Wel­come the Integrated Pay­ment Gate­way

End-to-end pay­ment plat­forms cre­ate op­por­tu­ni­ties for ISOS and agents


As the pay­ments in­dus­try evolves, so do pay­ment gate­ways. At its most ba­sic, a pay­ment gate­way is the tech­nol­ogy bridge that con­nects mer­chants and pay­ment net­works in an on­line or mo­bile plat­form. Af­ter cap­tur­ing the trans­ac­tion re­quest, the gate­way en­crypts the pay­ment data and sends it to the ac­quir­ing bank. Once the ac­quir­ing bank au­tho­rizes the trans­ac­tion, the pay­ment gate­way in­forms the pur­chaser that the trans­ac­tion was ap­proved.

But that straight-for­ward pass­ing of pay­ment in­for­ma­tion has given way to more so­phis­ti­cated pay­ment gate­ways. The new pay­ment gate­way is an integrated plat­form with add-ons such as shop­ping carts, in­tel­li­gent rout­ing, and point-of-sale and billing so­lu­tions. For in­stance, an integrated pay­ment gate­way can send no­ti­fi­ca­tions to the mer­chant’s or­der man­age­ment sys­tem. Says Jared Driel­ing, Busi­ness In­tel­li­gence Man­ager for The Strawhecker Group, “Pay­ment gate­ways are evolv­ing into be­ing able to in­te­grate with the pay­ment through­out the life­cy­cle of the pur­chases,” Driel­ing says, adding, “pay­ment gate­ways of­fer a layer of tech­nol­ogy that can re­ally em­power mer­chants.”

And this in­te­gra­tion with other busi­ness man­age­ment soft­ware turns a pay­ment gate­way into a sticky prod­uct, notes Driel­ing. “An integrated pay­ment gate­way makes it very dif­fi­cult for a mer­chant to jump ship to an­other pay­ment provider,” he ex­plains.

In­vest­ments Made

Ac­cord­ing to Aite Group, there is about $5 tril­lion in re­tail turnover in the U.S., mean­ing that there’s a lot of money to be made help­ing mer­chants process trans­ac­tions. And the pay­ment gate­way in­dus­try is evolv­ing as a re­sult. Tech­navio pre­dicts that the global pay­ment gate­ways mar­ket will grow at a CAGR of close to 17% from 2017 to 2021.1

BI In­tel­li­gence ex­pects the U.S. on­line pro­cess­ing mar­ket—pay­ment gate­ways’ bread and but­ter—will grow to $17.5 bil­lion in 2020, mostly due to on­line shop­ping.2

And Javelin Strat­egy pre­dicts that while 8% of pur­chases were made on­line in 2016, that per­cent­age will rise to 12% by 2020, largely due to con­sumers or­der­ing on­line and pick­ing up goods in-store.

To com­pete and to take a share of the grow­ing pay­ments mar­ket, long-time play­ers in the pay­ments space are reeval­u­at­ing their busi­ness mod­els. Ac­quir­ers and pro­ces­sors have in­cor­po­rated pay­ment gate­ways to ac­com­mo­date mer­chant needs for on­line pay­ments into their of­fer­ings. POS ter­mi­nal providers such as Ver­i­fone are mov­ing “up the stack” to of­fer a full suite of pay­ment ser­vices from the ter­mi­nal to the ac­tual pro­cess­ing func­tion. Integrated sys­tems providers like Revel Sys­tems are of­fer­ing en­ter­prise­level soft­ware plat­forms for global re­tail or­ga­ni­za­tions, says Thad Peter­son, Se­nior An­a­lyst, Aite Group.

And ISOS are in­creas­ing the breadth of their prod­uct of­fer­ings, notes Peter­son. For ex­am­ple, Cayan has moved from a tra­di­tional ISO role to a full-ser­vice, integrated pay­ments pro­ces­sor.

A more com­pet­i­tive mar­ket is also forc­ing providers to push the bar on in­te­gra­tion and other ca­pa­bil­i­ties. Lead­ing ven­dors, in­clud­ing Ama­zon Pay­ments, Cc­bill, Paypal, and Stripe con­tinue to in­vest in in­no­va­tive tech­nol­ogy.

Large ac­quir­ers and pro­ces­sors in­clud­ing First Data, Global Pay­ments, and Van­tiv are all de­vel­op­ing, or have de­vel­oped gate­ways, or have ac­quired pay­ment gate­way providers. Driel­ing high­lights the Van­tiv ac­qui­si­tion of Li­tle & Co and First Data ac­quir­ing Card­con­nect as ex­am­ples.

Al­though there are still a mix of stand­alone gate­ways and integrated plat­forms, the trend is to­ward in­te­gra­tion, agrees Michael Grillo, Direc­tor, Mar­ket­ing Line Leader for ACI World­wide. But this trend is putting pres­sure on ISOS and agents. “ISOS and agents are feel­ing the squeeze as ac­quir­ers, lo­gis­tics com­pa­nies, card schemes, banks, POS man­u­fac­tur­ers, and oth­ers have adapted their of­fer­ings with the goal of pro­vid­ing end-to-end pay­ment ap­pli­ca­tions.”

