It’s hard to miss the rapid technological changes that are happening in the payments industry. Mobile payments seem to dominate the industry websites and publications. With such attention paid to technology, it’s difficult to remember that the industry is undergoing seismic shifts that have little to do with technology at all. I’m not going to pretend that technology is not changing – that would be contrary to the point of stupidity – but it is important from a strategic standpoint to step back and look at the overall picture of the payments industry. Here I’ve selected just a few things that illustrate major adjustments that companies are facing.
Aggregation – Just a few years ago, this was a dirty word in the payments industry. Aggregator status was exceedingly difficult to attain and at least two of the major card brands discouraged the notion entirely. Now, however, those card brands have reversed their position and have opened the possibility of the aggregator payment model to the industry at large. This allows processors to cut their costs, but brings with it challenges of its own – sub-accounting, liability and portfolio management to name a few.
Specialty Bank Charter – Georgia recently passed a law that would allow an ISO to own its own sponsor bank. According to this article in Digital Transactions, the law could have far-reaching implications, allowing ISOs to significantly lower their costs. This gives rise to the possibility of an exceedingly competitive acquirer to emerge. The Digital Transactions article provides a great analysis of the law and its potential impact. Is it likely that other states will follow?
Revolutionary Approach to Marketing – On this point, I imagine that I will get some push-back, but I believe that Square’s technology is the least revolutionary aspect of the company. What the company did that really transformed the payments industry was not introducing the audio-jack card swipe, but introducing B2C marketing to a traditionally B2B industry. Square has challenged everyone to step up their game with respect to brand recognition. Consumers know the name Square – how many other payment processors can say the same?
These are just a few of the changes that I’ve noticed over the last 12-18 months. It would be interesting to hear from others about these changes, and others that are currently impacting our industry, or that are likely to do so in the near future.