Last week I attended a great conference. No, it wasn't the EBA Day; a couple of my other colleagues were representing Celent there, and I heard it was very good as well. I was in Brussels, at the inaugural Payments Gateway conference organised by PSE Consulting. It was a one-day event packed with great speakers presenting insightful content.
Payment gateways play an important role in online payments as they help connect merchants to their acquirers and processors. The speakers shared their perspectives on the state of the industry, its challenges and opportunities going forward.
My top three takeaways are:
- The merchant services industry is likely to continue its path of consolidation, as established players are looking to add to their set of capabilities, while the newer players are seeking scale. Corporate marriages in this industry come in various shapes and forms with mergers taking place between acquirers, payment gateways, processors, software providers and terminal manufacturers. Some of the notable recent deals include Global Payments acquiring Heartland Payment Systems in the US for $6.4bn – the largest transaction in this space in 2015 – as well as Realex in the UK and Ireland, TSYS' acquisition of TransPay, PaySafe's (formerly Optimal Payments) purchase of the Skrill Group and ACI Worldwide's acquisition of Pay.On.
- Importance of deep customer understanding. This sounds like a no-brainer – of course, everyone should segment and understand their customers when developing a value proposition – but it is truly essential in merchant services. While all merchants ultimately need to be able to accept payments, the needs of a large supermarket and a corner store are very different. Airlines have different needs from hotels, and sit-down restaurtants differ from quick service restaurants. Nearly all speakers emphasised the need to deeply understand your target customers and tailor services specifically to them, whether developing a pan-European ISO offering or serving digital subscription businesses.
- PSD2 in Europe represents both challenges and opportunities to payment gateways and acquirers. What changes will be required once the EBA publishes its technical standards for strong authentication? Will the expected increase in push payments from bank accounts lead to a noticeable decline in card transaction volumes? What will be the role of today's payment gateways in the world of Payment Initiation Service Providers (PISPs) and Account Information Service Providers (AISPs)? These are just some of the questions that all merchant service providers should be considering right now.
Of course, some of those answers above will depend on how the industry and the regulators ultimately interpret PSD2 text. It was revealing to observe the experts on stage and in the audience engaging in a lively debate around some of those interpretations and open questions, such as for example:
- Is a credit card account considered a "payment account" under PSD2 and subject to the same account access and payment initiation requirements?
- What about a merchant account? If so, what additional services could be built around merchant accounts?
- What revenue opportunities do account servicing providers have? Can they charge AISPs and PISPs and if so, under what conditions?
Merchant services is one of the most dynamic payment sectors with plenty of innovation and change. Tomorrow's winners will be those that best grasp the new opportunities to remain at the very heart of commerce.