Creative destruction eradicates some business models and reformulates others. For example, merchant services providers (MSPs) have long supplied credit card processing for retailers as their central offering. They didn’t need to go much beyond that to be helpful or profitable, and many didn’t. But with instant money and open banking rewiring entire industries, MSPs have accepted that it’s no longer “business as usual.” So, now what?
The Key to Optimizing Merchant Services Playbook: Leveraging Core Processing Systems, the latest in the series from PYMNTS and technology firm Endava, looks at how MSPs are reinventing themselves with core processing upgrades and build-outs that emphasize agility. It’s how future-minded MSPs are creating value with a slate of next-gen value-added services (VAS).
Three Personas Confront the VAS Dilemma
New data from the latest Merchant Services Playbook finds that two-thirds of MSPs are about to update core processing systems, but there’s less agreement on how to do it. Roughly one-quarter of MSPs say they’ve already upgraded, and just under 14 percent have no plans to do so. The remainder are split between in-house overhauls, partnerships and third-party solutions.
It’s interesting to note that the 58.1 percent of MSPs that intend to upgrade via third-party solutions also offer more VAS, on average, than do cohorts. The good sense of using advanced functionality (without bearing the investment to create it) adds up for this group, which also plans to add up to three VAS to their overall offering in the next two years – by far the most aggressively forward-looking among the latest sample.
This persona – called “outsourcers” – sets itself apart from the rest of the sample in several ways. Their desire to quickly get new VAS to market has pushed them to seek out partners rather than building from scratch or upgrading legacy systems. Almost 70 percent of those outsourcers are ahead of the MSP pack in terms of alternative payments, 67.9 percent also provide data analytics and 55.4 percent supply account tools and Marketing-as-a-Service (MaaS) functionality.
And what are the value-added services that MSPs see making a splash downstream? Sales enablement platforms like CRM top the list, followed by escrow capabilities, accounting integration, factoring and, rounding out the top five, inventory/supply chain management.
On Reinventing the Wheel
To equip their retail clients and better compete themselves, MSPs have broken into three distinct groups with different ideas about how to digitize and add value. All share a motivation to bring new technologies to clients; they just don’t agree on how to approach it.
In researching the latest Merchant Services Playbook, it’s become clear that the outsourcers may be the breakaway cohort, simply because they’ve saved the time investment of building their own new solution. For them (and presumably their clients), speed to market and a greater selection of VAS are the key differentiators.