Business of Payments - November 2022
Business of Payments - November 2022
How Paytech makes money
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Q3 results were generally disappointing across the sector. Global payment processors blamed the economic slowdown, the unwinding of the digital Covid boost and, for those listed in the US, the impact of the strong dollar. Mastercard Europe volume was up just 1% in dollar terms and Visa down 6%.
Stripe is laying off 15% of its workforce as management admitted having mistakenly assumed the home shopping boom would last for ever. FIS announced $500m cost cutting which will include “rightsizing the organisation” and deprioritising its SMB segment. ACI reported falling revenues from both its bank and merchant customers. Fiserv also underperformed in Europe.
It was a happier picture for businesses that report in Euros, especially those exposed to rebounding travel and tourism merchants. Spain had a bumper summer which benefited Banco Sabadell and PagoNxt. Euronet, with its focus on tourist locations for ATMs, saw EFT revenues up 41% in dollar terms.
Worldline reported solid growth and made additional acquisitions including a marketplace payments specialist and Banco Desio’s payments division which brings an additional 15,000 merchants in Italy.
Deutsche Bank re-entered the merchant payment market with Vert, its joint-venture with Fiserv. The product set at launch looks a little thin. German customers will get a wider selection from Fiserv directly.
Societe Generale has a wide international footprint but has struggled to commit to a firm strategy for supplying merchant services. Interestingly, the French bank just took a majority stake in PayXpert, a London based POS and eCommerce payment gateway which brings a modern front end suitable for multi-country deployments.
Softpos landscape takes shape
We’re beginning to see the softpos landscape taking shape as the technology finally becomes ready for mass market deployments. The large acquirers are selecting which vendor to work with. So are the Android device manufacturers who will be able to embed payment acceptance within their hardware for the first time.
The most impressive win of the month came from Phos, a Bulgarian softpos vendor spun out of Paynetics, which has landed Elavon as a customer in the US.
Softpos will be bad news for Ingenico, Verifone, PAX and the other terminal manufacturers who will now have to deal with a much wider competitive set of hardware suppliers. Examples include Honeywell which is payment-enabling its devices using software from Amadeus and Zebra which is working with Worldine.
Future commerce
Supermarkets represent large and stable revenue streams for the payment processors so it’s important to keep an eye on disruptive trends in how people pay for their weekly groceries. Retailers have been trying (and failing) for years to get shoppers to scan their own purchases – either with a handheld device supplied by the retailer or with the shopper’s own phone. In either case, a POS transaction becomes CNP which has implications for vendor selection, cost and merchant risk.
Tesco has given this some thought after its Amazon-Go style store received more criticism that the supermarket anticipated. For example, the requirement to register for the store loyalty card was criticised by privacy campaigners.
Tesco has now opted for a hybrid model. Shoppers can either queue at the tills or just walk out. It’s called Tesco GetGo.
Kroger has introduced an alternative hybrid model in the US. The grocer has equipped shopping trollies with ECR software, scales and payment terminal. This seems like an expensive and unreliable way of achieving the same result.
Litigation and more litigation
Although credit and debit Interchange is regulated, fees for corporate cards are not. UK merchants have launched a class action alleging that interchange rates of up to 1.9% are anti-competitive. Mastercard included a provision of $207m in its accounts related to UK lawsuits, having already paid Sainsbury $27m last year.
It's not just Visa and Mastercard in the dock. Deutsche Bahn is suing Girocard, the German national debit scheme, suggesting that the uniform 0.2% merchant charge represents illegal price fixing. We assume Deutsche Bahn believes large merchants, like themselves, should get a discount.
Metaverse
It’s easy to scoff, especially if you remember the hype around Second Life in the early 2000s, but maybe the Metaverse is the innovation we need to reignite eCommerce. The luxury goods industry is certainly up for the challenge, and you can get some idea of the potential from this prototype from Vogue. Why walk down Bond Street when you can virtually walk the ocean floor? Of course, one reason to visit the West End of London is that real shops take American Express. It’s really hard to pay for stuff in virtual reality today.
JP Morgan plans to do something about this. Remarkably, Second Life is still trading and just spun out its payment division (called Tilia) with a minority investment from the giant US bank. The unit processed $86m in 2021 within the twenty year old virtual world and JP Morgan believes it can apply the technology to the metaverse.
Polish readers will be reassured that they will be able to get a loan from PKO Bank Polski’s new branch in the metaverse. If you think it’s all looking a bit like Second Life, then it probably is.
Open banking
Much hyped, open banking payments have been slow to take off, even in the UK which has the most advanced regulatory set-up and the largest ecosystem of vendors. One reason is that each bank is interpreting PSD2 slightly differently. For example, there are no common standards on how to process a refund. Nor any consumer protection built into the system.
Lack of consumer protection is a particular barrier to acceptance in the UK, because experts advise shoppers to always pay with a credit card.
Open banking payments need to be governed as a payment scheme with rules equivalent to the standard set by Visa and Mastercard. It was good to hear NatWest openly calling for a grown-up debate on how the emerging industry can meet the challenge.
Crypto Corner
Crypto currencies have proved no good as a store of value. It turns out that they are almost useless as a means of payment too. 20%-50% of transactions are rejected as suspected fraud. We are shocked that this sector is full of criminals.
Meanwhile, the schemes still issue press releases legitimising crypto for the mass market. Mastercard launched Crypto Secure, a programme to help its bank customers offer crypto custody and crypto payments to their account holders. It’s based on white labelling a product from Paxos. Mastercard claims this will “bring a new level of trust to crypto purchases across a global network of 2,400 exchanges.. and provides each issuer with a colour-coded dashboard which shows where their cardholders are buying cryptocurrency.” So that’s all right then.
If you are defrauded on your Mastercard, there is some prospect of getting your money back. Unlike with this NFT vending machine which appeared in London with the bold claims to makes digital art more accessible. The user instructions underline the challenges of making decentralised understandable:
“Users who want to purchase an NFT through myNFT’s vending machine will need to select one of the envelopes on display, and then key in the code provided. After paying, they’ll be able to scan the QR code in the envelope, which will come with an invitation to set up a myNFT account, complete with an NFT wallet where they’ll receive their NFT.”
In other news
It’s hard to make a living as a payment gateway so it’s no surprise to see Mollie moving into lending. It’s an ambitious move but we’re not sure that merchants see payment providers as first port of call for a loan. Mollie risks lending money mainly to merchants who have been refused by their bank.
Shopify was first to call time on the pandemic eCommerce boom and has moved swiftly to add in-store technology to its product offer. POS GO is now available in 14 markets and includes Shopify Payments. This is another threat to national acquirers which often don’t have the scale to negotiate with Shopify.
Commentators were surprised by research showing Apple accounted for just 2.4% of retail transactions in the US. Looked at another way, 0.15% of 2.4% of US retail sales is about $10bn annual revenue for Apple, which is not too shabby
Depending who you believe, SCA is working well and three quarters of retailers have seen a drop in fraud or is a catastrophe resulting in 37% higher declines. Anecdotally, we don’t hear of many major problems with SCA. If it was a disaster, we’d know by now.