Serving the Small Merchant

Seldom in the history of electronic payments has the spotlight shone quite so intensely on small merchants as it does now. Everybody, it seems, wants to sign up the so-called SMB—the small and medium-size business.

When Total System Services Inc. (TSYS) put up just over $1 billion last month to buy Cayan, a large part of the rationale was to pick up Cayan’s portfolio of 70,000 SMBs. And Cayan is just one, though also one of the more successful, of the processors and gateways catering to small merchants with sophisticated point-of-sale technology that allows the businesses to accept EMV cards and digital wallets while at the same time melding together data flows from both stores and the Web.

With TSYS’s resources behind it, Cayan may be able to expand the reach of this technology to more SMBs. That’s a trend that will dovetail nicely with a parallel movement among software developers to focus on helping small companies integrate payments with their accounting and POS systems. That movement has been in progress for several years, but is picking up steam lately as developers recognize the opportunity in helping merchants figure out how to scoop up and make sense of payments data.

At the same time, the industry has witnessed over the past few years the rise of the so-called payment facilitator. This entity, which may be an independent sales organization, an independent software vendor, or just a larger merchant, eases the entry of small merchants into the payments network. The small merchant simply rides on the merchant account of the ISO, ISV, or online marketplace, dispensing with the need to apply for its own account and saving considerable time and money.

This device has made it possible for tens of thousands of very small businesses, even flea-market sellers and other occasional merchants, to gain access to the same electronic-payments systems that Walmart uses.

To be sure, none of this is perfect. One reason small businesses are attractive to processors is that they lack negotiating heft, and so generally end up paying higher rates than their larger cousins. As for technology, not all merchants need the slickest loyalty integration on offer. And the payment-facilitator model may prove a bit too facile for some, leaving them exposed to risk they hadn’t counted on.

But the general drift—toward better service, better access, better technology, faster set-up—is a significant improvement for the small merchant over what was available only a few years ago. It’s also a good deal for the acquiring industry, opening up, really for the first time, a vast market that, in the aggregate, accounts for a dynamic slice of the U.S. economy.

—John Stewart, Editor, john@digitaltransactions.net