crowded world of merchant acquiring - TAS Group

Merchants, Your Customers Shop Around for the Best Price—Why Don’t You? A Mercator Advisory Group Research Brief Sponsored by PULSE

HOW ISOS CAN THRIVE IN THE

CROWDED WORLD OF MERCHANT

ACQUIRING

A Mercator Advisory Group Research Brief Sponsored by TAS Group

September 2018

How ISOs Can Thrive in The Crowded World of Merchant Acquiring A Mercator Advisory Group Research Brief Sponsored by TAS Group

2 © 2020 Mercator Advisory Group, Inc.

Contents

Introduction .................................................................................................................................3

The U.S. Merchant Acquiring Landscape ............................................................................................................... 3

Disruptive Forces Impacting the Acquiring Market ........................................................................5

Challenges Facing New Entrants ........................................................................................................................... 5

Current Covid-19 Business Environment ............................................................................................................... 6

Evolving Merchant Business and Payment Needs ..........................................................................6

Merchant Business Needs Go Beyond Payment Transactions .............................................................................. 6

Importance of Integrated Value-Added Services for Small and Medium Merchants ........................................... 7

Importance of Integrated Value-Added Services for Small Acquirers, ISOs, and ISVs .......................................... 8

TAS Solutions for U.S. Merchant Acquiring Market ........................................................................8

Overview of TAS Merchant Services Solutions ...................................................................................................... 8

Fleet Card Acquiring – A Lucrative Business with the Right Tools and Know-How ............................................... 9

Conclusions ..................................................................................................................................9

Copyright Notice .................................................................................................................................................. 10



Introduction

The U.S. Merchant Acquiring Landscape

The U.S. merchant acquiring business landscape is transforming; two drivers are competition and technology.

Despite continuous growth in market volumes, regulation and increased competition from non-traditional players

put pressure on acquirer margins.

Six top firms consolidated into three, to boost efficiency, reduce costs, and integrate best practices across the

payment spectrum. This consolidation trend accelerated in the last few years (Figure 1).

Figure 1: Within a three year period, the acquiring business consolidated into five top players.

Source: Mercator Advisory Group

These mergers have often resulted in a patchwork of siloed legacy systems with little or no integration between

applications. The result is inefficiency, inflexibility, and increased maintenance costs which hinder innovation.

Despite these mergers, smaller acquiring businesses, particularly niche independent sales organizations (ISOs) and

independent software vendors (ISVs), can find opportunities when supported by the right technology partners.

Leveraging the latest technology provides a critical tool to compete in this market, with operational efficiencies

and innovation as the calling card.

The U.S. acquiring market is rich in specialized players, many of which address verticals or niche parts of the overall

payment acceptance value chain.



These businesses can be broken down into: acquirers, merchant processors, ISOs, ISVs, middle-market fully

integrated processors, and online payment gateways. ISOs can be further split into high risk and specialty

categories (Figure 2).

Figure 2: Independent sales organizations serve four market sectors.


In the future, the role of ISOs, payment gateways, and ISVs will likely see some convergence as they adapt their

business models to take advantage of opportunities presented in the new landscape and to reposition themselves

to satisfy evolving merchants' needs.

The roles within these entities are less defined, with ISOs providing technology solutions that were once the remit

of ISVs. A growing number of ISVs now offer services in addition to their software. While the benefits of this cross-

fertilization and convergence are clear, it does present challenges for both ISOs and ISVs that can thwart the

development of their offerings to merchants, especially as they navigate unknown territories in the areas of

technology and payments. Both sectors need a partner that they can turn to for support in piloting this increasingly

complex domain, and ensure they have the necessary breadth of services at their disposal.



Nimbleness is crucial for smaller niche acquirers, ISOs, and ISVs to keep pace with agile, scalable, and easily

deployable options. Acquiring solutions based on open systems, and built around modular architecture, offer the

necessary flexibility and agility to thrive in this new environment.

Today, thanks to cloud computing, the integration of payment functionality is now even more accessible and

streamlined, making rapid gateway interaction frictionless. By moving from a traditional legacy model and

adopting a more agile cloud-based platform, acquirers, ISOs, and ISVs can become independent of processors and

sell integrated solutions.

Those that can leverage technology and adapt will do well.

Disruptive Forces Impacting the Acquiring Market

Challenges Facing New Entrants

A significant disruptor upsetting the status quo is the emergence of new entrants. These new players, armed with

the latest technologies and free from legacy system constraints, can offer agile, innovative solutions and added-

value services such as integrated payments, multi-currency pricing (MCP), dynamic currency conversion (DCC),

sophisticated personalized geo-targeted loyalty programs and more.

Figure 3: Four factors challenge existing merchant acquirers.




This evolution has been further propelled by demand from highly mobile and technology-savvy consumers

requiring more choice and control over the way they pay, coupled with a more customized experience.

