Professional Documents
Culture Documents
Payments Newsletter Demystifying The Merchant Acquiring Business 1 PDF
Payments Newsletter Demystifying The Merchant Acquiring Business 1 PDF
Newsletter
Demystifying the merchant
acquiring business
April 2018
F
Dear Readers,
It is my pleasure to bring to you the latest edition of our Payments newsletter, where we take a closer look at the
acquiring landscape in India while drawing parallels to global trends. We also bring to you key considerations
for the way ahead in light of new regulations and changing market dynamics.
Vivek Belgavi
Partner
Financial Services Technology
Consulting Leader, PwC
I
Foreword
Introduction
Regulatory impact on acquiring
Future of acquiring
Payment technology updates
Historically, acquiring function was generally Key challenges impacting the acquiring business
conducted by a bank which had relationships with
merchants for other banking requirements and Diminishing margins
hence also offered merchant acquiring facilities.
Ov er time, the acquiring industry has evolved, with Threat of non- traditional players
non-banking players entering the fray and providing
support directly or indirectly for merchant Fraud and security concerns
acquiring. Technology-first players are entering the
market and offering solutions to merchants with Commoditized business
new v alue proposition focusing on merchant
convenience and customer ex perience. These
include players that range from those with a strong Entities / players that will provide innovative
technology skillset (Google, Samsung, WhatsApp)to solutions to solve the above challenges will most
players whose current setup includes a wide likely emerge winners in the future. They will be able
distribution network (telcos, FMCG players, to ring fence the merchants to ensure higher
pay ments processing companies). engagement and increase merchant life cycle value
thereby ensuring higher profit pools for the
On the customer front, preferences are slowly but business.
surely transitioning from card-present to card-not-
present (CNP) modes of payment. This trend, in
addition to the high initial setup cost borne by
merchants, is paving the way for BHIM QR to
Mobile
NFC Poin t -of- Mobile
QR
sa le (POS) W a llets
The Gov ernment, over the last few y ears, has had
unprecedented focus on increasing digitization both
Global regulatory measures to boost acquiring
MDR has been revised to 0.4% (small merchants) With the growth of digital payment and
and 0.9% (merchant revenue > INR 20 lakhs) for acceptance infrastructure across countries,
all debit card transactions for POS and 10 bps regulators play an increasingly important
reduction on the above figures for QR transactions role in molding the ecosystem through the
policies they frame. Going forward, regulators and
subject to respective caps.
policy makers must find a way to make regulations
sustainable for all participants that inhabit the
While these MDR rationalization measures are ecosystem, in order to incentivize issuing as well as
acquiring banks.
welcome steps, the interchange fee – forming the
major portion of the MDR fee – has not been
regulated y et in India. Merchants hav e often
criticized that card networks and their issuing banks
for exercising their oligopolistic market power to set
ex cessively high interchange fees which in turndrive
up a merchants costs of accepting card payments.
1
Government incentives and majority of upcoming payment channels.
targets
4
Changing consumer behavior
While regulatory focus on increasing
digital payments has helped boost adoption in the Mobile and online technologies are
country, it has subsequently changed the economics revolutionizing consumer access to
of the industry. With new regulations chipping away information and sparking demand for new services
at rev enue lines an environment has been created that can support multichannel commerce, big data
where economies of scale have come to determine analytics, enhanced loyalty programs and targeted
profitability. However, in an attempt to counter this adv ertising. Consumers are increasingly using new
decline, the government (MeitY) is o ffering tools to move dy namically between computers,
incentives, reimbursements and providing targets to mobile devices and in-store ex periences while
private and public sector banks and v arious states shopping, blurring the distinction between online
and ministries, in an attempt to boost distribution/ and physical channels for payments
merchant onboarding of v arious merchant
5
segments.
New technologies
2
Collaboration and With a changing consumer dynamic and
partnerships newer technologies hitting the market
in a relatively short span of time, acquirers are now
Emergence of new technology-first open to ex perimenting with innovative solutions
players into the acquiring ecosystem has led to the aimed at heightening the consumer experience. For
creation of unique collaborative opportunities ex ample, Google’s pay ment app, Tez, features a
between traditional banking players and different technology called audio QR that allows users to
hardware, software and distribution firms across transfer money using sounds to pair two devices.
industries. This has resulted in v arious players Another example of innovations across acquiring, is
ex perimenting with different business models in an adaptation the legacy PoS system to accommodate
effort to remain competitive in an industry that is newer modes of payments such as QR codes/ UPI.
transitioning from traditional bank owned acquirers
to those that are owned either in partnership or by
independent more nimble companies.
The changing environment due to this digital
3
Consolidation of instruments disruption as w ell as regulatory changes, may
inflict short-term difficulties on an acquirer’s
BHIM-UPI, Bank specific UPI payment business model, but implementing the relevant
options, Bharat QR, UPI QR, Aadhaar changes will also lay the foundations for the digital
based payments, viz. Aadhaar Pay, AEPS, Cards, acquirer of the future. Combined efforts are
wallets, mobile payments– the digital payments required from various stakeholders across the
landscape in India offer a v ariety of payment ecosystem to make the business a viable proposition
options. However, one could argue that, in a short and enhance the overall customer experience.
span of time, the introduction of multiple modes of
(With inputs from Mihir Gandhi, Yogesh Shetye, Pallvi Goyal, Vishal More and Namrata Kacholia)
Vivek Belgavi
Partner & Leader – Financial Services Technology
Mihir Gandhi
Director & Leader –Payments Transformation