In­dus­try Trends Drive Gate­way Changes

The in­no­va­tion in pay­ment gate­ways is fu­eled by sev­eral in­dus­try trends, in­clud­ing global pay­ments, the need for more ef­fec­tive fraud man­age­ment, and om­nichan­nel com­merce.

“En­abling in­ter­na­tional pay­ments pro­cess­ing and ef­fec­tive fraud man­age­ment con­tinue to dom­i­nate the con­ver­sa­tions we have with our part­ners and prospects,” says Grillo. “Mer­chant de­mands around pay­ment meth­ods, re­port­ing op­tions, and fraud preven­tion tools are in­creas­ing as providers look to move quickly and take ad­van­tage of global ecom­merce growth.”

Peter­son also notes that cross-bor­der com­merce can be a chal­lenge for mer­chants. “Mer­chants can be con­strained by the types of pay­ments they can of­fer and their abil­ity to ef­fec­tively process pay-

“Pay­ment gate­ways are evolv­ing into be­ing able to in­te­grate with the pay­ment through­out the life­cy­cle of the pur­chases.”

“An integrated pay­ment gate­way makes it very dif­fi­cult for a mer­chant to jump ship to an­other pay­ment provider.”

ments around the world,” he says “Om­nichan­nel is very im­por­tant in the new pay­ments ecosys­tem,” con­tin­ues Grillo. “More and more brick-and-mor­tar stores of­fer both in-store and on­line sales, as well as buy the op­tion to on­line and pick up in-store.”

The chal­lenge with om­nichan­nel for mer­chants, says Peter­son, is that the mer­chant has lit­tle con­trol over the cus­tomer ex­pe­ri­ence. How­ever, an integrated pay­ment gate­way can give mer­chants a holis­tic pic­ture of cus­tomer be­hav­ior re­gard­less of the chan­nel the cus­tomer chooses.

The mer­chant chal­lenges can be even more acute for mid-size or small mer­chants. Al­though larger mer­chants may have ded­i­cated tech­ni­cal staff to man­age pay­ments, smaller mer­chants do not have the re­sources to ded­i­cate to pay­ment pro­cess­ing. They of­ten strug­gle to stay cur­rent with the rapid changes in the in­dus­try, says Peter­son.

Op­por­tu­ni­ties for ISOS & Agents

The com­plex­ity of the pay­ments ecosys­tem is chal­leng­ing for ISOS and agents try­ing to keep up with the tech­nol­ogy. “ISOS must keep pace with evolv­ing mer­chant needs to in­te­grate mo­bile POS, mcom­merce, ecom­merce, and in-store POS trans­ac­tions,” says Grillo.

But that com­plex­ity also pro­vides op­por­tu­nity. “ISOS and agents that can de­liver a full so­lu­tion to mer­chants—from con­sol­i­dated re­port­ing to API in­te­gra­tion—and the abil­ity to mon­i­tor all chan­nels, will em­power its mer­chants to re­main ag­ile and prof­itable in such a com­pet­i­tive land­scape,” he says.

Driel­ing is see­ing more ISOS and agents of­fer­ing pay­ment gate­ways, es­sen­tially, he says, be­com­ing more of an ISV or a tech­nol­ogy part­ner. “Con­nect­ing the pay­ment gate­way to other as­sets is an op­por­tu­nity for ISOS and agents,” says Driel­ing.

“At the end of the day, ISOS, ISVS, and mer­chant ser­vice providers (MSPS) are look­ing for op­ti­mal so­lu­tions that give them both choice and a com­pet­i­tive edge,” says Grillo. “Con­nect­ing to an ex­ist­ing mod­u­lar pay­ment gate­way such as a gate­way that can “switch on” al­ter­na­tive pay­ment meth­ods as and when needed can help fa­cil­i­tate rapid global ex­pan­sion when the mer­chant is ready to pur­sue a cross-bor­der strat­egy.”

But per­haps the big­gest op­por­tu­nity for ISOS and agents is in the re­la­tion­ship they have with their mer­chant cus­tomers. “The ISO and agent are closer to the mer­chant than any­one else in the pay­ments ecosys­tem and should be in a po­si­tion to pro­vide the on­line and in-store so­lu­tions that mer­chants want in a way that re­duces fric­tion and makes it eas­ier for cus­tomers to buy,” says Peter­son. “For ISOS and agents, the tech­nol­ogy is pretty generic so per­haps the only dif­fer­en­tia­tor is the un­der­stand­ing of the mer­chant’s busi­ness and the re­la­tion­ship you de­velop with them.”

ISOS and agents also need to think long and hard about whether what they of­fer to mer­chants re­ally meets their needs, con­tends Peter­son. “This re­quires a lot of strate­gic in­tel­li­gence,” he notes. “I chal­lenge the idea that an ISO or agent can walk into a small re­tailer, sell them a POS ter­mi­nal, and walk away. That’s just not an ef­fec­tive busi­ness model any longer.”

Agility is crit­i­cal, says Grillo. “Within this dy­namic en­vi­ron­ment, ISOS and agents must be flex­i­ble and able to adapt quickly,” he says. “ISOS and agents should work with their tech­nol­ogy part­ners and in­dus­try as­so­ci­a­tions to keep on top of cur­rent and emerg­ing mer­chant trends and stay in tune with the needs of their mer­chant cus­tomer base.”

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