Become A Blogger

Over the past several years the acquiring industry has experienced a period of stagnation or decline as measured by transaction growth and margin compression.  With the exception of a few segments such as, debit and B2B, this downward spiral continues to be a cause for concern. In recent years acquirers have come to expect and have had to live with the reality of single digit growth, particularly for credit transactions.  However, it is my opinion that there is a real opportunity to reverse this trend.

In the face of this challenging economic cycle a great and vast landscape of opportunity continues to present a sustainable and exciting horizon for acquirer revenue growth.  Depending on which data one chooses to adopt, +/- 50% of all domestic commerce transactions continue to be executed via cash, coin and check.  I view this as an incredible opportunity to drive double digit growth, but it requires that a new approach be taken by the associations and merchant community.  First, the associations need to provide an interchange structure that is compelling and simple to manage.  Much like the incentives that have been deployed to achieve ePayment adoption in particular verticals and segments, cash and coin displacement initiatives require a similar approach.  Second, merchants need to be able to execute transactions through channels that are complementary to a consumer’s desired buying behavior.  An example would be the ability to utilize my preferred rewards card either in its physical state or attached to a form factor such as my mobile phone.

This innovation cycle demands an aggressive and new approach to the entire ecosystem of commerce.  We are already beginning to see the results of waiting on the side lines and right before our eyes the competitive landscape is drastically changing. One need not look any further than the success that telecommunications providers have enjoyed in Asia, acting as acquirer, issuer and processor.  This is perhaps a foreshadowing of similar success as change agents such as AT&T Inc, and Verizon Wireless recently announced their intent to go forward with a mobile payments JV domestically.

It is essential to recognize that meaningful, sustainable growth will be driven by technology and capability that unlocks consumer desire.  An example is the current introspection regarding the struggling adoption of contactless payments in the US.  If you think about it, contactless is really not contactless.  Rather contactless is “Tap and Go” and essentially requires a similar physical interaction by the consumer as it does to “Swipe and Go.”  The value proposition for the consumer really has not changed in a material way, merchants have absorbed the expense of installing new POS devices and while one would certainly acknowledge the benefit of the Association’s interchange incentives the dial has not really moved in a meaningful way.

In order to realize the value promise and ultimate material conversion to ePayment from cash and coin in particular, the strategy needs to start with consumer expectation.  Make the transaction convenient and well aligned with what the consumer wants.  This means, get laser focused on what the consumer prefers in their purse or wallet as well as which technology they see as the preferred device to execute a transaction.  Deploy the initiative with little to no impact on the merchant and provide an interchange incentive that allows the merchant to embrace the preferred form factor for payment.

An Example of What It Could Look Like

When I arrive at the airport I want to purchase a Wall Street Journal, pack of gum and a drink.  As opposed to reaching into my wallet or purse, I simply point my mobile phone at the existing contactless device and complete a simple two step process.  First, I press buy.  My phone then prompts for a pin number.  I enter my pin number and press buy.  Behind the scenes, my carrier allows me to pre-configure my buying preference by card type via a web portal.  The transaction is then posted to my preferred rewards card and I see the transaction on my next statement, ideally well identified so I do not have to go hunting for it.  For the merchant, there is no change to the POS footprint, presuming that I have compatible technology, if not, the investment is minimal.  As the merchant I have a rapid transaction that is efficient, does not require a signature and continues to reduce my dependency and cost associated with managing cash and coin, not to mention that the entire transaction is traceable and auditable as opposed to cash and coin.  For the Acquirer this represents a new growth category which will have a much broader impact on the overall portfolio growth rate.  While I used the example of completing a transaction in the airport, this example could be extended anywhere cash and coin are accepted.  For the Associations, this represents the last great bastion for moving to an overwhelming adoption of ePayment as the standard medium for any transaction with cash and coin as the exception.

The early warning signs are clearly in place.  It is time to embrace, adopt and execute prior to disintermediation by well capitalized competitors with no legacy anchors to hold them back.