Common wisdom holds that small to medium-sized bricks & mortar merchants are reeling from the onslaught of e-commerce. It’s easy to lose sight of the fact that wildly popular electronic shopping still only accounts for about 15% of total US retail sales.
That’s not to say that digital transformation is bypassing traditional Small Medium Business (SMB) merchants—it’s not, but it could bypass their traditional service providers if they are unable to make the leap to next-generation acquirer services – according to AEVI.
The internet can’t yet replicate the tactile experience of shopping in a physical store. A 2017 survey of US consumers by Retail Dive found that 62% indicated the reason they shop in stores vs online is the ability to see, touch, feel and try out items. And 49% say that ability to take things home right away is a reason to go to a bricks & mortar location.
Some smaller merchants are adjusting to the consumer embrace of eCommerce by enhancing their own operations with features such as online ordering and appointment-setting. Many others are still taking baby steps in setting up web sites, while some continue to rely solely on the traditional legacy payment terminal.
It’s clear, though, that eCommerce will continue to up its game in efforts to steal more business away from traditional merchants. Just recently, Amazon made one-day delivery the standard for its Amazon Prime members, and both Amazon and Google Express already offer same-day delivery in certain locations,
The risk of not moving beyond just card acceptance
Most merchants still have a long way to go before we can say they’ve embraced the digital age. They can easily be overwhelmed by all of the options being presented to them. What they do know, though, is the value of card payment acceptance, and that should put traditional acquirers in the driver’s seat for moving payment solutions beyond just card acceptance.
If acquirers don’t take that step, it is at their own peril. Because just as eCommerce companies want to encroach on bricks & mortar companies, new payment services competitors are just as anxious to steal business away from traditional acquirers.
“Online payments providers will expand into offline acquiring,” the Boston Consulting Group warns in a 2018 report on global payments. “A structural shift is occurring in shopping, from in-store commerce to e-commerce driven by digital marketplaces and online merchants. With pockets flush from the expected surge in e-commerce purchasing, providers of online solutions will take share from incumbents that have been slow to address customer pain points.”
Already, according to the Strawhecker Group’s report on the top 300 merchant acquirers, newer entrants Adyen, Stripe, Shopify, Square, and Braintree have all moved into the top 30 rankings in card payment volume. If traditional acquirers don’t adapt, their future may be as perilous as the larger retailers such as Sears that couldn’t or wouldn’t change their business models and practices to confront digital challenges.
One early warning sign is that merchants are hearing about smart POS solutions, but mostly not from their current service providers. According to a survey conducted by PYMNTS in conjunction with AEVI, very few merchants—less than 10%—rely on acquirers for information about these next-generation solutions. Most of those with sales of less than $500,000 get their information from other business owners.
That information gap may make merchants susceptible to acquirer alternatives not constrained by reliance on old business models and practices. The danger is that a new entrant could go viral with SMBs, as new players deliver new solutions that provide new capabilities.
Traditional acquirers must rise up to the challenge, and quicken the pace of their own digital transformations. First step is to move beyond the stranglehold of the traditional legacy payment terminal, which for most merchants is a single-application solution they view as a necessary evil, rather than a vital business tool.
“The jury is still out on whether the hardware terminal can be replaced altogether,” writes Ron van Wezel, a senior analyst for Aite Group’s Retail Banking & Payments practice. “But fact is that the value chain and distribution model of traditional acquirers and independent sales organisations is already challenged by FinTech providers of MPOS solutions, particularly for the [SMB] segment. Acquirers must focus on the business needs of their customers, offering solutions that centre around business intelligence, not payments alone.”
Open platforms spur new business models
Just as the Android operating system revolutionised the mobile phone industry with an open platform, so will it transform the payments industry. An open platform draws app developers like moths to a light. A mobile phone store can sell a wide variety of models from different vendors without having to worry about customising apps for each, and users can easily switch from one device to another and bring their apps along.
That’s the new model that will meet the needs of SMB merchants. Acquirers should have flexibility to offer devices from different hardware vendors without having to worry about app incompatibilities. Acquirers should be able to pre-select from a marketplace of apps to create bundles of hardware and apps that are suited to the particular needs of their own merchant segments.
They also need a platform and management tools that can operate estates of diverse devices, both legacy and open systems-based, as they step into the next generation of acquiring services, without having to abandon existing customers who are not yet ready to make the digital leap.
This model is the first step to the next generation of acquiring services. Acquirers can stop worrying about competing solely on the price of commodity hardware, and use their market expertise and more direct interaction with merchants to come up with tailored solutions that no internet-based supplier with an all-for-one solution can match. They have the necessary support infrastructure in place to provide any hand-holding needed to get merchants up and running.
SMB merchants vary in their needs from market sector to market sector, and from city corner to city corner. Acquirers are uniquely positioned to tailor solutions that respond to those variations. What they need is the right platform that allows them to make the transition to a new business model and allows their sales teams to evolve to a new consultative role with merchants, where expertise and the ability to provide an app for any need will create new revenue streams and increase the bond between the acquirer and its merchant base.
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