Ai Editorial: Are acquirers becoming stronger allies for merchants?

18th February, 2020

Ai Editorial: Travel merchants, including airlines, are expecting their respective acquiring banks to contribute more than just processing payments, writes Ai’s Ritesh Gupta


Travel merchants, including airlines, have to focus on several aspects in order to streamline their cross-border payment acceptance.

Of utmost important is the shopper experience - from letting a travel shopper pay via their preferred payment method to ensuring their checkout experience isn’t disturbed with a unified approach to curbing fraud and disturbing even those transactions that shouldn’t be checked for authentication. Other than stepping up the authorization rate, businesses also need to keep the overall transaction fees in check. Plus, they need to prepare for better business decisions based on astute payments data, for instance, comprehending why transactions are being approved or declined with global coverage and granular reporting.

The role of the acquirer

The introduction of invisible payments or one-click transactions are experiences shoppers are increasingly getting used to, and every business needs to find ways to incorporate the same. And accordingly, the onus is on various stakeholders, including the acquirer, to chip in and facilitate the same for travel merchants. The entity, also known as the acquiring bank, is the financial institution that maintains the merchant’s bank account. It passes the merchant’s transactions along to the applicable issuing banks to receive payment. For airlines, hotels, OTAs etc., especially those operating in various countries, factors such as adding local payment options, too, are key to sustaining the desired conversion rate. It doesn’t come as a surprise when acquirers are being expected to support all payments types through all channels. 

And the acquirer is also expected to contribute in other areas. A core of area of expertise is managing processing of cross-border payments in an adept manner. An established acquirer is expected to contribute in terms of “local acquiring” and bring down the rate of bank declines. And they key lies in working with only a few, or maybe one acquirer even for multiple markets. This tends to make reconciliation less complex for travel merchants. Another area is the settlement aspect. Also, the ecosystem has witnessed certain players doing away with the blended pricing model. There are benefits, for instance, when the interchange fees goes down, the overall costs also go down. There is now more transparency in terms of the cost of the processing, what is charged for the interchange, the processing cost etc. As for the future, one can only expect an increased level of standardization on a European level and globally, too.

As for dealing with card payment conversion, there are ongoing improvements that merchants are looking for. For instance, credit card decline codes are not standardized; they differ from one payment gateway to the next. Details pertaining to why a payment tends to get rejected can be provided by an acquirer and this in turn can boost the conversion rate. Even though the rejection or response codes offered by acquirers may appear dauntingly technical, it’s extremely useful to understand what they mean.

Travel merchants are assessing the prowess of payment analytics and evaluating key metrics pertaining to the overall payment flow. Primarily, the focus is on the associated cost with each transaction, the rate of authorization, and the chargeback ratio. Delving deeper, payment specialists are counting on analytics for assessment of the risk profile, the relevance and performance of the acquirer, fee for alternative payment solutions etc. It is worth following how data and algorithms are shaping up to contribute both in terms of cost reduction and revenue optimization.

An acquirer is also expected to respond to the regulatory requirements. For instance, the PSD2 Strong Customer Authentication (SCA) migration completion deadline for online payments in Europe continues to be a weighty issue, with concerns about the preparedness and compliance still coming to the fore. Again, acquirers (and other stakeholders have to support EMV 3DS 2.1 and 2.2 by the end of this year) need to enable merchants prepare for the same and contribute in terms of the overall authorization success. Another area that is worth following is how this regulation is going to impact multisided platforms, or marketplace businesses, and some other areas such as licensing.

The traditional merchant-acquirer model has evolved, and today’s payment facilitator model has made the chain a lot more fragmented. For instance, certain entities are an extension of the acquiring bank and provide merchant processing services on the acquirer’s behalf.  As for the external factors, it is worth following how acquirers, post the merger activity, are going to respond to the rising competition.  


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