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Increasing competition, slow growth, and staying abreast of changing technology top the list of issues facing independent sales organizations and merchant acquirers during the next 12 months, finds a new report from Adil Consulting.
Fifty-two percent of respondents cited competition as the top trend, followed by growth, 48%, and technology, 41%.
Other top issues In the “Merchant Acquiring 2014: Issues, Trends & Perspectives” report, which surveyed 27 ISOs and acquirers, include margin compression, 37%; regulation, 22%; security, 19%; product development, 19%; the conversion to chip cards, 19%; merchant retention, 19%; organizational infrastructure challenges, 15%; ethics, 11%; and recruitment, 11%.
Exacerbating the matter is that competition, especially in the form of new entrants to the industry, is entwined with growth challenges and margin compression, Moussa tells Digital Transactions News. “There are so many things going on in the market,” Moussa says. Venture capital firms are directing their investments into payments more than ever before, he says. “That is giving some impetus for a lot of startups to appear,” Moussa says.
The addition of new payment providers dilutes the market, he says. Many draw attention and use that to garner merchants. With more payment companies, the competition for merchants increases, especially because organic growth through the recovery of the economy is still very slow, Moussa says. “Most market players are barely seeing the year-over-year percentage growth similar to that prior to 2007,” he notes in the report. “The only other types of growth possible are competition (converting merchant accounts from the competitors and losing a minimum number of accounts), or buying portfolios in order to keep growth.”
In turn, as ISOs and acquirers vie for merchants, some payment providers lower their payment-processing rates, which reinforce further margin compression. “They believe wrongly that lowering the price will result in a Wal-Mart-like domination, but end up robbing themselves and the industry from healthy margins,” Moussa says.
To counter these trends, Moussa suggests specialization to stand out. Not only does he suggest choosing a particular merchant category to court, but that the ISO or acquirer learns that business so it can better understand the merchant pain points, he says.
“You have to step outside of payment processing and look at the opportunity to help merchants grow,” Moussa says. “Your growth will be taken care of if your merchants grow.”
For example, a payment provider might survey lawyers to understand what their business needs. Many may need a way to track billable hours, see who is paid, and manage invoices, Moussa says. They know how to be a lawyer, but have not been as educated in running and marketing a practice. “They go to school to be a lawyer, are they going to go back to school to learn how to be a marketer?” Moussa asks.
With the right software, an ISO or acquirer could offer those additional features along with payment processing, he says. “There is a big opportunity just helping these merchants,” he says. “That’s a good place to be.”
