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Education

Can you adapt to software- margins on payment transaction

fees. So, acquirers and ISOs are at a
revenue-driven acquiring? crossroads. They can continue to ride
the classic hardware-based business
models and hope to grow by canni-
By William C. Nichols balizing competitors or squeezing
into new merchant segments. Or they
AEVI can adapt to deliver multipurpose,
software-driven payment solutions.
he merchant acquiring business has gone through many cycles,
but essentially it's still all about those boxes – the classic payment Innovation came knocking
terminals that ensure consumers can use their cards at the POS. But
T this hardware focus can't persist long-term. Selling classic payment In the traditional acquiring space, in-
terminals has been a relatively simple proposition for decades. The industry novation languished while the rest of
thrived by delivering proprietary devices that had little potential for custom- the world raced ahead. Consolidation
ization and innovation. For years, the industry was able to rely on lucrative of hardware vendors left the industry
hardware sales or leases and myriad fees that generally confused merchants. with a few proprietary platforms that
were too limited to attract the types
That model has eroded. Commoditization of the terminal business steered ac- of independent software developers
quirers, ISOs and direct sales agents to the lowest-cost model, and the battle that were creating new applications
over interchange fees began to shed light on the multiple fees merchants were for PCs and smartphones. On the
paying. processing/acquiring side, there was
a race to buy innovation or merge,
As merchants learned more about their transaction fees, they realized they which does not bode well; the process
were overpaying for devices that deliver only a fraction of the features and is time consuming, and technology is
functions accessible on their smartphones. Tech-driven companies spotted an not always cooperative.
opportunity to sell directly to merchants by offering flexible hardware solu-
tions, bundled applications and simplified fees.These issues have squeezed Eventually, though, innovators from
outside the industry realized they
could deliver acceptable payment
functionality by adapting commod-
ity hardware components into their
own branded solutions. Using new
types of rails to the card systems,
they focused on creating software en-
vironments that software developers
could exploit to reach lucrative new
customers, all by disintermediating
traditional payment solution provid-
ers.

More tech-savvy merchants adopted
smart POS solutions that allowed
them to add new value to consumer
transactions by leveraging new apps
and services, some of which were
focused on the customer and others
that improved their business opera-
tions, such as inventory management,
ecommerce integration, and so on.
These new solutions dazzled mer-
chants with an environment that en-
compasses dozens, even hundreds of
software applications and services.
Eager to utilize this new functional-
ity, merchants willingly – or in some
cases unwittingly – overlooked the
reality that these apps and services,
for the most part, offered little in
terms of integration.

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