Michael Burtscher is responsible for the further development of Payvision’s global card payment network. In his previous role as Head of Third Party Risk at Visa Europe, Michael Burtscher successfully led a number of initiatives which increased Security for consumers and payment solution providers in the e-commerce market.
Q: What is the message and the purpose of the white paper you have released in July 2012, dubbed “How to reduce the complexity payment service providers face in a global e-commerce market”?
R: Given the exceptional growth rates e-commerce has experienced during the last decade, the traditional role that a payment service provider fulfills is under pressure. For instance, there is pressure on pricing and more focus on efficiency. Higher demands affect the position of major players in the market, so taking into account the current developments, we argue that the amount of PSPs in business by 2015 will decline and the way PSPs will continue to provide added value in the future, will change quite significantly also, in part, to respond to ongoing and changing regulatory requirements.
Furthermore, our White Paper is a comprehensive report of the different challenges stakeholders face in this payment industry. Relying on our experts’ knowledge and our decade of experience within the payment environment, we wanted to provide support and guidance for other players and to share our expertise. In the end, we all face similar challenges, so why not sharing our best practices to sustain the industry technological innovation and development, by providing solutions on a non-competitive basis?
Q: From a PSP perspective, what key metrics are there in measuring a successful implementation of a payment strategy? What key factors do you take into consideration?
R: Firstly, a PSP clearly needs to have a rigorous business plan; it needs to make sure its financial proposition is accurate. When we work with PSPs we always pay great attention to this aspect, as financial risk needs to be mitigated appropriately.
Secondly, a very important metric is PCI DSS compliance. They need to be compliant or demonstrate they are in the process of becoming so. Of course, this is mandated by the Card Organizations, but it also demonstrates that the organization has a sufficient level of complexity, structure and maturity to be able to seriously address the most essential aspects of data integrity and security.
Finally, an aspect which is becoming increasingly important is that many PSPs and other similar organizations need to have the appropriate regulatory approval. For instance, in Europe, if PSPs receive funds on behalf of their merchants they need to have a Payment Institution license, or such-like depending on the jurisdiction, to do so. This can be a rigorous, time-consuming, as well as expensive process but again it demonstrates that the organization is fit for purpose.
Q: The growth of the PSP market is directly attributable to...
R: From my point of view, the growth of the PSP market cannot be pinned down to one single factor, although as previously said we believe that we will soon see a downward trend in the number of these organizations.
The first factor is undoubtedly the emergence and growth of e-commerce, which has allowed these companies to develop their e-commerce technology, discovering new opportunities.
Traditionally, acquiring banks have been focused on one type of model, one type of service provision for the merchants. Today, merchants need different types of infrastructure, complex risk monitoring, multi-currency processing and settlement which, among others, are services that increasingly have been provided by the PSPs. They can offer more hands-on expertise in terms of supporting the business; they can “aggregate” the volumes for multiple small merchants, thus being able to offer a better pricing. An acquiring bank will not focus on the very small merchants, given their volumes, whereas a PSP can provide this aggregation, whether it is in the e-commerce environment or, increasingly in some markets, also in the face-to-face environment.
Another interesting factor is that, in the past 18-24 months, in Europe, a large number of PSPs have become direct members of the Card Organizations, alerting the traditional acquirers that these organizations have developed over the years sufficient expertise to completely disintermediate the traditional acquirers, especially in the e-commerce space.
Q: What are the most important factors that determine merchants’ choice of a certain PSP?
R: Well, clearly, the price of the service is always taken into account (and we can refer to cost per transaction, monthly fee for account management and so on). However, we noticed a fluctuation of decisions - some merchants will rather pay less for a basic package, but some of them will be willing to pay more because of the other added value services a PSP can provide, like website design optimization or geographical expansion support. In Europe, for instance, there is a growing number of merchants who will decide on the value added services, even though they might pay a bit more for their transactions, but they get a service which allows them to increase their sales.
Another important solution a PSP can provide, hence differentiate its offer, is the active support in fraud and chargeback management.
Furthermore, as merchants expand globally, they process transactions in many currencies, thus they want to insure themselves against the FX spread. This trend is becoming more and more important and requires a feature that not many organizations can provide. At Payvision, for instance, we offer more than 150 transaction currencies and all regional card settlement currencies, as supported by VISA, MasterCard and other major card schemes.
Another interesting fact for European merchants is VISA Europe’s mandate effective 1st of January 2013, when merchants will be required to only use merchant agents which have been validated (https://www.visamerchantagents.com/).
