Acquirers’ Top 3 Challenges in a Changing Commerce Landscape

Acquirers are experiencing pressure on all sides. Evolving competition, declining profits, and increased incidence of fraud all challenge the established business models that acquirers have lived by. Among these pressures, acquirers face three particularly urgent challenges that will need to be addressed.

  1. Stagnant Growth

The primary challenge facing businesses is declining profit margins. The looming threat of commoditization and increased competition is creating industry-wide shifts that drastically shrink processing revenue for businesses of all sizes.

A McKinsey study projected that the annual growth of payment processing revenue would slow down, with just 2-3% growth annually. And increased competition for nimble new players is only shrinking already small processing margins for merchants.

But although new business is attractive, onboarding new merchants is incredibly risky (and even more challenging due to the growth of “master merchants” acting on behalf of many sub-merchants). Fraudsters and organized criminal groups actively target the onboarding process through money laundering, mass card fraud, merchant identity theft, and more— which can cost acquirers and merchants both their money and reputations.

  1. Evolving Competition

Technology was once a barrier to entry in the payments processing market, but thanks to the advent of new payment processing solutions, this is no longer the case. Companies like Square and Adyen have disrupted the marketplace and created serious challenges for businesses maintaining the status quo.

Add in that consumers are moving their purchases from stores to mobile devices, and the problems compound. Merchants seek payment processors that can integrate with their point-of-sale (POS) systems and leverage customer data to support loyalty programs, advertising, customer outreach, and more. Traditional acquirers that want to retain their merchant contracts must provide these services to stay competitive.

  1. Rise of Fraud

Fraud moves fast, and merchants are more vulnerable than they’ve ever been. The October 2016 Nilson Report projects that worldwide card fraud is expected to reach $32 billion by 2020. And this fraud hurts.

First, there’s the financial impact of denying a legitimate customer. A Business Insider report found that businesses are losing more in false declines than they’re stopping in fraud. For every dollar a business prevents in fraud, it loses even more – $1.32 – to false declines.

Second, there’s the cost impact that chargebacks have on your business. Beyond the costs you incur, there’s the manual time you spend disputing them, the fees you pay for the chargeback process, the lost goods, the threat of the watch list, and even the shutdown of your account.

And fraudsters are only growing more sophisticated. As we noted when we presented some of the newest threats in the merchant ecosystem, fraudsters have numerous attack vectors these days that can be combined to create coordinated threats across channels. This exposes businesses to substantial risk—especially if they rely on outdated fraud detection systems.

The only way for companies to fight back against this trend is to develop sophisticated fraud strategies that reduce their risk and help them stay competitive.

How Can Acquirers Stay Competitive?

Acquirers can stay competitive amidst these challenges by exploring new business models and technologies that increase the value they deliver while maintaining profitability and userexperience.

  • Accelerate onboarding processes: Traditional onboarding takes days, while newer competitors offer the same experience in minutes.
  • Become an all-in-one solution: Merchants go with the providers that make their lives easier—and traditional acquirers are already behind.
  • Use effective risk mitigation solutions, such as machine learning, to upgrade fraud detection capabilities beyond what competitors offer.

To learn more about these solutions and staying competitive in the changing commerce landscape, download our comprehensive ebook: The Acquirer’s Playbook for Managing Risk.

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The Acquirer’s Playbook for Managing Risk