If you want to understand the incumbent merchant services business, the industry that puts payments capabilities into the hands of merchants, take a listen to this Payments on Fire® episode. It focuses on the realities facing the major stakeholders in that portion of the payments industry through a discussion with NMI, a payments technology provider.
Topics discussed include:
- The evolution of touchless payments from QR to Tap on Phone NFC transactions
- What a gateway does
- How a white label provider sells and who uses its services
- What an ISV needs to think about when considering the role of payments facilitator
- COVID-19’s impact on merchant and consumer payments
Getting payments acceptance capability into the SMB merchant’s hands is complicated. The merchant services industry, as it’s called, is complex. It has multiple sales channels serving dozens of merchant categories.
Multiple Channels to the SMB Merchant
If you are a merchant or an independent software vendor (ISV) or a value-added reseller (VAR), you have no end of ways to payment enable your business. For merchants, their interest is in payment acceptance at the right cost, with reliability, transparency, and flexibility as major concerns. ISVs and VARs who sell commerce systems, look to offer payments to their customers as an embedded value-added service and also as a way to generate revenue over and above software subscriptions or margins on hardware.
Financial institutions have been a traditional channel for merchant acquiring and revenue, often using independent sales organizations (ISOs) to be the sales channel and often a provider of payments technology to the merchant customer.
Many of the providers of payment services and platforms insert themselves into the transaction flow directly, taking a piece of the payment revenue. Pure-play technology enablement as a service is less usual and for the merchants and ISVs and others who want more control over the payments revenue component of their business, the tech-first proposition is very attractive.
The Value-added Gateway
This white label enablement of payment tech providers is where NMI plays. Its customers, its affiliates as the company calls them, are the ISOs, ISVs, and financial institutions selling payment acceptance to SMB merchants. NMI provides, behind the scenes, the tech stack for those sales channels.
Its strategy has worked. Handling over 1.5 B transactions a year with over $100B in value, NMI has a major role in SMB payment enablement. A quarter million merchants are on the NMI platform.
Fintech Disruption in Merchant Services
The ISO channel in particular has been disrupted by the likes of Square, Stripe, and many others. But these fintechs are not attractive as providers to ISVs or FIs because they take the payments revenue, leaving little or no payments margin for NMI’s customers to make money.
NMI provides a bridge to help its ISOs move to what NMI’s Nick Starai refers to as the NextGen ISO, a software-led company selling more than payment terminals and merchant accounts. NMI tech enables the NextGen ISO and supports its partnership with business focused ISVs selling tools that help the customer run their business.
As with other Payments on Fire® guests over the last year, NMI reports that the pandemic has accelerated adoption of touchless tech and its overall transaction volume.
One adaptation NMI has made to the touchless requirement is support for QR codes. Using NMI’s code, a merchant unwilling to upgrade its POS terminal for contactless acceptance can display a QR code to the customer who scans it with her smartphone. The QR code decodes as a URL that directs the smartphone browser to the merchant’s online payment page where the normal checkout process takes place. If the customer has Apple Pay or Google Pay provisioned NMI’s software detects it and displays the operating system’s checkout and payment flow. A scan and a couple of taps for the customer shifts the transaction to card not present rails.
The line between brick and mortar and online continues to blur because customers have come expect a seamless, touchless payment experience regardless of channel.