In the last four years, a relatively small community of merchant acquirers has considerably improved their reach outside of their home markets. This has occurred as a result of marginal relaxation of certain regulatory concepts (central acquiring in the EU, for example) and through improved capabilities at acquirers (a gradual proliferation of multi-currency capability, for instance).
Acquirers have also increased their reach through mergers and acquisitions in Europe and elsewhere and through joint ventures which innovate around card association road blocks to multi-country acquiring. Canada and the U.S., for example are increasingly a unified acquiring market. U.S. Bank’s and Bank of Ireland’s euroConex venture and FDMS’ and HBoS’ alliance may represent the camel’s nose under the tent for U.S. acquirers in the EU. Multi-national banks (which are local acquirers in multiple markets) have continued to have profound affects on various regions (Latin America, for example). Much more so than a few years ago, acquirers are able to provide a unified service offering across multiple countries, although it is still the case that no true global acquirer yet exists.
However, the percentage of merchants who expressed an active interest in utilizing the services of a multi-national acquirer across markets fell to 57 percent in First Annapolis research in 2003 from over 90 percent in similar research four years ago. We interviewed dozens of multi-national merchants regarding their preferences in acquiring services in 2003 and 1999. Though the merchants collectively had a presence in all regions globally, our sample had a strong North American/European concentration both in 2003 and in 1999. Our sample included a mixture of T&E, mail order, and retail merchants. It is easy to come to a first-blush conclusion that the appeal of multi-national acquiring services have become less fashionable, but our results are actually more complex.
The difference in our results may simply be the result of the novelty of the concept having worn off over the past four years, in this hype-centric industry of ours. In 2003, the merchants we interviewed were at the tail end of a global downturn that may very well have focused more of the attention of treasurers and controllers everywhere more on such mundane issues as cost containment than on the somewhat untested transaction processing options we were asking about.
However, it is clear that merchants in T&E industries and card not present industries (mail order, Internet, etc.) have a much stronger inclination to use individual acquirers in more than one country. We have also found that among retailers, organizational structure had a huge impact on the merchant’s interest levels. Over two thirds of retailers that were highly centralized indicated an interest in multi-national acquiring whereas over 75 percent of the decentralized retailers indicated no interest.
“Acquirers wishing to expand outside of their home markets may be more successful by pursuing a strategy of becoming essentially a domestic acquirer in multiple markets”
More specific self-assessed needs of merchants also present a mixed set of outcomes in our research. Merchants indicated an affirmative interest in dealing with a local bank at a lower rate than four years ago. Just over 40 percent indicated a preference for local banks whereas nearly 50 percent had such a preference in 1999. This trend bodes well for monocline non-bank acquirers expanding into markets outside of their home market and is consistent with a trend in many nations for acquiring services to be construed as less and less a core banking service.
Also, merchants seem more able to take advantage of at least some of the services that multi-national acquirers can uniquely offer. In our previous research, essentially all of the respondents wished to receive settlement in the local currencies in which their store operations were located. At the time, we interpreted this result as being a function of how merchants’ treasury management was organized. In other words, because it had not been an option to receive anything but the local currency from acquirers historically, merchants’ operations and controls did not envision having settlement currency options. In our 2003 research, although most merchants still preferred settlement in local currency, a third indicated the preference for settlement in some other currency. We believe this is symptomatic of a gradual evolution in merchants’ cash management strategies and sophistication as well as gradual promotion from multi-currency players. (The implementation of the Euro has no doubt been influential in the thinking of some merchants as well.)
On the other hand, we measure no change of significance in merchants’ desire for centralized reporting (less than 50 percent) and centralized settlement (less than 20 percent).
In 1999 we concluded, as a general statement, that for a multi-national acquirer to be broadly competitive, it needed to be better than the domestic acquirers on the basics of acquiring – pricing, servicing, chargeback processing, technology. The special service offerings that a multi-national acquirer could offer to a merchant were not sufficiently in demand to trump these more basic service components. This is obviously a generalization – it was clear in 1999 and it is clear now that there is a niche market of merchants who perceive significant value in consolidating their various acquiring relationships around the globe. And there are signs of a positive evolution in merchant attitudes to multi-national acquiring. However, we believe our 2003 results are consistent with the conclusion that acquirers wishing to expand outside of their home markets may be more successful by pursuing a strategy of becoming essentially a domestic acquirer in multiple markets rather than a multi-national acquirer skimming several dozen major relationships across multiple national markets.
