Merchant Acquiring in the United States 2008: Birth of the Perfect Storm

NEW RESEARCH REPORT BY MERCATOR ADVISORY GROUP

As we pass the middle of the year 2008, those of us focused on the acquiring side of the payments industry have to wonder if this will be year that the business encounters its "Perfect Storm." Three major events are about to converge upon the industry that could drastically alter the way acquirers do business. Introduced in Congress earlier this year, the proposed legislation to regulate merchant costs of card acceptance is of chief concern. Cumulatively, the presence of regulatory and legislative scrutiny on the acquiring side of the bankcard space has never been more intense.

Thus far, 2008 has also seen the beginning of the dissolution and division into two pieces of the largest merchant acquiring venture in the world. The potential market churn that this action could create portends a very busy 2009.

The industry is also uncertain about the effects of a potential recession in the US economy and what that means for electronic payments. From one perspective, the overall electronification of payments in general bodes well for those managing the opportunity. On the other hand, if the overall power of the US consumer diminishes, electronification may not make much difference in the acquirer's bottom line.

So Legislation, Dissolution, and Recession are the three major forces poised to converge upon the acquiring space in what could be a perfect storm of radical change.

Several other topics or issues of general concern are either significant enough in scope to have an impact on the business collectively, or are beginning to emerge as influential factors that acquirers will need to address if they have not begun to do so already.

In this report we will focus on discussion of the current trends and topical concerns within the acquiring space, as well as provide in-depth analysis of data surrounding the performance and activities of the major market participants in 2007, as well as some of the most meaningful bit-players.

One of the 11 Figures included in this report

This report contains 26 pages and 11 exhibits.

Report Highlights:

• If the first half of 2008 is any indication, the coming months promise to be a period of drastic change for the acquiring industry.
• Legislative scrutiny, a tight economy, and the potential for a substantial increase in market churn are all converging on the acquiring space in what could be a "perfect storm."
• Acquirers continue to face challenges to their core business from outside the industry. For ISOs in the US, the biggest "disintermediation threats" are coming from two places, banks and Capitol Hill.
• The economics of acquiring themselves could even be subject to sweeping revision, creating a new paradigm for merchant services. Acquirers with a "holistic" solution set, selling on value, will have competitive advantage in what could amount to a radically different future.
• Concerns about profitability will take center stage when convergence of the forces acting on the acquiring space begins to intensify.

David Fish, Senior Analyst in Mercator Advisory Group's Credit Advisory Service and principal analyst on the report, comments, "Diversification of merchant services business models and emphasis on ancillary revenue streams generated by value-added services, fee revenue on non-bankcard payment processing, and new ways in which acquirers can leverage their data will all be necessary for continued market performance. Payments savvy merchants, who understand that the electronification of payments and the systems that support them are tools that can be used to optimize business, are after providers that can help them achieve that optimization."

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