Putting It All Together

One of the great lessons for merchants coming through the Covid-19 experience is that one sales channel is not enough.

As the impact of the shelter-in-place rules and the closing of non-essential businesses rippled through the economy, one payments technology began to grow in importance: integrated payments. And it took on new meaning for many businesses that, prior to the countermeasures, only sold through one channel.

Even businesses already selling across channels adapted. Best Buy, for example, shifted to online and curbside pickup. Consumers placed their orders online and designated a Best Buy location for pickup. Businesses of much smaller size, such as restaurants, added online ordering and payment capabilities (Cover Story, this issue). It was that or have no sales at all in some situations.

Integrated payments make this cross-channel payment capability easier, and in the unprecedented times businesses and consumers have coped with this spring, lend further importance to the payment technology.

It’s the technology that is helping Alpharetta, Ga.-based Priority Technology Holdings Inc. replace revenue that had come from a scaled-back merchant segment. In its most recent quarterly results, released in May, revenue in its Integrated Partners segment ballooned 129% to $4.53 million.

And last year’s merger of Global Payments Inc. and Total System Services Inc. (TSYS)—one of the big three payments mergers in 2019—was viewed as boosting Global’s integrated-payments play.

Its partner software business, now called Global Payments Integrated, launched 30 new partners in the first few months of 2020, Jeff Sloan, Global’s chief executive, told analysts in May on an earnings call. This business, Sloan says, has recorded new wins, strong same-store sales, and low attrition rates.

‘A Distinctive Edge’

It’s that combination—the ability to attract and keep merchants and enable them to sell more—that makes the integrated-payments model so attractive.

“We are not seeing a slowdown. If anything, we have seen an uptick in discussions about integrated payments,” says Jared Drieling, senior director of consulting and market intelligence at The Strawhecker Group, an Omaha, Neb.-based payments consultancy.

That’s in part because merchants need flexibility in their ability to accept payments in multiple channels. That need has been accentuated during the Covid-19 response.

“Payments providers providing these viable options through their partners clearly have a distinctive edge,” Drieling says. “We will see more and more integrated-payments partnerships.”

Merchants, too, may be realizing the value of integrated payments. “The greatest lesson with Covid-19 is that a merchant cannot limit their sales to one channel,” says Krista Tedder, director of payments at Javelin Strategy & Research, a Pleasanton, Calif.-based research firm.

Experts point to a distinction between ominichannel and multi­channel payments. “Having one specific channel of delivery creates a single point of failure for revenue loss,” Tedder says. “Being omnichannel is also a mistake. Yes, having mobile, online, and brick and mortar are important–and each merchant needs these channels.”

“However multichannel takes it a step further,” she continues. “each channel needs to be integrated to [the others] and know the consumer regardless of the access point. Technology and card-scheme rules need to catch up to the multichannel consumer experience.”

One example of where the payments business is trailing the technology and the experiences merchants and consumers expect lies in click-and-collect, Tedder says.

“A consumer can order a product via mobile app and pick up curbside. However although goods were picked up in person, and if returned [that] would be in person, the transaction is considered e-commerce with different network rules and fees than an in-person transaction,” she says. “Ordering ahead should not be considered the purchase–the pickup should be the payment channel of in-person. Added security measures also need to be put in place to mitigate the high fraud risk with this purchase type.”

That issue highlights the value of knowing the merchant’s industry. “Clearly, the vertically focused independent software vendors are much more educated around the needs for that particular vertical,” Drieling says. Payment providers taking on ISV partners was a trend prior to the Covid-19 restrictions, but now they will boost their efforts to identify potential ISVs and partner with them, he says.

The Leading Strategy

Another lesson for merchant-service providers is that many merchants may need more education about payment-acceptance costs, Tedder says.

“The card networks charge interchange based on the transaction and merchant type,” she says. “Debit, credit, and prepaid transactions have different interchange rates. Premium card products like rewards and the Apple Card have higher interchange rates, making acceptance of digital cards more expensive for merchants. Merchants who have typically been brick-and-mortar but are now taking online, email, and phone payments might not be aware of the differences.”

As the effects of the Covid-19 pandemic increase the need for integrated payments, more ISVs are realizing the value they bring to payments companies, Drieling says. Payment revenue for some ISVs in payments partnerships may overtake their software sales, Drieling says.

“They are becoming much more aware of what they have to offer,” he notes, and this is leading them to ask for an increased share. This is especially true among those in specialized verticals, he adds.

Many may be able to take that position because they can demonstrate demand for their software. “Merchants will be actively seeking software solutions which can lower operating costs, accept and streamline payments, reduce interchange through stored-value wallets, and security solutions,” Tedder says.

“The business models which will require redirection of capabilities will be stores that have not had an online or mobile presence, online stores with limited payment options, and companies who need to create stored-value/closed-loop payment options to reduce increased interchange expenses,” she continues.

Tedder says the integrated-payments model is now the leading strategy for acquirers to improve sales opportunities and reduce cart-abandonment rates. It’s critical when implementing this strategy, she adds, that the consumer experience work toward these goals.

That could mean incorporating payment methods designed for less friction, such as those using the EMVCo Secure Remote Commerce standard for e-commerce or a digital wallet like Amazon Pay, Google Pay, or Venmo, she says.

‘Secure And Fast’

Experts stress ease of integration for merchants already struggling with the impact of the pandemic. This means application programming interfaces take center stage (see “The ABCs of APIs,” this issue).

“The usage of [API code] for connectivity and integration into existing systems is key,” Tedder says. “Currently merchants cannot afford to upgrade key systems but need to provide added-value applications–micro service–to their merchants. By using an integrated-payments approach, merchants can quickly add services to deliver value.”

Indeed, some 87% of software developers surveyed by payments provider Paysafe last fall believed the number of payment options they offer has a direct impact on the volume of business they do. Then, 88% said upgrading their payment facilities was a priority and 86% said their customers looked to them to lead in offering new payment methods.

Having more payments options has proven essential during the Covid-19 reaction. Contactless payments gained wider adoption because many consumers wanted to reduce their need to touch a point-of-sale terminal.

“With fewer people shopping in physical stores, or the need for physical distancing and only allowing a few people in a store at a time, merchants need payment options which are secure and fast,” Tedder says. “Contactless payments–both card and digital wallets–can deliver this type of experience.”

She adds there are many ways this contactless experience can unfold. “Another example would be with Sam’s Club,” she says. “As a member, you check into the store and your mobile device is a self-scanner. When you check out of the store, your device is the payment. There is no additional interaction required to validate the sale. Fast, simple, and safe.”

‘A Gold Mine’

The impact of Covid-19 means merchants will actively seek software that can lower operating costs, accept and streamline payments, reduce interchange through stored-value wallets, and offer security solutions, Tedder says.

Integrated payments offers merchants a consolidated mode in which to see all of their business operations. Not only does the POS software help them manage staff, monitor inventory, or pay bills, it can provide them with real-time sales data. Such data will only increase in value.

It’s the thirst for data and the unceasing need for merchants to put that data to use that will spur more POS software adoption, Drieling says. Coupling that demand with the ability to deliver multiple payments methods will generate more interest in the model.

“More and more [we] will see these ISVs become much more of a gold mine for payments providers,” Drieling says. “They allow payment providers to be more flexible.”