Our Payments Team see ‘change’ as the norm over the next two years. Change brings a range of challenges, opportunities and potential solutions which they discuss here.
Pricing – A key element of card payment suppliers’ costs, Interchange, reduced significantly for credit and many debit cards in 2015. Left unchallenged, we are seeing acquirers increase their profit margins whilst apparently decreasing their charges:
1. Some have introduced charges for non-secure transactions (which they keep) to ‘encourage merchants to follow security processes’ as the interchange incentives for doing so have largely been removed.
2. Data security fees etc. have spread, justified as passing on the cost of supporting merchants in achieving and maintaining PCI compliance.
3. The full benefits of personal card interchange costs are not being passed on in pricing reviews.
4. Caps on debit card charges are not being consistently and correctly applied.
We are seeing real benefits for clients when we negotiate to improve proposals made. Care and attention to detail are needed to ensure that an improvement in headline rates really does feed through to the bottom line.
Regulation – The next 18 months will see many new regulations, which will open up the market and enable more flexible solutions to be delivered from a wider range of providers.
Flexibility can be a ‘double-edged’ sword though:
- In mid-2016 the ‘honour all cards rule’ stops, so merchants can choose which types of Visa and MasterCard to accept. This implies signage showing cards accepted, and restricting card types risks lost sales.
- Rules already allow multiple brands/types to appear on a single card (e.g. Visa debit and MasterCard credit). Soon, when such a card is presented, the merchant must allow the customer to choose which brand to use. That works fine generally, but consider contactless, especially on public transport as, quite aside from building in a delay (unacceptable to commuters) there is no screen or button to allow the consumer to make the choice. The regulators missed that!
SEPA – The goal is a Single European Payments Area (SEPA), enabling businesses and consumers to ‘pay’ across European borders as cost effectively as domestically.
Many elements of SEPA will pass into law without member state revision, but many others will require adoption, making variations almost inevitable. Even for mandatory change national variations exist, with Visa Debit in the UK charged at 0.2% plus 1p (capped at 50p* per transaction) while in Eire debit transactions are capped at 0.1%. Both of these undermine the Pan-European consistency sought.
SEPA – Opportunity for new solutions:
Being positive, SEPA should make it easier for new entrants to emerge, by such methods as forcing the banks to open up their services to others. Whilst these may not become mainstream in 2016/17, when considering partners for any solution, it is essential that you look ahead at least 3 years to consider what will arrive. If in doubt, just consider the 255% growth in contactless payments experienced in 2015.
Omni-Channel – We receive numerous requests to help merchants who have seen the success of the early adopters, such as John Lewis.
Many retailers have developed their different sales channels in silos, finding one payment partner who can deliver well for e-commerce, another for telephone/mail-order and a further one for face-to-face. Today’s savvy consumer expects a seamless experience that systems incompatibility mitigates against.
We would urge that payment solutions are actively included in planning any IT project at the earliest stage to achieve a cost effective Omni-channel offering.