In payments, change happens at the speed of consumer behavior.
As consumer preferences evolve (across channels, online conduits and mobile devices), merchants must react quickly. This has a ripple effect on merchant service providers (MSPs), the companies that have historically helped businesses accept debit, credit and other forms of payment, forcing them to pivot quickly as well.
In a recent interview with Karen Webster of PYMNTS, Glenn Geil, senior vice president of payments delivery at Endava, said that, as 2020 dawns, MSPs will have to pay increased attention to their merchant clients’ shifting expectations of the services they want delivered. They’ll also have to make the technological investments necessary to meet those expectations.
The mindset regarding tech spending is changing. Against that backdrop, MSPs are under increased pressure to expand their traditional offerings in a meaningful way, beyond card processing. After all, basic payment services aren’t changing. If anything, pricing is going down, and value-added services will become the major factor driving market success.
Get ready, then, for a stair-step leap upward in tech spending trends. Want a concrete stat to back up that claim? In “The Key To Optimizing Merchant Services: Leveraging Core Processing Systems,” a collaboration between Endava and PYMNTS, nearly 64 percent of MSPs surveyed expressed interest in overhauling their processing infrastructure.
The Competitive Front
For the longest time, said Geil, and certainly over the past decade, MSPs only had to focus on payments. Margins were razor-thin, and to make any changes, executives had to prove a business case and return on investment.
Fast forward to today, and tech-savvy new entrants into the payments market have shaken up the merchant services arena, he noted. MSPs must now grapple with competitors offering services at the platform level.
The Squares and Stripes of the world have transformed merchant onboarding into an instant, intuitive process. That’s due in part to the fact that those players have embraced open systems that allow for easy integration, and the addition of value-added services. The major MSPs have been a bit behind, though, competitively speaking, as they focused their investments on tokenization, data breaches and encryption, Geil explained.
“The net effect is that, now, these established players, instead of saying, ‘I have to build a business case for everything,’ are now saying, ‘I’m way behind, and I have to do some defensive spending to catch up.’ It’s really changed the landscape of how and where the MSPs are spending, compared to a few years ago,” he said.
Call it a double — maybe even a triple — whammy: The MSPs must upgrade their legacy systems, but they must also include value-added services in the mix, and open up their systems to stay competitive.
The Merchant Front
Geil told Webster that the merchants, too, have been taking note of the value-added services from the platform players.
“The merchants are seeing what’s possible, and are saying, ‘This is something I can use, and I can see it and visualize it,’” he pointed out. That’s especially true with data analytics, he added.
Merchants — especially those operating in eCommerce — are feeling the pressure to respond, as well as compete in maintaining and growing mind and wallet share. It’s a virtuous cycle, where merchants see what is possible as their end consumers demand new experiences, which increases pressure on the traditional MSPs to respond to a shifting, competitive landscape, and integrate new services into their own environments.
The Challenges — And The Stair-Step
However, as the MSPs strive to do more, they face the challenges of upgrading their legacy systems.
As Geil noted, these firms may look inward and see that they are running an old mainframe or legacy system. Kicking the old (tech) tin can down the road isn’t feasible anymore, though, he said. The MSP that wants to stay relevant in the long term must invest in entirely new technology architecture.
Thus, tech investment starts to resemble stair-steps, where flat or gradual spending gives way to the major investments needed to take MSPs to the next level. At or near the top of the list: data analytics and customer relationship management (CRM) integration, followed by alternative payments.
As Geil explained, merchants — facing a more robust, competitive environment — need additional information about their customers, viewed across 360 degrees.
Data analytics allows the payment information at the time of purchase to be combined with other information on hand that can be of use, such as demographics. Add third-party data to the mix, he said, “and, now, the merchant has a picture of what that consumer was thinking before they made the purchase, and what they did after the purchase. The information helps them to be relevant to the customer in the future.”
Integrating that synthesized, packaged data and insight with a CRM system, and wrapping it in effective communications via text or in-app messages, means that merchants can craft targeted marketing campaigns, Geil explained.
He cautioned, though, that effective communications management is not just part of the interplay between MSPs and their merchant clients. It’s also tied to the interaction between merchant and consumer, keeping the end-user informed at the point of sale, and capturing vital information about how satisfying (or not) the commerce journey may have been.
Spending on such technologies (and combined packaging) can help level the playing field for mid-sized and smaller merchants.
“It’s challenging to do,” Geil said, “and the MSPs have to invest quite a bit right at the point of sale, while tying it back to their merchants, so there can be good communication even outside of an actual transaction.”
Where The Money Isn’t (Yet)
In commentary on alternative payments (and why they are now higher on the list of tech investment priorities), Geil said many MSPs are afraid that if they don’t offer those options, they’ll become irrelevant. For merchants, though, alternative payments are more of an imperative for eCommerce players than brick-and-mortar brethren.
Paying with points and digital currency (not the crypto kind) seems to be of lesser value for merchants. As Geil said, “there’s just not enough value in loyalty points as a true currency that can make them grow beyond, say, buying a cup of coffee.”
Loyalty as currency may see more significant traction among consortiums of merchants with similar goods on offer, those that want to share loyalty back and forth with one another, he predicted.
Eyeing the road ahead, Geil said that, most immediately, the systems on which MSPs rely must be upgraded to a point where they can change and adapt to new competition at an accelerated pace.
“The providers have to be as nimble as possible, and have to be able to respond quickly. It’s no longer acceptable to have a 12- to 18-month project to add services [that] they need to have in two or three months in order to stay relevant,” he told Webster.