It is a perfect time for merchants to be asking important questions regarding their current payment card processing to make sure that they are maximizing the use of available and appropriate services at a competitive rate, says Dan Carter, associate director at Redbridge.
Over the past few years, it is hard to miss the US payments industry having changed and evolved very rapidly in the fast lane of the global payments highway! Considering this pace, it is quite easy to get lost in news, emerging technology, and consumer feedback. One thing that has stood out quite prominently is the number of acquisitions completed in the past few years, many of which were with players at the very top. We have witnessed First Data acquire CardConnect, Vantiv acquire WorldPay, Global acquire Heartland, TSYS acquire TransFirst, and North American Bancard acquire Total Merchant Services – an impressive list of well-known names. Although, receiving somewhat less media attention, are the many large acquirers rapidly gobbling up smaller, ancillary payment technology companies, such as Chase’s recent acquisition of WePay. Interestingly enough, these acquisitions are not reducing the number of user options. The motives behind these acquisitions have less to do with acquiring a competitor’s portfolio of merchants, but more with absorbing new technology, integrations, and geographic footprints.
Interestingly, these consolidations have left a dwindling pool of quality, midsize acquirers. The particular ‘acquirees’ became targets because of how they differentiated themselves, a necessity for growing their business. So the obvious important factor to focus on is the constant development of new technology, whether that piece of technology be an effective on-boarding tool, a payment gateway, terminal application, or application programming interface (API). When an acquirer accumulates several differentiating pieces of technology which had previously demonstrated their value, their service model becomes even more valuable through these more broadly distributed capabilities.
While these acquisitions are great for enriching the combined entities overall product offering, external connections to independent software vendors (ISVs) are also noteworthy. The midsized acquirer will typically focus on niche markets and focus on integrations with these ISVs in order to serve those niche markets. While the larger acquirers have integrations with the commonly used applications, they typically cannot easily build a business case to serve smaller markets. Often, merchants choose a payment service provider due to the attractiveness of one or two particular application provided by one of these software vendors. Since integrations and certifications can be costly and time consuming, the midsized acquirers could continue to pursue those niche merchants that could use the application with minimal competitive threats. Again, with further post consolidations, these integrations can be added to the overall product offering and create a more comprehensive suite of services.
Of course, the most obvious to describe is the geographic expansion made through these acquisitions. Even though many of the large processors have a national, in some cases international, presence, it can be challenging for those responsible for business development to pick up merchants in certain niche territories. Through a consolidation, pooled resources of the combined acquirer allows them to focus on expanding, strengthening, and defending their combined territories. Equally important, the combined acquirer can be more responsive to their merchant base, ensuring that implementations go smoothly and the proper maintenance of merchant relationships.
This all sounds great for acquirers, but there are benefits for merchants as well. Merchants can gain access to new platforms, technology, and integrations. A provider with a more comprehensive suite of services means that a merchant has to make fewer deals, devote less IT resources, and worry less about multiple points of failure. It is a perfect time for merchants to be asking important questions regarding their current payment card processing to make sure that they are maximizing the use of available and appropriate services at a competitive rate. We spoke with Ryan Hallet, Chief Revenue Officer of Payroc, whose company recently completed its own acquisition, about the motives behind their acquisition:
‘Payrocs strategic acquisition of Integrity Payment Systems gives us the ability to serve traditional merchants, but also the customized requirements of the rapidly growing, technology-driven integrated software vendor (ISV) payments marketplace. Combined with in-house, end-to-end processing and settlement capabilities, Payroc is now uniquely differentiated to serve our customer community in ways our competition simply can not.’
If one thing is certain, we will see more consolidations in 2018. What will be uncertain is when or whether merchants are ready to capitalize on the opportunities opening up for them.