In 2022, customers don’t think in terms of siloed channels. They think in terms of shopping — and they want to move fluidly between the digital and physical realms.
As economies open up, people are getting out, but they still want the easy digital experiences they grew to expect during the worst days of the pandemic. And merchants need to accommodate that fluidity, especially when it comes to payments.
That digital transformation of everything has raised the bar for what consumers expect from merchants. It’s also raised the bar for what merchants expect from their payment service providers (PSPs), Technologi Managing Director Carl Churchill, Finaro CEO Igal Rotem and Wave Financial CEO Kirk Simpson told PYMNTS CEO Karen Webster in a recent On the Agenda discussion.
Merchants over the past few years have become as demanding as consumers about payment processing. These merchants will choose the payments processing solutions that offer them the most benefits, even as payments have become commodities.
Many are asking, “What else can I do with this relationship?”
The Hunt for Added Value
Given the increased cross-channel activity, value add is everything, and PSPs might miss a slew of opportunities because the ability to process a payment is no longer a strategic differentiator. The smallest firms may have once been “honored” to have been “chosen” by acquirers, but now merchants have more leverage.
As consumers adapt to different channels, a range of payment methods, and especially alternative payment methods, merchants must meet consumers where they want to be met. And at least on some levels, the PSPs enabling those merchants to do so are a bit behind the curve, the three panelists said.
As Churchill noted, when it comes to payments, PSPs are themselves taking weeks — not days — to deliver gateway services.
“Asking 50 questions as part of an onboarding process,” he said of those PSPs, “well, they are really missing an opportunity.”
The PSPs that get it right, he added, are the ones that have seen exponential growth over the past few years. That means that PSPs have had to shift away from bifurcated models where they focused on either physical POS or eCommerce, the panelists said.
See also: Consumer, Merchant Appetite For Efficiency Drives 2nd Wave Of Payment Orchestration
Rotem noted that the pandemic has blurred the lines considerably. Merchants who have not blended brick-and-mortar and online commerce into an omnichannel have struggled.
“No one talks about a business that is going to be only online or offline,” he remarked. “Now they talk about building offerings that can support customers — anywhere. Period.”
It’s no easy task for PSPs to enable that range of capabilities. Simpson noted that in years past setting up merchant accounts could be a brutal business — for all parties involved. Merchants traditionally would put up a significant deposit to get services in place, and pay again once payments were up and running.
“No small business owner wants to then take all of the payments data and have to reconcile it into software,” said Simpson.
Now PSPs have to fill in what’s been missing in the process — giving those small business owners seamless tools on the back end to make the integration of those transactions into the books, the invoicing process, intuitive and seamless. There’s no time wasted with processes after the transaction is done.
Cash-Flow Visibility
Rotem noted that, all too often, business owners do not know when payments will settle, or just how much will come in or from what channels (a challenge, especially, for international firms). And, he added, knowing when a $100,000 will appear can make a world of difference.
“You don’t have a clue because you don’t have data. You don’t have transparency,” he said, “and you can’t do reconciliation … and don’t know whether [the cash] is the result of a few days of processing or whether this is something that represents a few weeks’ back of activity.”
Forward-thinking PSPs, Rotem said, can give clients a single vantage point with which to look across different channels that are coming into their merchant accounts with clarity, and can also provide instant settlement.
Platforms Ease Payment Pains
Just like larger firms, Churchill said, SMBs want to be able to look across the last week or last month or three years ago to see how cash flow trends have changed. Those insights can help managers make informed decisions about investments and growth.
No easy task in a world where, as Simpson said, micro-businesses can wait up to a year to see their accounts receivables turned into cash.
The opportunity for PSPs to fill in those visibility gaps, said Simpson, is significant. Smaller businesses, focusing on fees tied to processing costs, overlook the impact that lack of payments over 30, 60, 90 days or more can have.
“PSPs,” said Simpson, “need to give those companies tools to help them understand how software can send automated reminders to their end customers, and how to make it easier for them to pay.” Digital invoices can be a boon, as they typically get paid within only a few days.
The panelists noted that taking into account customers’ payment preferences can also lead to steadier cash flow. Some customers want to take cash (even nowadays), others want checks, still others are shifting to digital payments.
Enabling seamless payments is one reason that online marketplaces will continue to attract small businesses.
But within the app ecosystem, it’s increasingly important for the smaller firms to watch out for margins, even as the platforms make it easier for customers and businesses to find one another. The consumer, no matter the transaction, is better off with the service, but the platforms and aggregators, with commissions, can eat into smaller companies’ income. Restaurants are a key casualty, said the panelists, charged 30% commissions by aggregators.
“The market opens up,” said Churchill, “but the tradeoff is that you get margin compression.”
The solution, they said, is for companies to use the marketplaces opportunistically, to use aggregators to “fill in” during periods when, say, a grocer may not be able to handle deliver for themselves — in an incremental fashion.
As cross-border commerce gains steam, as platforms proliferate, the PSPs and acquirers, as Churchill noted, need help from firms such as Wave in broadening payments capabilities and onboarding activities — with speed. In this way, the largest firms can be as nimble as FinTechs, even if they’re processing billions of dollars annually.
“Some of the largest acquirers and some of the largest payment facilitators can’t respond to change as quickly as the market demands,” he said, adding that, “They’re now more open to third-party support to get them where they need to go.”
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