Seven years ago, who had heard of Uber? Today it’s a household name. Uber provides over a million rides per day in the U.S. alone, is an international force, and they’ve challenged the status quo and reinvented personal transportation.
The world of payments is no different. Whether it's mobile payments, tablet based point-of-sale or business management solutions, or other new technologies, the world of payments is most definitely in a state of disruption not seen since the introduction of the internet in the 1990s resulted in a bunch of resellers targeting small to medium sized businesses directly, offering terminals and merchant accounts online.
Some would argue that it was that event that launched the flooding of new independent sales organizations (ISOs) and payment service providers (PSPs), driving increased competition, but also margin compression and commoditization of traditional merchant account services.
For traditional companies in the payments space; those that enable SMBs to accept alternative forms of payment (credit, debit, and now contactless), the models that got us here, won’t keep us going in the future. Whether it’s an ISO, a PSP, or even an agent, selling SMBs on price isn’t going to keep the lights on in the future.
McKinsey & Company's report, ‘Innovation and disruption in U.S. merchant payments’ shows this trend. The company notes that the majority of U.S. merchant payments revenue growth is now coming through software solutions. The researchers say point-of-sale (POS) technology revenues are growing at a CAGR of 8.9%, e-commerce (card not present) at 9.4% and that traditional, non-integrated, stand-alone terminals would are shrinking by 2.5% per year. Spot on.
What’s next for legacy providers? Over the past few years, we’ve witnessed one key trend; merger and acquisition. If you don’t have it, buy it. Heartland, acquired by Global Payments earlier this year, bought several POS solutions including Dinerware, Digital Dining, PC America and Xpient. Vantiv acquired Litle & Company and Mercury Payments, and First Data purchased Clover. Others opted to pivot into technology based companies, developing and launching their own gateways, payment solutions and the like.
Whether you buy, build or partner, it’s not only about what you’re selling, it’s about the fabric of who you are as a company. Regardless of what path or paths chosen the conversation needs to be different. How you’re viewed by your agents, ISOs, and or VARs needs to be different. What your SMB customers think of you needs to be different. It’s a new conversation. It’s not about price. It’s about needs; identifying what the end customer, in this case, SMB owners, need to help them start, manage and grow their business. And, it’s not one-dimensional, ISOs and PSPs needs to be ‘omni-focused’; helping uncover the power in and around payments whether it’s in store, online, mobile, or a combination of the three. There’s a relationship between the SMB and the PSP, either directly or indirectly, if a reseller is involved, and it needs to be based on value, not just price.
Taking this even one step further, this doesn’t just impact sales. It’s an organization wide shift. Sure sales is one key area that needs to change, but it’s also the advertising and promotion, it’s operations, support and service, it’s how services are billed; it’s a transformation. Small and medium-sized businesses matter. They matter a lot. And, we need to make sure they feel valued in and around payments.
To me, there is only one option for legacy ISOs and PSPs and that is change. Change is scary, but without it, you’re essentially going to watch your business disintegrate in the long-term. Change is nothing more than a challenge, so don’t wait. Huddle your team. Unpack the opportunity for your organization (buy, build, partner; combine pieces of each), and chart your path. Set key milestones and stay focused. Distraction is the enemy. Get everyone in your organization engaged - and excited. Align individual objectives with your key milestones, and celebrate successes, even the small ones.
Disruption presents opportunity. Like any industry, payments has an ebb and flow and now is the time to capitalize. It’s not going to be easy, but it will be worthwhile in the end.