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Card issuing and merchant acquiring in the era of everyday payments

The era of the Everyday Bank heralds the advent of everyday payments—bringing major implications for card issuing and merchant acquiring.

Overview

Today’s banks and payments service providers can choose to become an Everyday Bank— trusted, indispensable, and integral to consumers’ everyday activities—or they can remain on the periphery, strictly limited to handling financing and fund transfers. This choice, between two contrasting futures, puts banks and payments service providers at a crossroads.

In Accenture’s view, those that choose the path of the Everyday Bank can expect to generate 50 percent higher operating income than those that do not.

As the Everyday Bank emerges, so too will the Everyday Payments Providers—driven by the rise of e-commerce and online retailing, and emergence of new technologies that are enabling new ways of paying, and empowering new entrants to bring new payment propositions to market.

To succeed in such an environment, issuers and acquirers cannot afford to stand still. They need to respond in ways that will turn risks into opportunities, and which will enable them to identify and secure their role in the emerging payments ecosystem—while simultaneously embedding themselves at the heart of customers’ lives.

Everyday issuing and acquiring is the future of card payments. It’s time to embrace that future.

Learn more about Accenture Banking

Background

The payments environment: disruptive change on all sides

While e-commerce has been on the rise since the late 1990s, it was originally a niche activity regarded as an adjunct to the core acquiring business. No longer.

E-commerce and online retailing are firmly established as part of mainstream business and key growth drivers for payments. Smartphones and tablets are spearheading this retailing and behavioral revolution, with new technologies such as cloud, analytics and social media accelerating the change.

While these technologies are enabling new ways of paying, and empowering new entrants to bring new payment propositions to market, cards are inherently limited in their function and user experience, and were not designed with a digital environment in mind. As a result, cards are coming under intense pressure from several different directions.

Against this background, this Accenture report focusses on:

  • The seven trends that card issuers and merchant acquirers face—causing them to revisit their business and operating models as a matter of urgency.

  • The challenges that merchant acquirers and card issuers need to overcome, and the implications of the move to digital.

Findings

Seven trends that card issuers and merchant acquirers face:

  1. E-commerce and m-commerce are converging with in-store payments. Acquiring will require a polymorphic payments capability—one with the flexibility to support card and noncard payments across multiple channels in a consistent, seamless way.

  2. Omni-retailing and channel convergence are changing the way people shop. Payments processes will need to be tailored to the required omni-channel purchasing experience.

  3. Contactless volumes are seeing high growth rates. Everyday payment providers need to use contactless cards as a stepping stone to contactless digital payments on mobile devices.

  4. Plastic cards are becoming dematerialized. Automated clearing house (ACH) and card payment will converge, giving rise to opportunities to innovate beyond cards.

  5. mPoS capabilities are enabling the emergence of new, differentiated acquiring solutions and value-added services.

  6. Card revenues are diminishing due to regulatory pressures and are also under threat from non-card alternative payments.

  7. Banks and payments providers need to streamline and industrialize their capabilities to keep pace with ongoing changes and ensure compliance with regulatory and industry initiatives.

Recommendations

Implications and actions of moving to digital payments:

For merchant acquirers:

  • Undertake technology re-platforming to address challenges due to a rapid growth in online commerce, and the emergence of omni-retailing and channel convergence.

  • Expand from a card acquirer role to a much broader polymorphic role.

  • Decide the combination of a physical point of sale (PoS) and a digital business to support channel convergence and omni-retailing.

  • Maintain service levels that consumers expect from cards—specifically in terms of consumer protection and the ability to address disputes and chargebacks

  • Expand both in terms of digital channels and geographical coverage.

For card issuers:

  • Identify and target new ways of generating revenues and reducing costs.

  • Build card processing platforms that are robust and scalable to cope with the rise in transaction volumes.

  • Explore new distribution models or collaborative approaches.

  • Use analytics and partnerships to help identify customer needs and provide choice for consumers.

  • Reinvent cards that would be relevant in the digital world.

  • Address fraud risks by innovating and using technology effectively.

  • Forge partnerships with the digital or mobile wallet providers.

  • Choose the right mix between processing cards in-house or outsourcing it to third-party processors.