E-commerce merchants are juggling several challenges at once, creating potential business-threatening gaps Worldpay and Vantiv say can be bridged by their merger.
"The trend is about interacting with consumers with no breakage, to provide a seamless shopping experience again and again with the same experience each time," said Royal Cole, executive vice president and head of the North American region at Worldpay.
In the current and future market, merchants will have to be able to be able to connect with issuers that are rapidly introducing new card and payment products; and support digital and in-store innovation to counter Amazon.
Vantiv's $11.6 billion acquisition of Worldpay, one of the largest financial technology deals announced during 2017, closed Jan. 16. The combined company will be called Worldpay Inc. and will have a market value of about $31 billion, 40 billion annual transactions via 300 payment types, 146 countries and 126 currencies.
The combined company hopes to draw business away from acquirers and fintechs that serve parts, but not all, of the omnichannel shopping and payments trend.
The new Worldpay hopes Vantiv's earlier acquisitions can offer grocers a way to diversify and integrate different channels and functions including ordering, fulfillment, CRM, on and offline payments, marketing, mobile wallets, mobile point of sale; and eventually new in-store models such as self-service checkout and cashierless models.
"The goal is to create a pure play e-commerce engine for the point of sale, digital and mobile as shopping patterns change," Cole said.
For example, several innovations are taking shape that will affect how merchants engage with consumers and payment companies. Amazon Go formally opened this week and, along with other Amazon moves such as its acquisition of Whole Foods, the cashierless store places pressure on grocers to combine the scale of a large brick-and-mortar chain with an international e-commerce operation.
"They have Kroger as a client and there’s a lot of activity in the category around reducing friction, like Kroger Scan-Bag-Go, or eliminating payment friction entirely, like Amazon Go," said Thad Peterson, a senior analyst at Aite Group, adding the acquiring space has become homogeneous and differentiation is a challenge for acquirers. "So, providing a high-value added capability in a major category like grocery can be a differentiator. Since Worldpay has Kroger, it makes sense that they would put extra focus on the category."
Account management is another potential area for expansion, Cole said, adding the new Worldpay is offering the service.
Other companies are adding features such as merchant updates, creating more opportunity for the service in the merchant acquiring industry. Citi, for example, has reported fast growth in several areas of card technology, including mobile-powered updates that can easily change account information to help consumers seamlessly continue relationships with specific merchants.
"Merchant updates are another fee-generating service that help merchants, especially those that have recurring customer billing," said Raymond Pucci, associate director of research services for Mercator.
Merchants often have to choose from among large processors and/or specialized financial technology companies to address each of these updates, with mobile point of sale companies now offering emerging self-serve options, for example.
And cross-border e-commerce payments may require yet another provider, Cole said. These updates can be centralized for grocers and merchants in other retail categories, according to Cole, adding Worldpay can provide online updates to support new payment and shopping options as merchants adopt new technology.
"E-commerce is one of the fastest-growing market segments, and a lot of the new products out there don't have the full stack, so merchants have to use several acquirers instead of one," Cole said.
Worldpay is in a race to provide a broad bundle with other companies. JPMorgan Chase, which originally was in the mix against Vantiv to acquire Worldpay, acquired WePay to add cross-border e-commerce payments to JPMorgan's existing scale among merchant acquirers.
First Data has also turned to M&A to add integrated payments for merchants that wish to mix cross-border e-commerce with in-store technology.
"The 'diversity pressure' is really margin pressure. Since payment processing has become a commodity business with slim margins, acquirers have to offer value-added services with higher margins," Pucci said.