(November 19, 2009) Coming off a tough year in 2009, independent sales organizations and other acquirers rank merchant attrition and shrinking margins as their top challenges as they look ahead to next year. Acquirers also rank mobile-related products as their biggest emerging market for next year, while they plan to invest more in sales and less in acquiring merchant portfolios.

That’s according to a study released this week by Aite Group LLC, a Boston-based research firm. The study surveyed 28 ISOs and 17 banks that acquire merchant card transactions. All are among the 100 largest U.S. acquirers, with seven in the top 20, according to Aite.

Asked to rank their three biggest challenges for 2010, some 24% cited merchant attrition as their number-one challenge, followed by margin compression (22%) and compliance with the Payment Card Industry data-security standard (17%). This is not a surprising result, as Aite pegs voluntary merchant attrition at 12% overall after more than a year of recession and weak consumer spending have made merchants more likely to shop around for payment services. Acquirer margins have suffered, too, as merchants demanded better deals and showed a greater willingness to jump to another acquirer. Indeed, when asked what merchants are asking for most, 57% of respondents ranked lower pricing first. That’s ahead of factors like reputation and integrity (41%), better service (35%) and easy-to-read statements (17%).

But ISOs and banks are also showing some optimism about 2010. Some 26% rank mobile and wireless products among their three most promising emerging markets for next year, followed by business-to-business payments and e-commerce (both at 22%). Adil Moussa, analyst at Aite and author of the report, tells Digital Transactions News acquirers are trying to position themselves to take advantage of trends like mobile top-up (reloads of prepaid cards used for cell-phone service), remote payments to merchants and billers via mobile phones, and even near-field communication, a technology that has been piloted and enables phones to make point-of-sale payments.

Acquirers’ mobile strategy, however, is relatively passive, a question of postioning while banks, wireless carriers, merchants, and the card networks work out adoption and business issues, Moussa says. “If someone makes a transaction using [short-message service] on a mobile phone, they’re going to be the acquirer of choice,” he says.

While business-to-business payments rank high as an emerging acquiring market for 2010, Moussa says high interchange costs are likely to keep most of these payments on checks for the foreseeable future. With typically high tickets in business transactions, a 2% interchange rate takes a sizable chunk out of each transaction. “Visa and MasterCard haven’t figured out the codes for B2B,” he notes. “Two percent on $100,000 is a lot of money. It just does not make any sense.”

In e-commerce, Moussa says a growing market for acquirers lies among vendors selling so-called software-as-a-service (SaaS), an increasingly popular way to deliver services over the Web rather than in packaged or hosted software. With SaaS, clients pay recurring monthly fees rather than big, one-time licensing fees. “Those are payments you can capture [on cards],” he says. “Before, it was a license fee paid by check.”

Another sign of optimism is the way acquirers plan to invest in the coming year. Some 69% said they are somewhat or very likely to increase their investment in their sales force, followed by products and data security (both 67%). Sixty percent said they are likely to boost investments in technology. ISOs and bank acquirers have less appetite for growth by acquisition, however. Just 29% said they’d increase investment in acquiring merchant portfolios and only 20% said the same about acquiring other companies.