Technology advancements also change payment experience at the merchant, with an array of cutting-edge,

SmartPOS devices that have transitioned from payments-only terminals to full software solutions that help

merchants operate their businesses, such as order management software for restaurants or split billing

capabilities.

When it comes to digitally revolutionizing the merchant acceptance business, the SmartPOS is proving to be a

powerful tool. This next-generation device offers businesses a fast-track way to innovate the payments experience

and deliver consistency, convenience, and added-value features and services across retail outlets – both in-store

and online. By combining retail and payment data, the SmartPOS creates a competitive edge, allowing the

merchant to deliver dynamic loyalty programs and other customer-centric features.

Current Covid-19 Business Environment

In a matter of weeks, COVID-19 changed the world, including the global payments market. The pandemic triggered

a decline in traditional contact POS transactions and a noticeable switch to contactless and digital transactions on

the part of many consumers. Contactless is seen as a more hygienic option, and contactless limits have been

increased for PIN in-store transactions to reduce physical contact. While digital payments will play a critical role in

commerce and recovery, such a sudden shift in buying habits presents new challenges to merchants and acquirers

alike.

Acquirers, ISOs, and ISVs need to rapidly respond to this call for safer payment methods and make them available

to their merchants' customers, investing in infrastructure and solutions that can cope with the latest changes in

consumer purchasing behavior.

Evolving Merchant Business and Payment Needs

Merchant Business Needs Go Beyond Payment Transactions

Merchants not only want acquirers, ISOs, and ISVs to meet their payment needs, they want additional value-added

services. Therefore, to guarantee long-term sustainability in a highly competitive market, acquirers, ISOs, and ISVs

need to innovate and offer new merchant services. This involves investing in the latest digital payment technology

and introducing revenue-generating added-value services that drive transactions, build loyalty, and improve the

overall customer experience.

With more and more brick-and-mortar businesses moving online and a rise in digital payments – especially during

the current pandemic—acquirers, ISOs, and ISVs must be able to meet customers’ demands by accepting both

online and in-store payments as seamlessly as possible. Merchants need agile omnichannel payment acceptance

capabilities where they can fully integrate sales channels and add adjacent business services.



Additionally, acquirers, ISOs, and ISVs need to have better systems in place to cut operational costs and develop

new measures to prevent fraud losses, not only to improve the consumer experience, but also to protect already

squeezed margins.

One such feature is dynamic multi-factor merchant pricing, where the platform dynamically adapts to both the

customer and transaction, putting forward the most cost-effective payment method. A highly flexible fee engine

that allows merchants to enjoy significant cost savings results in increased loyalty to the acquirer.

Figure 4: Merchant acquirers must do more than just process payments.


Importance of Integrated Value-Added Services for Small and Medium Merchants

Acquirers, especially ISOs and ISVs, can differentiate themselves in this highly competitive industry and grow their

business by offering small and medium merchants exciting value-added services that address critical industry

challenges. To do this, they need a wide range of smart functionalities and added-value services at their disposal.

Big data analytics, for instance, allows acquirers to provide their merchant customers with key insights into

consumer behavior, such as how buying habits change throughout the year, how weather can influence purchases,



and how sales can peak at certain times of the day. This kind of information can help merchants to dynamically

refine their offerings and improve customer service.

On the consumer side, big data analytics can deliver tailored, frictionless payment experiences, which is often the

foundation of successful loyalty programs and targeted advertising.

Merchants need to maintain high standards of security and fraud prevention. This is where acquirers can and

should add value by delivering innovative fraud management and RBA solutions that leverage powerful AI/ML-

based analytics to tackle changing patterns in fraudulent activity. These tools should also have the capability to

quickly adapt to market changes and to new risks that can damage margins and merchant reputations.

Importance of Integrated Value-Added Services for Small Acquirers, ISOs, and ISVs

The changing payments landscape requires acquirers to make well-informed, intelligent risk management and

pricing decisions, both to acquire new merchants and to retain existing customers. This is where data analytics can

be a powerful ally. Analytics can help tailor pricing to consider margins, attrition data, and merchant industry type.

This type of fee fine-tuning can help to bolster profit margins for acquirers, with new rates applied for risky

transactions.

TAS Solutions for U.S. Merchant Acquiring Market

Overview of TAS Merchant Services Solutions

Figure 5: TAS Merchant Services provide 7 core functions.

Source: TAS Group

TAS solutions empower acquirers, ISOs, and ISVs by giving them multi-acquiring and omnichannel merchant

acceptance capabilities.

