A new survey from the Electronic Transactions Association (ETA) and Goldman Sachs Global Investment Research, a leading provider of global industry research finds that many merchant acquirers, ISOs and point-of-sale (POS) solutions providers plan to partner with or acquire mobile payments providers.
“Incumbent companies recognize the need to adapt and even partner with new entrants in the market,” said Jason Oxman, ETA CEO.
The top choice of respondents (47 percent) was to partner with new entrants in order to mitigate the risk from new market participants. Several merchant acquirers/ISOs have recently formed partnerships with new entrants and, based on survey results, we expect to see more such alliances formed in the near-term.
Nearly two-thirds of the respondents named PAY their main provider of POS terminals, with Equinox (formerly Hypercom) and Ingenico coming in at a distant second and third. However, most respondents expect to either develop their own mobile based POS solution or partner with other third party providers (which can include new entrants) over the next year.
Among several new entrants, incumbents viewed PayPal and Square as the best solution, with approximately 40 percent of respondents ranking the PayPal and Square POS solutions as “very good.”
Both expanded their payment capabilities in the second half of 2012. PayPal partnered with Discover to permit the use of Discover cards linked to PayPal accounts. Square started offering electronic gift cards in December.
According to ETA, survey respondents were primarily concerned with the potential for disintermediation from new technologies or market share losses to new entrants. ETA attributes this concern to a combination of new pricing models introduced by new entrants and new payment technologies that can route transactions away from existing merchant acquirers/terminals, such as mobile card readers (i.e. dongles) and cloud-enabled POS solutions.
According to the research study: “Over the long-term, we view pricing as the key risk for acquirers and disintermediation as the key risk for POS terminal manufacturers. However, our survey respondents (which included both acquirers and POS vendors) appear mostly concerned with the potential for disintermediation from new technologies or market share losses to new entrants. We attribute this to a combination of new pricing models introduced by new entrants and new payment technologies that can route transactions away from existing merchant acquirers, such as mobile card readers (i.e. dongles) and cloud-enabled POS solutions. In addition, we believe this reflects the fact that ISOs are more at risk from pricing pressure/market share losses given their focus on the small merchant segment (i.e. merchants generating under $250K of annual volume), where we see new entrants’ pricing models as most competitive.”
This is an important factor, according to ETA, because merchant acquirers and POS vendors will likely embrace partnerships with new entrants that offer a reliable solution for merchants.