the next 3 to 5 years than took place in the past 25 combined."
The processing business previously ran on a model of growth through acquisition, but will now operate as "growth through product development," Herrington says.
Heartland's Baldwin agrees with that sentiment. "Trying to do business as you have always done it puts you at risk, and you have to understand how to play in this evolving world," he says.
The payments industry represents a complex ecosystem, Baldwin says. "I can't predict what will happen in the future, but more than ever, consumers will decide," he adds.
Focusing on the consumer with different value propositions, and placing less importance on the payment type, has become the critical ingredient that increases competition for market share.
Herrington says despite all of the technological change swirling around the industry, processors are keenly aware of consumers' newfound power.
"The consumer is in a much more influential and empowered position than in the past," Herrington says. "No matter what happens in the wallet wars or the future of plastic, we know the consumer will have interaction with the merchant at the point of sale."
The role of the consumer reached loftier status when players such as Square Inc. and PayPal became eager participants in the payments ecosystem with new consumer-facing products.
"It's been a straight-forward business service in which all of the processing companies were alike in the fairly simple process of signing up retailers [to accept cards]," says Gil Luria, analyst with Los Angeles-based Wedbush Securities.
Now, technology is changing so fast, new innovators such as Square are changing acquiring and processing at the low end with small merchants, Luria says.
"But some of those same concepts and technology are universally changing processing and acquiring through mobile payments," Luria adds.
As such, many processors have made necessary changes through the creation of merchant services, data security protections, or mobile payment hardware and software for clients to add to traditional authorizing and clearing of payments.
Oglesby warns that the new players evolve rapidly and won't be slowing down any time soon, thus further fueling the competitive, rather than cooperative, juices of players.
"They are forcing others to look at the payments world as very uncertain," Oglesby says. "No one trusts anyone any more."