CARD 3.0 IE, a leading-edge end-to-end platform, allows acquirers, ISOs, and ISVs to streamline merchant

onboarding, merchant management, and transaction processing. The solution comprises a fully integrated set of

modules that cover the entire acquiring value chain. By adopting these solutions, acquirers, ISOs, and ISVs can

proactively and effectively manage their EFTPOS terminals, kiosks, e-commerce, and mobile channels and easily set

up, direct, incorporate and update payment acceptance networks, while ensuring high levels of security.



The Merchant Service platform is available as an independent processing platform, or it can be used to integrate

into several different processors to provide bargaining power. The solution supports the most common payment

protocols such as ISO 8583 and 20020. It includes the capability to deliver custom payment applications that can

run on any type of POS terminal (e.g., PAX, Ingenico, Verifone, etc.), including SmartPOS.

It also provides the possibility to activate value-added services such as DCC, and to build smooth checkout

experiences both in-store and online, by using card-on-file tokens and QR Code payments.

To take advantage of new opportunities and to quickly and proactively respond to market developments, recent

releases include 3DS 2.x Server for e-commerce, fraud management, transaction risk analysis, and behavioral

analytics that leverage machine learning.

CARD 3.0 IE runs natively on leading cloud platforms for complete flexibility and scalability, but may also be

deployed on premise. The platform enables a direct connection to the main payment networks such as Visa,

Mastercard, American Express, Union Pay, and JCB, and is fully compliant with PCI-DSS regulations.

In addition to serving generic acquiring markets, TAS offers highly flexible technology that can easily be tailored to

specific verticals.

Fleet Card Acquiring – A Lucrative Business with the Right Tools and Know-How

TAS can also help niche acquirers, ISOs, and ISVs with fleet/fuel card acquiring. Fleet cards are an attractive and

growing area that enables firms to drive down their fueling costs and boost efficiencies, especially expense

management, by strengthening reporting and data capabilities.

The infrastructure required for acquiring fleet card payments must be highly flexible, as fleet card processing

combines retail data with financial data within the authorization process and the methods used vary between

schemes. The TAS Fleet platform solves the challenges associated with acquiring and authorizing fleet card

payments by leveraging the adaptable nature of its design to customize solutions within the minimum of time and

with the minimum of cost.

Conclusions

The acquiring payments landscape offers opportunities for both incumbents and challengers. To succeed,

acquirers, ISOs, and ISVs need a competitive edge with compelling added-value offerings for merchants. They need

to be supported by open, flexible technology solutions, while ensuring that their business model is sufficiently

robust to endure any margin squeezing.

As more payments are performed online, merchants require an integrated multi-channel solution that spans both

physical and digital channels. Any solution must be able to handle POS, e-commerce, mobile, and the latest wallet-



based transactions, and provide a seamless experience for merchants and their customers to extend services that

go far beyond payment acceptance to merchants.

With the right partner, acquirers, ISOs and ISVs can become processor independent, deliver outstanding service,

expand their offerings, satisfy their customers' needs, and prosper.

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Copyright 2020, Mercator Advisory Group, Inc. Reproduction without written permission is completely forbidden.

About Mercator Advisory Group

Mercator Advisory Group is the leading independent research and advisory services firm exclusively focused on the

payments and banking industries. We deliver pragmatic and timely research and advice designed to help our

clients uncover the most lucrative opportunities to maximize revenue growth and contain costs. Our clients range

from the world's largest payment issuers, acquirers, processors, merchants, and associations to leading technology

providers and investors. Advisory services include Credit, Debit and Alternative Products, Prepaid, Merchant

Services, Commercial and Enterprise Payments, Emerging Technologies, and Global Payments practices, which

provide research documents and advice. Primary data services include the CustomerMonitor Survey Series, which

report and analyze data collected in our biannual consumer surveys, as well as the Customer Merchant Experience

Survey and the Small Business Payments and Banking Survey. Consulting services enable clients to gain actionable

insights, implement more effective strategies, and accelerate go-to-market plans; offerings include tailored

project-based expertise, customized primary research, go-to-market collateral, market sizing, competitive

intelligence, and payments industry training. Mercator Advisory Group is also the publisher of the online payments

and banking news and information portal PaymentsJournal.com. Visit www.mercatoradvisorygroup.com.

http://www.mercatoradvisorygroup.com/



About TAS Group

TAS Group is a leading payments technology company. For over 35 years, they have been delivering secure,

flexible, and seamless payment solutions and mission-critical applications that financial institutions and PSPs,

issuers and acquirers, large or small, can trust. With a global reach and offices in 8 countries spanning Europe,

North America and Latin America, customers around the world rely on their advanced technology.

Today they are supporting and empowering acquirers, ISOs, and ISVs, enabling them to play a more significant

role, expand their market, innovate and successfully compete on offering, service, and price with their modular

cloud-based payments platforms – CARD 3.0 IE and PayStorm – available in the cloud or on-premise.

For more information, please visit www.tasgroup.us.com.

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crowded world of merchant acquiring - TAS Group