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Education

Here come the Simplifying merchant payments

Both PayPal and Square succeeded by aggregating
payment facilitators merchant payments under their own merchant accounts.
Sellers using their services didn't need to deal directly
with credit card acquirer services and could get up and
running while providing relatively minimal financial
background information.

Those successes were instrumental in spurring venture
capital (VC) investment in emerging payments companies.
VCs recognized that the traditional model of acquirers and
ISOs was ripe for disruption. At the same time, acquirers
recognized they needed to adapt to changing markets.
That spurred creation of a new class of service providers:
the payment facilitators—more aligned with acquirers,
but with a business model more in tune with PayPal and
Square than ISOs.

Payment facilitators generally provide software or bundled
hardware and software solutions that treat payment as
an integrated feature, rather than a standalone purpose.
By Mike Camerling Increasingly, payment is becoming one of multiple features
AEVI International GmbH within an integrated suite of business applications.

hen PayPal acquired Square's primary Avoiding the crossfire
European competitor, iZettle, it set the stage So, the traditional ISO/MLS community will find itself in
for an epic global battle over merchant pay- the crossfire of two giants – Square and PayPal – and a
W ments that is sure to impact the U.S. market. growing horde of payment facilitators that are converging
Just a few days later, Square signaled that it was raising on the small and midsize business (SMB) merchant space.
a $750 million war chest as the two prepare to duke it out There's lots of money at stake, and the competition is only
in both the physical and virtual worlds of merchant pay- going to intensify. If you don't think the threat is real,
ments. just look at Wells Fargo & Co.'s recent disclosure that,
as it adjusts to heightened competition, it will simplify
Don't be lulled by an assumption that those companies its pricing structure for merchants who process annual
will tear each other up in a war of attrition. The resources transactions of under $100,000.
they are pouring into the battle are certain to spill over
onto the ISO and merchant level salesperson (MLS) turf. Both Square and PayPal have the financial capability
to invest in new product suites and scoop up smaller,
When Square burst on the payments scene in 2010, it innovative companies (PayPal's CEO reportedly said he
capitalized on a large underserved market of small is prepared to spend $3 billion annually on acquisitions).
merchants who were ignored, unsuited or turned off VCs are eagerly funding software startups, gambling
by traditional card terminal service providers. The cost that their portfolio companies can either become the next
of hardware and complexity of fees created too much breakout hit or present an attractive acquisition target.
friction in the act of selling something and collecting
payment. Square eliminated much of that friction with a PayPal's acquisition of iZettle ensures that ultimately
simple, standardized fee per transaction and its original it will be in direct competition with Square here in the
card acceptance dongle that made it easy to convert an United States. They'll face off in both the world of physical
existing smartphone, or to justify purchasing a new one, payments and ecommerce. Each company is eager to
for payment acceptance. bundle core payment acceptance with other financial
treats, such as customer credit and merchant financing
Similarly, in the virtual world, PayPal's ability to simplify for inventory and cash flow management. Both are
online payments and money transfers made it a natural aggressively seeking to lure partners who can provide
for eBay's online auction and shopping site. PayPal was so platforms or complementary software that will help to
successful that its usage surpassed eBay's own Billpoint lock in long-term merchant relationships.
service, so in 2002 is was acquired by eBay.

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