Why the Acquirers are under severe pressure? - From Payment Source

Due to Digital Disruption, there are many good things happening. At the same time, acquires are facing many challenges.

They are under severe pressure from the digital payments revolution, challenged to hold onto clients by stitching together legacy systems, existing hardware, mobile, cloud and apps. Those that can harness innovation and find the right startup partners can not only stave off elimination, but drive the next generation of multi-channel shopping and transaction revenue."Acquirers have a much more important role in this business then they did 10 years ago," said Brian Riley, director of card services for Mercator Advisory Group. "In Europe they are forced down to be more efficient and in the U.S. they are forced to be more competitive, and that is reflected in the recent mergers we have seen."

The response from incumbent payment processors is to respond to the rise of software challengers like Stripe and Square by adding scale. Consolidation between bank technology sellers and merchant acquirers is the name of the game as
- FIS acquired Worldpay,
- Fisesrv bought First Data and
- Global Payments obtained TSYS.

"That type of activity is going to set the pace in acquiring for some time," Riley said.

The combined companies still have to differentiate themselves--it's not enough to just be larger since the fintech challengers often use the size of the legacy acquiring industry as a selling point, positioning themselves as smaller and more nimble. Expect the combined companies to seek third-party collaborations, especially to serve smaller businesses, to counter PayPal, iZettle, which PayPal acquired in 2018, and Square.

This is particularly true in Europe, where payments represent a more diverse mix, depending on the various payments schemes and local regulations in each country.

"Europe is a mix of highly innovative countries, such as Sweden, which is pushing for a cashless society, and rather traditional ones like Germany and France, who are proud of their local payment schemes both in offline and online commerce," said Martin Herlinghaus, market analyst for payments technology integrator AEVI, which completed recent research on acquiring challenges and trends in Europe.

Providing full service

The challenge for merchant acquirers is
- Serving customers who want flexibility with their payment networks,
- Numerous payment options and
- Add-on business services.
For example, travelers and small businesses want to support "own currency" payments in which consumers want to make payments abroad in their own currency and with their own device. This has been apparent in acquirers seeking ways to serve those merchants who want to accept a payment from customers using their national payment schemes or through mobile payments like Alipay

Europe Bank's plan to counter VISA and Mastercard - PEPSI

Isolationist politics are creeping closer to the payments industry, with European banks threatening to build a localized payment ecosystem to push back against the major American card brands.

The planned European network, called the Pan European Payment System (or PEPSI), includes 20 European banks and has the tacit backing of the European Central Bank. There's no formal announcement, but PEPSI would be a catchall counterweight to cross-border mobile payment fintechs, challenger banks, blockchain startups, cryptocurrency and the cloud, and other initiatives that the incumbent financial services industry sees as threats.

PEPSI would be a rival to Visa, Mastercard, PayPal, other American payment brands, and U.S.-based data giants such as Google and Amazon. The ECB did not return a request for comment, but multiple European media outlets quoted Carlo Bovero, the head of global cards at BNP Paribas, referring to the initiative at a conference.

European politicians have floated the idea of creating their own payments system before. Just a few months ago, Deutsche Bundesbank board member Burkhard Balz suggested European banks build their own mobile payments platform, citing the influence of Google and Amazon as a threat. What’s new this time is the participation of a large number of banks, with PEPSI reportedly including most of France and Germany’s banking industry as a base, and a group of banks willing to invest in the initiative.

The ECB and PEPSI are hardly alone, as traditional authorities are taking a harder line against alternative payment initiatives, whether it’s Facebook’s Libra, Apple Pay or challenger banks.

The EU is reportedly moving closer to investigating Apple Pay for antitrust violations, and the pushback against Facebook’s Libra project is widespread as politicians in the U.S., Europe and Asia push back against the social network's crypto initiative. This political climate is present elsewhere, with India requiring outside payment companies to store data locally, a move that's drawn the ire of Mastercard. And China often shifts requirements for outside payment companies to do business inside the country, usually in the direction of requiring substantial investments and a local presence.

Central banks around the world are also building digital currencies, again to counter what they see as a threat to monetary sovereignty by blockchain-based currencies such as Libra.

PEPSI’s advocates suggest another indirect threat, with media reports saying Europe needed its own payment system to counter an “upset American president” who may change trade policy with the eurozone in a way that could harm the continent’s banks.

“Certainly PEPSI could have an enormous impact on EU payments if the ECB and EC put their considerable shoulders behind it and if banks seriously commit to a politically driven payment system,” said Eric Grover, a principal at Intrepid Ventures. “EU regulators are viscerally hostile to dominant U.S. payment franchises like Visa and Mastercard. They’re spooked by the prospect of Libra.”

Politics is just part of the battle, as challenger banks have expanded quickly over the past few years, often gaining hundreds of thousands of enrolled customers and drawing funds from fintech investors. There is likely frustration in the traditional banking industry that is fueling the push for an alternative payment system. Incumbent banks have faced an expensive and long path to comply with data regulations such as PSD2 and GDPR, which are seen as favorable to challenger banks and fintechs since these younger companies can take advantage of new mandated data sharing between banks and third parties.

Revolut, which is teaming with Visa to expand geographically, and N26, which just raised $300 million, have both achieved unicorn status and are rapidly adding new markets and scale. Another European fintech, Monzo, says it’s adding 100,000 clients per month, and is developing services such as B2B payments.

