Merchant service providers need to be aware that payment gateway technology is likely to provide answers to most of the questions merchants may ask when navigating the dizzying array of new payment rules and technologies.

"As all of these different trends converge, it all points to the payments gateway as the common denominator in being able to provide all of the different services merchants will need," says Richard Oglesby, senior analyst and mobile pay expert with Boston-based Aite Group.

"There is too much to handle to be specialized any longer," he adds.

Aite conducted 30 group interviews with senior executives from payment gateway solution providers between October 2012 and January 2013 for a recent report, "Gateway to Growth: Why Merchant Service Providers Should Own Payment Gateways," which evaluates key payment gateway trends.

In an illustration of how quickly payments technology is changing, Oglesby says the nature of his report quickly changed from its original intent.

"The thing that was most surprising is the report started off as an e-commerce report, but only a few of the gateway executives were talking about e-commerce," Oglesby says. "Instead, they were talking about taking their business model to offline retail."

Various factors have created the need for gateway providers to take part in traditional point-of-sale retail, after years of providing the payment acceptance technology for e-commerce.

Consumers have more powerful Web-connected mobile phones, which increasingly play a role at the point of sale, the report says. In addition, social media sites allow merchants to generate global demand for products more cost effectively.

Mobile and cloud technologies allow merchants to conduct business outside of their normal physical locations, while merchants are also grasping the marketing and servicing aspects of the mobile payments trend, the report says.

Finally, payments networks in the U.S. hope to defend against new entrants through the migration toward EMV smart card and Near Field Communication payments at the POS.

"Payments gateways flourished in e-commerce as a way to provide the technology to accept payments" and move the transaction to acquirers or processors, Oglesby says. "But now, with consumers having smartphones and various mobile pay options, the online paradigm is shifting to offline."

As such, traditional merchant acquirers and independent sales organizations, in their roles as merchant services providers, have been expanding, Oglesby says.

Those looking to payment gateways as key partners or acquisition targets have shown they recognize these trends, the report notes. The industry has seen Visa Inc. acquire gateway provider CyberSource in 2010 and Vantiv purchase e-commerce gateway Litle & Co. in December 2012.

In the coming era of increased complexity, acquirers that fail to follow the example of Visa and Vantiv "could be left behind," the report says.

Direct ownership of the payment gateway technology enables an acquirer to embed its proprietary technology with the merchant, making it easier to provide value-added services, the report says.

Various gateway products, such as Merchant Warehouse's Genius Platform for digital marketing or Braintree Inc.'s mobile payments ready e-commerce gateway, are addressing the new payments trends, the report says.

Over the next three years products such as advanced encryption and tokenization, customer relationship management tools, digital wallet and marketing support, and recurring payments capabilities will be important gateway services.

"Gateway providers historically represented a replacement for a payment terminal in e-commerce," Oglesby says. "But they have expanded to include fraud prevention and customer analytics, and other services."

With the advent of mobile commerce and payments, the offline customer is no longer anonymous to the merchant, Oglesby says.

"Those value-added services from gateway providers are becoming more important," he adds.


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