In this article, we look at the trade-off between localised and multinational acquiring, and the 5 factors any merchant should consider before making the call.
At the forefront of many retailers’ minds – particularly given the turbulence of the last year – is cost. In this area, international suppliers may seem to have the edge. By contracting with a multinational acquirer, merchants can award a greater share of their overall estate to a single provider, generating economies of scale that can translate into more competitive pricing. However, that isn’t always the case. It is not guaranteed that these scale benefits are passed on to merchants, particularly if the cost of replacing an incumbent is high. Furthermore, whilst larger acquirers have greater volumes – and may have historically benefitted from tiered scheme fee structures as a result – a single merchants’ business forms a smaller proportion of their overall income. In contrast, smaller, local providers may be more dependent on that same merchant, and therefore be willing to offer superior terms to retain their business. Close relationships between domestic acquirers and issuing banks can bring other cost benefits too, including the potential for ‘on-us’ transactions. Understanding the capabilities and incentives of each supplier is therefore crucial in generating the competitive tension necessary to optimise costs. It is also important that retailers take a holistic view of their contract, as larger acquirers may include ancillary products that a merchant doesn’t necessarily require to prop up low headline rates.
2. Supplier Inefficiencies
Unfortunately, it does not matter how competitive a merchants’ contract terms are if their rates are passed through incorrectly. This is far from uncommon. In fact, CMSPI finds errors in 1 in every 2 invoices audited. These errors can be a particular concern for international suppliers whose systems may not be optimised for the intricacies of each domestic market. In Switzerland, for example, two major, multinational acquirers recently received criticism when their systems were found to have difficulty distinguishing between newly-issued debit cards and credit cards, leading to a significant increase in costs for merchants charged fees associated with the latter.
There are a number of pressure points at which the risk of errors is heightened. These can be created by merchant-specific events such as onboarding, or linked to industry-wide developments including M&A activity and changes to ‘pass-through’ fees. Such fees include scheme fees and interchange, which are charged to acquiring banks but ultimately paid by the merchant.
With this in mind, it is not difficult to see why the frequency of errors is currently so high. The last 10 years have seen multiple mammoth mergers (such as those between Nets, Concardis, and Nexi) give rise to suppliers with huge geographical reach. These mergers can present significant challenges for the acquirers themselves as they seek to merge infrastructure on a large scale. If this were not enough, European merchants have already seen upwards of 50 changes to highly complex ‘pass-through’ card fees announced for 2021 alone, which acquirers must now upload to their systems and apply to trillions of transactions. The volatility of the current payments landscape therefore makes errors not only a key consideration when consolidating suppliers, but an ongoing concern even for those not making a switch.
3. Approval Rates
Another – often unseen – piece of the puzzle when selecting suppliers is approval rates. If good customers cannot get through the checkout because their transactions are falsely declined, then the merchant’s top-line revenue suffers and they may find themselves losing business to competitors. CMSPI estimates that 1 in 5 declines online are false declines. However, this statistic differs vastly by supplier in a given market, as shown by the approval rates in Figure 1. Some of the variation can be attributed to the proximity of processing; local acquirers (or pan-European acquirers with local processing entities) often outperform their counterparts who process remotely, meaning that even merchants looking at global suppliers must consider approval rates relative to their specific estate. In the absence of multiple providers and the ability to compare key metrics across them, these considerations can significantly affect revenue.
Figure 1. Sample approval rates by acquirer for German-issued cards (CMSPI estimates and analysis)
4. Local Customers, Local Payment Methods
Multinational merchants know all too well that consumers in each of their markets expect to pay differently. What may be deemed an ‘alternative payment method’ at an international level – such as Germany’s Girocard debit scheme or bank transfers through iDeal in the Netherlands – can form the vast majority of payments in a given country. Failing to incorporate these methods can therefore significantly harm customer experience, consumer loyalty, and ultimately a merchant’s revenue. Whilst many multinational suppliers can offer integrations with local payment types, they often do so through partnerships with domestic providers. Utilising these partnerships – rather than contracting directly with local suppliers – can lead to suboptimal performance in key metrics including the cost of acceptance, approval rates and more. As the number of alternative payment methods such as Buy Now Pay Later continues to grow exponentially, merchants need the expertise to navigate the trade-off or risk limiting their reach.
5. Qualitative Factors
So far, our focus has been on the quantifiable determinants of a merchant’s top and bottom line when accepting payments. However, the decision to consolidate suppliers has a number of qualitative implications that are no less pivotal. Whilst multinational players may offer a higher quality of reporting or visibility over international trends, factors such as local language expertise can have a marked effect on how well a new supplier integrates with operations in each country. These differences act alongside factors such as account management and the availability of ancillary services, which don’t always split neatly down the local-global supplier divide.
Over recent years, significant consolidation in the European payments market has been met with attempts by a number of retailers to consolidate their supply chain. For many merchants, a pan-European solution is the right answer; by awarding one supplier with volumes from across their whole estate, merchants and their acquirers can benefit from lower headline rates and a streamlined reporting process. However, not only is this not always the case, but headline rates form only one element of the true cost of payments acceptance.
CMSPI manages a multitude of supplier selection processes every year, analysing billions of transactions to ensure that retailers are making data-driven decisions that boost the productivity of their payments supply chain. Our experience shows that approval rates, the frequency of errors, the integration of local payment methods, and less tangible factors such as language expertise can be enough to shift the needle when choosing a provider. Once they have determined their priorities, merchants therefore require an approach that combines the current needs of their specific estate with an eye to long-run industry trends.