Specialized Players Claim a Rising Share of Merchant Acquiring

Despite a temporary setback at the start of the pandemic, merchant acquiring is getting back on a growth track that will see revenue expand at an 11.3% annual clip through 2025, nearly equaling the 11.8% rate chalked up from 2015 to 2019, according to a report and forecast released last month by The Boston Consulting Group.

At the same time, traditional acquiring players—banks and independent sales organizations—are giving up revenue share to newer entrants, including software developers and marketplaces. The report indicates traditional providers controlled 66% of acquiring revenue last year, down from 90% only five years earlier. Integrated software vendors alone commanded a 10% share in 2020, up from 4% in 2015.

The fast expansion of e-commerce and such newer markets as the so-called sharing economy is helping drive market share for ISVs and marketplaces, according to the report.

“As the sharing economy expands beyond car services and lodging, ISVs and online marketplaces will embed payments capabilities—such as onboarding for small, local merchants; checkout for consumers; and recurring or subscription-based payments—into their platforms, commoditizing the core transaction product,” add the BCG analysts. “To remain competitive, established payments players will need to offer specialized [value-added services] and rethink their direct-to-customer distribution models.”

Acquirers in coming years will need to redouble investments in innovation and risk management in particular, the analysts advise, as financial institutions react to recent trends.

“The spike in credit and fraud risks (notably in segments where the spread between purchase and service delivery is wide), the Wirecard accounting scandal, and the need to implement anti-money laundering and sanctions provisions have increased institutional concern over risk management in merchant acquiring, especially for nonbank acquirers that have not been subject to bank-style regulations in the past,” the authors say.

Once a major payments processor in Europe, Munich-based Wirecard AG filed for insolvency last year after it was discovered that $2.1 billion in cash was missing from its balance sheet and likely never existed.

Overall, the resiliency of the payments market surprised the BCG analysts. They had projected total payments revenues in North America would grow at an anemic 2% annual rate for several years following the lockdowns and other restrictions stemming from the pandemic. But the market recovered faster than forecast, and they now expect a 5.8% average annual growth rate through 2025. That forecast results in $609 billion in 2025, up from $459 billion last year.

By comparison, North American payments revenue grew at an 8.5% clip from $342 billion in 2015 to $474 billion 2019 before stumbling in 2020, which saw a 3.2% drop.