Technology shifts are powerful market forces that can quickly break businesses.
Aging companies are particularly susceptible because old school methods and dated business models can become too deeply rooted and prevent firms from responding before it’s all over. Think Kodak.
These challenges now confront the U.S. card-present gateway community.
Third party gateways were once a great idea. They were nimble firms providing a means to reach multiple payment processors through a single message format. Write once, connect to many. As features like transaction reporting, risk controls and routing optimization matured, gateway profits grew.
Then, someone moved the cheese.
The technology shift to EMV has hit card-present gateways especially hard. As middlemen, they must now undergo individual security certifications for each of the transaction paths where they sit between a payment terminal and a processor host.
What’s more, they have to keep current with all of the security patches, feature enhancements and product roadmaps of each terminal manufacturer and each auth processor.
This equates to a massive, ongoing investment in device-related software and testing without any certainty of payback.
It’s hard math for anybody.
Other market moves are squeezing gateways, too: vertical integration by processors and miniaturization by technology providers.
Progressive acquirers and some card brands now run gateways of their own, often for “free”. They do this so that they can bundle extra services into their processing contracts. Competing with “free” is never fun.
At the same time, technology firms (like RevChip) have succeeded in placing multiple processor interfaces directly inside payment devices. This allows transactions to fly nonstop from a payment terminal to any number of processor destinations, without the extra hop to a gateway’s datacenter. That’s a big deal when it comes to cost and PCI.
Though the sum of these pressures appears formidable, it’s still too early to foretell what happens with gateways.
Merchants will be the ones who decide whether or not to sustain the added cost, longer certifications, feature loss and processing latency that seem to come along with transactional intermediaries. Or, it could be that a gateway leader separates itself from the pack with a stepped-up service offering that wows merchants.
All of this might well play out in 2018.
In a few months’ time, certain chargeback liability is scheduled to be reinstated and many in the payments industry think that a new, large cohort of U.S. merchants will quickly seek out EMV solutions. If that happens, providers -including gateways- will be put to the test.
EMV need not be a huge expense or a technology hassle. Merchants should be able to preserve their POS marketing programs and implement Quick Chip and Apple Pay in just a few days. If you agree, check out RevChip.