Digital & Innovation

Micro ecosystems: Making merchants’ life easier

3-minute masterclass

Open Banking, PSD2, Fintech collaboration and innovation labs, to name a few, share one common denominator. It is the financial institutions that focus on collaboration, exchange of information and the creation of ecosystems that generate new added value. This happens on macro-economic level (regulators, large banks, insurance companies), but also on micro-economic level. For example, the developments of innovative point of sales (POS) solutions. But what else is in the pipeline? 

What’s the problem?

Imagine you’re on holiday in Turkey and want to buy a souvenir in a local shop. You’re often faced with a merchant that has numerous acquiring terminals at his register, each connected to a different bank. As a buyer, you have to choose one based on the card you have. This is quite unpleasant, to say the least. And on top of that, the merchant must find a way to link all the different transactions with the inventory and financial administration. So, nobody benefits from this system. Then there are the interoperability restraints that cause transaction costs to be relatively high due to the low volume per channel. This is an indication of a very weak merchant value proposition. And finally, the integration options are very limited due to a lack of standards. 

So what can we expect? 

After the financial crisis there was the need to stabilize trading. Central Counterparty Clearing houses (CCP) were called upon to create stability and efficiency in the financial markets. Today, these still exist but there are many more initiatives that have an added value in POS. 

Several fintech companies are targeting the industry by providing integrated cash register solutions with payment capabilities. Some are industry-specific and have integrated client-facing functionalities. For example, a restaurant terminal that also offers a menu or a sports club token that is applied for purchasing goods. Also, further integration with inventory management, financial administration software integration is often possible. The next step is the inclusion of end-to-end eCommerce integration where the boundaries between in-shop experience and the on-line experience disappear. Winning merchants are more and more looking at these integrated models to remain competitive. 

Innovations and opportunities

On several domains within the POS services, we are about to experience innovations with significant impact. Bringing all transactions together (Credit card, Debit Card, Card not present, Wallets, etc.) is sort of a no-brainer, however still not broadly applied. 

Traditionally authentication occurs with PIN. The next big thing, besides digital identity, is facial recognition. Imagine doing your groceries and paying by looking at a 3D camera. The threshold of buying something will lower significantly. 

Once the digital identity is determined and accepted by different players, there are some opportunities ahead. Loyalty exchange programmes can be used across different merchants, accounting integration and spending pattern recognition can be applied. Inventory management, Tax payment integration & on-line experience integration are possible. All this, of course, taking GDPR guidelines and the level of security for authentication into consideration. 

What we see in the market today is some Financial Institutions gearing up to offer extended POS solutions to their clients. Bring Your Own Device (BYOD) is often applied there ,which means you can easily install software on an iPad and immediately use it. This makes it very accessible for merchants. Furthermore, FIs will get the opportunity to help merchants become successful, monitor their performance and cross-sell products. This is the next-generation merchant acquiring strategy.

Call for action

Financial institutions have many opportunities in helping, monitoring and cross-selling. If your client base consists of many merchants, you should analyse the opportunities and define a next- generation merchant acquiring strategy. 

Get in touch with us to explore the opportunities, define a roadmap and deliver the accompanying change. We have already assisted clients in market opportunity scans, define POS strategy & cross -selling strategy definition.