The global landscape of payment service providers (PSPs) is a very fragmented and competitive playing field. Traditionally, there have been locally embedded players offering PSP services across all merchant segments and business verticals. In the last years, we saw a rise in global players with next generation capabilities. They are offering PSP services for the global market and are mostly focused on certain merchant segments and business verticals, or they highlight the fact that they are a pure payments provider or an internet business provider.
It will be key for the local and traditional players to step up, decide on the market segment and verticals they want to serve, transform their technology platform and provide next generation capabilities, too, so that they can maintain and grow their market share.
The e-commerce market is growing rapidly. For 2021, the estimated growth rate of e-commerce sales is 16.8%. For the next years, an average growth of even more than 10% is expected. By 2025, the global e-commerce market is predicted to become almost 25% of all global retail sales.
Due to this expansion, PSPs constantly need to invest in their IT infrastructure to support the growing market demands. On the other hand, the market is very price-sensitive and competitive, so PSPs need to keep their total cost of ownership (TCO) under control and offer new services to generate new revenue streams.
TODAY’S MINIMAL REQUIREMENTS
The modern PSP does not only offer a payment page but a payment ecosystem to ensure their merchants profit from the highest conversion rate at the lowest risk. This means not only that PSPs should integrate with a variety of acquirers, but they also should provide services around the actual payment.
Today, merchants are looking for a high level of service, advanced value-added services and omnichannel capabilities. 24/7 service is a must these days, as digital marketplaces are available day and night. In this global market, offering a large amount of alternative payment methods is not enough; services like advanced fraud management, automated reconciliation, artificial intelligence (AI), analytics and reporting, effective customer onboarding and omnichannel capabilities should also be in place.
The global e-commerce growth means not only a growing business but also an increase in fraud. Today’s fraudsters do not focus on payments fraud only but also enlarge their field of attack to friendly fraud, refund fraud, account takeover fraud, interception fraud, triangulation fraud and others. Advanced fraud management techniques will prevent fraud and increase a PSP’s acceptance rates.
Receiving and tracking online payments is a major challenge for most merchants. Offering an automated reconciliation solution helps them to easily track the payment for each sale. It will give merchants greater and more user-friendly insight into their financial data compared to manual tracking in Excel or similar ‘hand-made’ solutions.
The use of AI is not only valuable for fraud scoring but also key in customer profiling, analysing customer behaviour, providing personalised services and implementing chatbots as digital assistants to provide 24/7 support to online shoppers.
Modern analytics and reporting is not only about having predefined reports available but also about providing a data platform for custom reporting and analytics via merchant portals or API reports.
Effective customer onboarding is not only about getting customer data and executing KYC (know your customer) but also about giving the customer the confidence and comfort they need to share additional information, which will be essential when it comes to customer profiling.
Creating a frictionless experience over multiple platforms is a must for e-commerce merchants and marketplaces as customer behaviour changes from desktop to mobile devices. With the uptake of the Internet of Things (IoT), the frictionless experience becomes even more diversified, and PSPs need to be ready to support this channel, as it will become one of the major transaction growth areas in the near future.
In addition, PSPs can offer services that are outside of their traditional range to create a payment ecosystem. This can range from issuing virtual cards, VAT refund services or digital lending for consumers and small and medium-sized enterprises (SME) to digital marketing and the monetisation of data. Even non-financial services like inventory management, invoicing and accounting would provide the merchants with further benefits. These additional services will differ for each PSP since they are based on the target market that a PSP serves.
High-risk merchants will be more interested in higher acceptance, so the issuing of virtual cards will mitigate declined transactions. In this case, a virtual card issued by the PSP will be generated, the shopper tops up the virtual card and can then use it to pay for the high-risk services or goods. As the PSP is the card issuer, they can easily approve the transaction at a lower risk.
For hospitality and travel merchants, offering virtual corporate cards will strengthen their offering considerably. It will provide their corporate customers with advantages like issuing virtual cards with a prepaid amount in line with corporate guidelines, which means no manual checking of expense notes and an automated reconciliation with accounting.
Merchants selling luxury products will be interested in digital lending to facilitate higher spending and payment in instalments to make their offerings available to a wider customer group. Additionally, a VAT refund service would make the service offering more interesting for international luxury segment merchants.
SMEs are often averse to managing potentially complex software, so – besides looking for a PSP – they might also be interested in a cloud-based inventory, accounting and invoicing system. Setting up an SME-specific ecosystem will support them in being able to focus on their core business.
WHERE TO START?
It is important not to forget that a state-of-the-art PSP platform must be built on a strong technological foundation. It will provide not only scalability and reliability but also an easy way to implement new business features in a short timeframe and configuration toolkits to allow merchants to customise the platform to their needs.
This means moving away from legacy platforms and towards cloud-native solutions with microservices, an API sandbox and DevOps integration.
Furthermore, migrating your hardware infrastructure from a traditional data centre to the cloud is an important step to keep TCO under control and minimise the impact of a growing transactional volume. Cloud platforms offer many advantages to rapidly growing businesses and costs are kept under control, as you pay per consumption.
The PSP of today is transforming from a pure enabler of e-commerce payments to a merchant service provider with an ecosystem that allows merchants to generate more e-commerce sales. It provides merchants with insights into their customers and their spending behaviour, the necessary tools to manage their e-commerce business and added-value offerings to facilitate sales.
To provide all this, PSPs should rely on an experienced and forward-looking technology partner who can help with advising on business functionalities, designing the new PSP architecture as well as implementing and managing the PSP platform.
Head of Payments EuropePeter is an inspiring leader and strategist with over 20 years of experience in payments, fintech, and digital banking. A facilitator and builder of world-class technology management and product development teams, he specialises in both start-up and scaled growth stages and is a trusted partner for clients in Europe, APAC, the Middle East and the US. Before joining Endava, Peter held senior leadership roles in internationally recognised fintech organisations and was co-founder and co-CEO of a leading white-label payment processing provider. Besides work, and family commitments permitting, Peter enjoys a round of golf, travelling, hiking and mountain biking in the Swiss mountains.
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