Published: June 01, 2011
The use of cards and e-payments by consumers continues to grow rapidly. In the Netherlands alone, we saw a growth rate of almost 11% during 2010 at the traditional physical POS and a growth rate of even 52% of the domestic e-payment method iDEAL in e-commerce. In regions such as Central and Eastern Europe, the use of cards is accelerating even faster. However, not only the market size is changing due to the growth of the number of transactions. The Payment Services Directive (PSD), which is the legal framework underpinning the Single Euro Payments Area (SEPA) and the SEPA Cards Framework have had a considerable impact on the market. This has resulted in greater competition between banks and non-bank payment service providers (PSPs) and increased opportunities to leverage on economies of scale due to harmonization and standardization across the industry. This article reviews several trends in cards acquiring in the Euro zone and considers some important aspects companies should be looking for when selecting a card acquirer.
SEPA Credit Transfers and SEPA Direct Debits are already standardising the use of payment products across the Eurozone. SEPA for Cards, which aims to create harmonisation in the use of cards, does not yet fully exist for merchants today. Even so, consumers can use debit and credit cards throughout the Eurozone and beyond, with increasing acceptance of consistent and secure technical standards.
However, there are still diverse rules and standards for cards and e-payments acquiring in each country. This makes it particularly difficult for multinational companies that often have to deal with separate regulations, technology standards, security requirements and acquirers. Even when banks or non-bank acquirers can offer cards and e-payments acquiring services in multiple locations, the diverse landscape means that services are provided on a multi-domestic rather than on a cross-border basis. Very often it is necessary to have separate contracts in each country. As a result, billing and reporting also takes place locally, so that few of the anticipated benefits of SEPA can yet be realised by internationally active merchants.
As SEPA for cards and e-payments evolves, we will undoubtedly see greater standardisation and further cross-border opportunities. There are other factors that will contribute to consistency across the region. For example, we are likely to see continued industry consolidation as well as significant organic growth amongst the largest acquirers, creating greater economies of scale and a wider geographic reach. In such a buoyant market, the opportunity remains for new players to emerge, including different types of PSPs.
A diversity of providersCompanies therefore have a choice of cards and e-payments acquiring providers. The first decision is whether to choose a bank or a non-bank partner. There are distinct advantages and disadvantages to working with an independent PSP rather than a bank. PSPs are particularly active in e-commerce, which has different requirements than traditional retail models, such as shorter release cycles and the availability of diverse payment methods. PSPs active in this area can often deliver a very flexible service and may have considerable expertise in managing risks associated with e-commerce such as fraud prevention and managing PCI compliance. Some of these companies cover a variety of markets and a wide range of payment schemes, which can be particularly advantageous to clients servicing an international consumer base. They could use a single PSP and therefore have one technical interface, achieving a high degree of straight-through processing (STP) despite cross-border limitations. Another reason why some companies choose an independent PSP is that they are less ‘tied in’ to their cash management bank if they source cards and e-payments acquiring services from an alternative source. This allows them to switch to another banking partner relatively easily if required.[[[PAGE]]]
There are different advantages in choosing a bank provider. While PSPs must effectively mediate between a corporate and the banking system (adding additional cost to the process and potentially fragmenting the flow of information), some banks can provide a more direct service.
While cards and e-payments may be an important collection channel, retail companies also require other additional payment methods such as cash collection, direct debits and/or credit transfers. By working with a bank for cards and e-payments acquiring (for example iDEAL, eps or giropay), a company has access to a wider variety of services. This includes alternative collection methods as part of an integrated collections framework. With cash remaining the dominant POS payment method in most parts of the Eurozone, this can be an important consideration. Only a bank or a few cash-in-transit companies can provide cash processing services. Consequently, bank providers remain very attractive to a wide spectrum of corporations despite the prevalence of independent PSPs that are typically most attractive to companies with a heavy reliance on e-commerce.
Corporates seeking cards and e-payments acquiring services have two primary demands:
Companies with a fragmented POS infrastructure in Europe may consider standardisation of hardware. By sourcing the infrastructure from a limited number of vendors instead of using multiple vendors across Europe, they can lower the total cost of ownership. This might provide a better business case than seeking out a lower transaction fee. Companies should also consider the quality of reporting that is available from a potential provider, whether a bank or PSP. Reporting needs to be timely, accurate and easily integrated with internal systems. Ideally reporting should cover all types of payments and not only card transactions. Technical network availability and the availability of critical services such as customer support is even more important. When selecting an acquirer these aspects should be taken into consideration. A low cost acquirer might have a higher unavailability than its competitor. The question arises what is more important, a (slightly) higher transaction fee and excellent service levels or a lower transaction fee but risking additional costs due to more cash handling or lower revenues (and even more important, unhappy customers).
By working with a bank for cards and e-payments acquiring a company has access to a wider variety of services.
ING has extensive banking services covering 28 European markets. In order to provide a cohesive service, we offer a multi-domestic acquiring proposition with a strong focus on technical service and product consistency. It is becoming increasingly important to multinational corporates to work with a single provider across Europe. Consequently, a harmonised service is a major factor in treasurers’ selection of a card acquirer.
With a card processing platform in Eastern Europe and a strong presence in traditional markets, ING is well positioned to fulfil this requirement. In some countries where we do not provide services directly, we have partners that share our commitment to delivering a seamless service offering. In addition, considerable expertise in SEPA and legacy payment types, a strong background in technology innovation and an unrivalled depth of skills make ING the partner of choice for corporations with both domestic and international collection needs, across the spectrum of collection methods.
In addition to SEPA, other industry developments are also contributing to greater harmonisation, with EPC initiatives such as a standardised terminal to host protocol and certification process. We envisage that cards and e-payments adoption will continue to grow. In addition, we are already actively engaged in realising emerging payment trends such as mobile payments, which have huge potential across both developed and emerging markets, with benefits for both consumers and merchants.
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