Q: In your opinion, what should a PSP do from a strategic point of view in order to remain competitive?
R: They must have a robust technical infrastructure, sound risk management and provide good reliable solutions in terms of fraud and chargeback management. Besides these “Must Have” tools, a competitive PSP has to remain relevant, to observe the market, both in terms of technology and innovation, but also geographic expansion. This approach will enable the PSP to take wiser business decisions and to stay ahead of the curve.
The most successful PSPs are the ones with entrepreneurial vision, hands-on approach and actively involved in understanding the essence of their company evolution; they have to establish a positive culture within the organization, and focus to overachieve its goals. The human connection is definitely very important, and it requires knowledgeable, flexible people, very professional and performance driven. For instance, one of our PSP partners told us that the reason they chose us as their partner is because we have a good DNA and hence felt that this affinity would be good for their business, too. Indeed, we are very caring and attentive to the needs of our clients, taking the time to understand their own objectives and supporting them to achieve these goals.
Q: Is there price pressure in specific market segments?
R: Yes, certainly. If you look at the traditional brick-and-mortar retail environment, it is undoubtedly challenged by tighter profit margins and the ongoing and persistent global recession’s impact. While, in this digital age, e-commerce offers more maneuverability as well as greater opportunities for growth and increased profitability: indeed, e-commerce continues to see double-digit growth across the board and in some markets even triple-digit growth.
Q: Some value added e-business services that payment service providers can offer to enhance their proposition/ business model are...
R: Multi-currency, as I said before, is a service more and more requested by the merchants. Expanding globally offers many opportunities to the merchants, but also many challenges. To enable the merchant to settle transactions in as many currencies as possible, is one of them. Recently, through our partnership with Rentabiliweb who offer multiple payment solutions, we provided the French e-Merchants with access to a wider choice of payment methods and the ability to settle in local currencies, enabling them to better manage FX liabilities.
E-invoicing services are a very trendy feature which, as part of the back office reconciliation services, allows merchants to streamline their accounting flows. If linked to an end-to-end solution, PSPs are then able to provide even more complex back office and financial services to their clients. I have recently heard about a solution for consumers, which allows them to store all their receipts in an electronic system. Therefore, such paperless and optimization tools for the financial flows are an added value feature for the PSPs, enabling them to offer it both to their merchants and consumers.
Reporting and data analytics. Big companies like Groupon or Starbucks are very strong in this area, they have a large customer database and they can provide trending reports to their merchants or retail outlets, with meaningful insights into their customer’s purchasing habits. Many acquirers and PSPs have vast databases, but they do not necessarily know how to exploit it effectively, since it was not primarily designed for end consumer data analytics. A competitive PSP will see the value in providing such analytics to its merchants, being an useful way for a merchant to increase its sales volumes. Moreover, it should help create loyalty and build trust among PSPs’ clients.
Q: With the success of several PSPs in the marketplace lately, it has spurned an increase in the amount of companies wishing to be setup as a PSP, especially new start-up companies. Your recommendation to any new PSP would be...
R: A company wishing to become a PSP needs to be aware that there are fewer opportunities than there were 10 years ago, although developments in new technology, such as in the m-commerce space, will always offer golden opportunities to the savvy and innovative ones.
However, one must also be aware that in some instances an organization may have little choice but to become a PSP since the Card Scheme rules have been defined more clearly. Therefore, if an organization wants to offer certain services, it cannot avoid becoming a PSP, Payment Facilitator, or e-wallet.
As a recommendation, even before starting, a PSP needs to understand whether it must have regulatory approval for the services it will provide, and if so, what kind of license it needs. In addition, a very important requirement for a PSP is to be PCI DSS Compliant; if you don’t have a Qualified Security Assessor (‘QSA’), get one!
Finally, a PSP has to make sure it really understands who its competitors are. It can happen, that one looks at the big companies like PayPal or Google Wallet as one’s competitors; but one should not be blinded by ambition and have a more realistic understanding of who one will be competing against.
Given the global nature of e-commerce, a real competitor could be located in the same city or on the other side of the World. A new PSP needs to understand who is likely to pitch for the same customer base. If it doesn’t know its competitor’s offering, the pricing, the trends, the innovation and technology standards, it cannot understand what others can or cannot offer comparing against one’s own offer. If a new PSP doesn’t understand its competitor’s offering how can it credibly hope to convince a customer to place its business with it or to switch over from a possibly longer and better established payments provider?