Payment service providers (PSPs) are facing an increasingly competitive landscape in the payments industry. With the rise of e-commerce, mobile payments and digital wallets, PSPs have had to differentiate their offerings to retain customers and capture a larger share of the market.
Here, we will examine how PSPs have differentiated in the past – and what solutions they can adopt today to stay competitive on the market.
Beyond competing on authorisation rates
The PSP market is a consolidated one. And while there are a few key players who are rapidly growing and expanding globally, there are many other local players who are making up a large part of the payment ecosystem.
The core offerings that PSPs are making are commoditised, and they need to search for new sources of differentiation to retain customers and capture higher share of wallet.
Merchant attrition rates are high, and that remains one of the biggest challenges for PSPs. In fact, one in five merchants are estimated to leave their current provider, and it takes three new customers to make up for each merchant that leaves the portfolio due to the acquisition costs.
As a result, about $2 billion (£1.6 billion) is lost each year in revenue by players involved in the payment ecosystem, such as PSPs, merchants, and by credit card processing and merchant acquiring industries due to attrition.
Historically, PSPs have been competing on authorisation rates to battle the high merchant attrition rates. Improved authorisation rates is a critical factor for merchants deciding to use a particular PSP.
However, as the market became more saturated with PSPs offering similar services, the surplus that PSPs could generate by differentiating themselves through authorisation rates began to diminish.
Luckily, merchant attrition is not all about pricing. There are many other factors at play, such as lack of automation, unclear support and lack of billing transparency. In order to stay competitive, PSPs need to adopt smart and innovative solutions that will position them at the forefront of the market.
Omni-channel propositions
Providing an omni-channel experience is key in today’s retail world. By offering a proposition that spans across various channels such as online, mobile and in-store, PSPs and merchants can be more competitive.
Omni-channel retailing can appeal to a range of consumer behaviours and provide a seamless cross-channel experience. This offers convenience and flexibility to customers and can help merchants attract new customers, leading to increased sales.
The best in-class fraud solution
Fraud is a major issue in today’s ecommerce world. New fraud scenarios are emerging all the time, and PSPs and merchants need to find a quick and efficient way to deal with them. Payment fraud poses a significant challenge in terms of financial loss and reputational damage. The higher the fraud attacks and chargebacks are, the lower the authorisation rates become, which is detrimental to a PSPs success.
The old ways of risk mitigation are no longer applicable to today’s ecommerce landscape. Manual order review is unable to track all transactions that come through and is time-consuming and cost-ineffective.
Instead, PSPs can minimise fraud, improve their authorisation rate, customer satisfaction and revenue by adopting the best in-class fraud solution that leverages automation, machine-learning and advanced data analysis.
This will enable merchants to process over 100 orders per second, giving the green light to good ones and rejecting fraudulent transactions. This is possible due to the access to a global commerce network with historical and real-time data about transactions from thousands of merchants.
Alternative Payment Methods (APMs)
PSPs can also offer Alternative Payment Methods (APMs) to cater to customers who prefer to pay through non-traditional methods. APMs such as digital wallets and cryptocurrencies have gained popularity in recent years and can help merchants tap into new customer segments.
The payment methods we use have undergone a massive transformation in the last few years. They’re more digitised and designed to provide ease of the shopping experience. We’re seeing the emergence of e-wallets, such as Apple Pay in Europe and WeChat in Asia, and mobile and contactless payments.
Along with the new payment methods, traditional ones are also being widely used. With such a variety of payment methods, it’s difficult to achieve hegemony across various regions and countries.
And with cross-border ecommerce becoming a normality, being able to adapt and accommodate the preferred payment methods for the regions where a business operates is a must.
That’s why businesses need to be able to offer their customers a streamlined checkout process, and that starts with PSPs offering a variety of payment options to support cross-border payments. This will make them stay competitive on the market.
FX solutions such as multi-currency and DCC
FX solutions such as multi-currency and Dynamic Currency Conversion (DCC) can also be offered by PSPs to provide value to merchants who do business globally. With these solutions, merchants can offer their customers the option to pay in their local currency, thereby reducing currency conversion costs and improving customer satisfaction.
Loyalty solutions
Loyalty solutions can be offered by PSPs to drive value for merchants. Loyalty programs can encourage repeat business and help merchants retain customers. This can be achieved by offering cashback, discounts, or loyalty points to customers who make regular purchases through the merchant’s website or store.
Better customer service and support
Additionally, merchants are realising the importance of investing in customer service and support to improve customer retention, and PSPs who offer such value-added services stand a higher chance of being selected by merchants.
Offering support with compliance and fraud tools that leverage smart exemptions engines to provide a seamless checkout journey among strict laws and regulations are only some of the solutions PSPs can adopt.
For a long time, PSPs have been primarily focused on improving their authorisation rates to mitigate customer attrition and stay competitive on the market. However, there is now a much wider mix of solutions PSPs can adopt to stay ahead of the game and capture a larger share of the market.
