Financial institutions (FIs) are facing an all too familiar challenge: Customers and clients are increasingly demanding fast, data-rich products and services, yet their legacy core payment processing systems are often antiquated. These challenges are especially acute for merchant service providers (MSPs) and the clients they serve. After all, many businesses look first to their MSPs, including acquirers and independent sales organizations (ISOs), to connect them to the vast and growing digital ecosystem.
Business today expect MSPs to do more than process card payments: They want tools to optimize their operations across a range of areas, from marketing and loyalty to analytics and inventory management. This helps explain why most MSPs view overhauling their core processing systems as imperative. Nearly two-thirds of providers, 63.5 percent, want to improve these systems. At the same time, there are crucial differences among them in the strategies they are taking to ramp up the capabilities of these systems.
In The Key To Optimizing Merchant Services Playbook: Leveraging Core Processing Systems, a collaboration with Endava, PYMNTS examines how MSPs are dealing with technical aspects of supporting value-added services (VAS). This playbook series is based on a survey of financial executives from more than 200 U.S.-based MSPs, including acquirers, independent sales organizations (ISOs), payment facilitators and payment gateways.
In our analysis, we found there are three essential strategies that MSPs are taking on to overhaul their core processing systems: upgrading existing systems, building new ones or turning to third parties. Our research revealed a surprising find: MSPs that want to upgrade their core processing systems or outsource to third parties not only currently offer more VAS, but they also have greater ambitions to add and enhance services over the next two years. “Upgraders” currently offer 7.2 services on average and “outsourcers” offer 7, while “builders” offer just 6.1 services. Over the next two years, outsourcers plan to add or enhance three services, upgraders plan 2.8 and builders, 2.7.
Moreover, providers that want to upgrade or outsource core processing systems are more likely to be currently working on improvements, rather than waiting six months or longer to begin them. Among MSPs that want to upgrade their processing systems, 50 percent have already started the work. In contrast, MSPs that want to build core systems from the ground up are more likely to delay this work: 37.8 percent of them expect work to begin in six months at the earliest.
All of this underscores the importance of agility and willingness to seek the right partners in delivering VAS to today’s fast-moving digitized economy. Our research indicates that MSPs are finding ways to quickly surmount technical limitations imposed by outdated processing systems, likely by leveraging partnerships with FinTechs and other organizations.
To learn more about the types of VAS that MSPs are prioritizing and how this relates to their core system strategies, download the report.