These firms started as mobile payment providers, using U.S. card brands to support transactions, and their growth adds to the U.S. card networks’ scale.

“These challenger banks are distinguishing themselves by providing payment services — that’s how they entered the market, as a glorified general purpose reloadable accounts,” said Richard Crone, a payments consultant. “So directly or indirectly, Visa and Mastercard have new distribution channels.”

PEPSI would face an uphill battle, considering most European banks issue Visa and Mastercard, and Apple Pay and PayPal have made major inroads among European consumers and merchants. And international payment networks don’t expand overnight. Reported estimates say PEPSI would cost several billion euros to build a system that would cover about 60% of the European electronic payments market.

“Building a network of last resort is a difficult and expensive endeavor,” said Sarah Grotta, director of the debit and alternative products and advisory service at Mercator. “Getting enough consumers and merchants behind the solution to create the network effect, plus all of the required infrastructure, operating and regulatory considerations is an undertaking that will take many years to develop.”

Third European Card Scheme - Will it come in Europe???

Since we are seeing lot of commonality in payments throughout Europe, the banks began pondering the creation of a third payment scheme.

Because past attempts to establish a third European card scheme to compete against Visa, Mastercard, PayPal and others never materialized, the new proposal called Pan European Payment System, or PEPSI, is garnering some attention. The European banks behind PEPSI announced their intentions last month.

The European Central Bank has not weighed in heavily on PEPSI, other than to state it supports the effort of the 20 French and German banks pushing the concept.

With bank support and a common eurozone, it is expected that PEPSI could more easily develop into a payment scheme than something like the ill-fated Merchant Customer Exchange, a merchant-backed effort in the U.S. that came and went over a three-year period. MCX, designed to operate through ACH payments via a mobile wallet, promised to lower costs for merchants but never made it past the pilot phase.

It won't be easy for PEPSI, especially when consumers are content with their chip-and-PIN or contactless cards and mobile payments throughout Europe.

"I think SEPA for cards has not yet been achieved," Aite's van Wezel said. "There is no SEPA cards rulebook because, from a consumer perspective, there is no issue. Cards work the same everywhere in the EU."

Still, merchant acquirers facing increasing competition are longing for ways to deal with inefficiencies and different standards, local exceptions and different card fees in each country.

"There is a growing number of merchants who are using real-time payments at the point of sale to displace cards," Celent's Lodge said. "Whether these are truly to be a third card rail is almost not the point, because the goal of the third scheme was to provide competition to the card duopoly, and these initiatives seem to be addressing that."

For the time being, an initiative like PEPSI is garnering viewpoints from bankers, merchants and consumers ranging from it having "no impact" to becoming "a major disruption" — and all points in between, Lodge (Gareth Lodge, a London-based industry analyst with Celent.added.

How SEPA helps to modernize the payments world.

Though SEPA is an unique to European Union. It made a big change in entire payments landscape in the world.  I have been working in SEPA since 2010. Started working in SEPA CT Reachable. And then

• SEPA Direct Debit Reachable 
• SEPA Direct Debit Initiation 
• SEPA Credit Transfer Initiation

Now Its being implemented in SEPA in instant payments too.

When SEPA got started, it didn't include a vision for real-time payments and the potential for a third European payments scheme. Since its growing and I have been seeing that its making big impact in payment.  Just thought of writing on this SEPA evolution.

The intention for SEPA was slightly less ambitious: Convert fragmented payment markets into a single domestic scheme to improve cross-border payment efficiency. What SEPA planners did not foresee was that this effort would become the largest payment-integration project of modern times.

SEPA began in 2008 and became operational in all eurozones in 2014, but it did not eliminate local payment schemes. Nevertheless, it became the method for all cross-border payments and reduced the cost of moving money around the region, to an estimated 3% of the total GDP, according to the European Union.Article 5 Big bets in retail payments

It didn't take much longer for SEPA to enter into, and even bypass, the faster payments initiatives unfolding across the globe.

The SEPA Instant Credit Transfer scheme came about as a real-time money transfer system. SEPA regulators quickly touted it in 2017 as the largest faster payments system in the world.

SEPA Instant Credit Transfer is built around the ISO 20022 standard, a coding message for cross-border payments that allows the movement of data that includes relevant information about the purpose of a payment for banks to share.

SEPA was breaking ground for other faster payments initiatives and planners, especially the one unfolding through the Federal Reserve in the U.S.

"The instant payment scheme is adhered to by more than half of the EU banks, and real-time payments will become the norm," said Ron van Wezel, senior analyst for retail banking and payments at Aite Group.

"Payments is considered the 'lubricating oil' for EU's single market," he said. "And regulators — the European Commission and Parliament — have strongly focused on creating a payment law that opens competition, stimulates innovation and protects consumer interests."

SEPA has plenty of moving parts, as global and European stakeholders on the payments landscape keep tabs on how all of the directives intersect and affect one another.

"SEPA isn't just one thing, but a continuing set of actions to deliver the political vision that is SEPA," said Gareth Lodge, a London-based industry analyst with Celent.

In that regard, SEPA is somewhat joined at the hip with the initial Payment Service Directive and PSD2, which opened the payments innovation landscape to more third-party providers.

"The core ACH payments, SEPA Credit Transfer and Direct Debit Core have been operational for years and are, with few exceptions, the main payment types in all eurozone countries," Lodge said. "Pricing for cross-border payments have been brought in line with their equivalent domestic transactions."