Only a few decades ago — right up until the 1980s, in fact — Walgreens, that behemoth of the pharma industry, had food service as a main staple of its offerings.
You might remember through the dim mists of time that each location had soda fountains and counters that served up breakfast, lunch and dinner. No more, of course, because Walgreens pivoted to its current status as drugstore chain.
In another example, as noted by Jim Collins in his classic book “Good to Great,” Kimberly-Clark harvested the monies thrown off by the core paper mill businesses and sold off that business to focus on the next big thing — becoming a top consumer packaged goods firm.
Businesses evolve, in other words — at least the good ones do, if they’re able to see around corners to predict what’s coming.
As Carl Churchill, managing director at NetPay Solutions Group Limited, parent firm of Technologi, told Karen Webster, the payments industry is facing a watershed moment, where the key providers — the acquirers, especially — need to see around the proverbial corner, and give their merchants the value-added services needed to meet consumers at the next phase of commerce.
“You have to make money from the innovation that is built on top of the payment processing capability. That’s where the industry needs to go,” he told Webster. Certain acquirers are still holding onto the physical terminal thinking that’s still the future, said Churchill, but that’s not a tenable strategy.
Those same providers will need to shift their attention beyond terminal sales and shopping plugins the core processing businesses that are doing so well at the moment, buoyed by the pandemic and the surge in contactless transactions.
Looking Around Corners
But in doing so, said Churchill, forward-looking firms can tailor their offerings to alleviate the frictions merchants face when managing multiple acquirer relationships.
“You make drastic decisions about your payments business today to try and support what you think the future of payments is going to look like,” he said.
With the current spates of partnerships, deal-making and new announcements that stream across the headlines, many acquirers are trying to find their FinTechs in the bid to repurpose their models to be less like old-school banks and more like digital upstarts. Against that backdrop, he said, acquirers need to be more creative with their sales approaches, products and delivery.
As for tailoring those offerings: The movement toward digital commerce has changed the very nature of checking out and completing transactions — even within the brick-and-mortar setting.
In the digital age, of course, it’s no longer the case that consumers are walking up to terminals to complete their purchases. Now, as Churchill noted, consumers at the grocery store, pharmacy and mass retailer want to make their payments through an app.
That means the workflow and the processes behind the scenes, at the merchant and their providers, have to change too.
“The acquirers have got to understand how they can support this shift,” said Churchill, “and shouldn’t be nervous about it.” That proactive approach centers on creating a suite of tools and gateway features that lend themselves well to the transition, at the merchant level, in the ways in which people will transact in the years ahead.
Consider, for example, the changes at Sam’s Club and at Costco, where “scan and go” features are rapidly gaining traction. Those payment features have a dual benefit for the big box retailers, said Churchill. On the one hand, they streamline commerce for the shopper.
These shifts also reduce labor costs for the merchant, while increasing the usable footprint in the store by getting rid of the checkout lanes. Along the way, the merchants may benefit from increased basket sizes (streamlined commerce winds up incentivizing consumers to add more to their carts). Churchill noted, over the longer term, we may see the continued embrace of third-party shoppers — taking a page from the Instacart model, of course — driven by apps.
Just as consumers’ tastes are changing, the very nature of competition among the providers is changing, too. Many acquirers are beginning to accept the fact that you can’t win ‘em all, said Churchill. That is especially true of the larger merchants, who are eschewing exclusivity to forge relationships with several acquirers, rather than just rely on a relationship with a single provider.
Acquirers wind up dropping their demands for exclusivity and benefit from “opening up” their relationships — and are fine with merchant clients using another acquirer in a separate region. Along the way, he said, the multiple providers wind up leveraging the same terminal, the same gateway capabilities and the same integrations.
But don’t call it collaboration — not really.
Call it a memo of understanding.
“It’s really an agreement that large merchants need to have some resilience in their suppliers — and we either embrace that, or we reject it and get nothing,” said Churchill. By abandoning the dog-eat-dog mindset of exclusivity in processing, savvy providers are actually preparing for the next stage of change that is on the horizon.
In developing new products and services, he said, acquirers, in their never-ending support of merchants, should always have few “moon shots” in the hopper.
Or as Churchill said, “they should always have a few products in development that are speculative … sometimes those are the products that wind up becoming the most successful,” and lead merchants to embrace new payments methodologies, rather than waiting for clients to come to them with suggestions.
Asked by Webster what some of those moon shots should focus on, Churchill said that mobile payments should be top-of-mind, as should analytics on the back end that offer real-time insight throughout the payments ecosystem.
As Churchill said of acquirers: They can never know too much about their merchant customers — and merchants can never know too much about their customers’ spending.
As for selling the mills, so to speak, and getting ready to move beyond the core processing businesses …
“Payments are a commodity product,” said Churchill, “and the ability to process a payment is rapidly becoming a commodity.” At a basic level, he said, the commodification involves taking transactions through terminals and gateways and routing them, ultimately into the card scheme.
Lots of firms do that now — so when offering a commodity, the only differentiator is price. Where the only differentiator is price, churn looms when other providers come in a bit cheaper.
But those acquirers should be thinking years ahead, past the pandemic bump that has been lifting their core businesses as of late.
“You need the leaders that have the foresight to say that ‘what we are doing today is really great, but it’s not how we will do business in five years’ time,’” he said.
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