From Multi-Domestic to Multinational: Selecting Card Acquirers in the Eurozone
by Ivo Blom, Head of Product Management Cards & Cash, ING Payments and Cash Management
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.
A multi-domestic landscape
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 providers
Companies 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.