With SUMUP, another payment acceptance provider is entering the business of issuing cards. What does this mean?
Following the merger of network operations/payment service providers and acquiring in recent years, we are currently seeing more and more indications of a further, completely new fusion of value creation in payment. Issuing, i.e. the issuing of cards, is becoming a further component of the acquiring business model in retail. This development may lead to new far-reaching turnovers, as we have already seen with the consolidation over the past 10 years. SumUp is just the latest addition to an impressive array of innovative payment solution providers in the retail industry.
These are facts that can already be seen today:
- Today, SumUp (provider of MPOS terminals, i.e. the mobile payment terminals known from taxis and SMEs (small/medium sized companies), in cooperation with Mastercard, announces that all SumUp merchants can now benefit from a Corporate MasterCard
- The rather unknown Start-Up company Vivawallet already offers 0 % payment fees, yes, you read correctly, payment acceptance free of charge, for SME merchants if they use the Vivawallet Corporate Card for purchases.
- PayPal has combined issuing with acquiring in the SME sector. Unlike in the USA where the debit card was for end customers, PayPal launched the product in Europe explicitly for SMEs
- Meanwhile the highly innovative and listed PSP Adyen is doing issuing
- Klarna has entered the card issuing business (so far only end customer business)
- Wirecard has always (OK, since the mid 2000s) had an issuing business in addition to the classic payment acceptance. But Wirecard had always played the issuing business differently: primarily prepaid
What’s happening right now? The attempt to classify and explain
- Is all this really just pure coincidence, that suddenly, the already innovative payment service providers for the retail sector are entering the issuing business and now SumUp as Europe’s leading MPOS provider in the SME sector? Or do the decision-makers on the acceptance side simply have nothing more to say about new innovations?
- Payment was/is a commodity and highly competitive – especially with regard to payment acceptance fees, a few basis points decide who wins a call for bids.
- With additional revenue potential via Interchange (in the corporate card sector, the Interchange world is still in order and lucratively high for card issuers), the acceptance service provider can open up a completely new, additional source of income per merchant. This revenue potential can then be used for cross-subsidization on the acceptance side, and in a fiercely competitive price war on the acceptance side, this cross-subsidization can make the difference between profit vs. loss of acceptance.
- SMEs in particular have traditionally had problems obtaining “real” corporate credit cards from their house banks. So, the offers of SumUp, PayPal, Adyen and Co fall on fertile ground in terms of demand from their customers.
- Just thinking out loud and very simply “back of an envelope” calculated: The small mobile phone accessories shop in the Frankfurt train station district buys its goods from China and so far, pays 100% of its procurement volume with Alipay or bank transfer. It has x % margin y % ops costs and z % purchase costs. Let’s leave “z”, i.e. the purchasing costs at about 50 %. If, theoretically, the payment service provider uses such a corporate card, he earns e.g. 165 bps Interchange plus, if applicable, FX/foreign currency fees from the complete purchase via the corporate card of the SME. Converted to the complete turnover, this means that for each Euro sold, the acquirer “earns” via the purchase (Interchange revenue) 82.5 basis points, i.e. 165 divided by 2. If the actual payment costs are then at debit card level, e.g. 20 bps fees plus 10 bps processing, the acquirer/PSP can offer payment for 0 and still earns 50 bps! If then foreign currency earnings or foreign assignment fee is added, it will be a very nice business for the payment service provider!
If you think about it strategically: What consequences does this development have for the payment-market and the existing games on the market?
- How are payment costs developing in the trading? Does this lead to zero-payment like e.g. Vivawallet?
- What influence does this development have on the SME’s house bank, which traditionally consists of the triumvirate Sparkassen-Finanzgruppe, VR-Bankgruppe and Postbank? Especially since it is precisely these banks in the SME sector that offer their own payment acceptance solutions via their own subsidiaries. How competitive will these offers be in the future?
- How is the role of procurement developing? Presumably these developments are limited to the SME segment for the time being and are not conceivable in larger purchasing organizations such as Aldi, Lidl and Co. Their suppliers would probably thank them if they were soon to be paid only via (expensive) card acceptance.
- What is the future role of the remaining network operators/PSPs who do not even have an acquiring business?
- What is the future role of the acquirers “sold away” from the banking groups that do not have an issuing business today, especially since obtaining an issuing license is much more complex and costly than a comparable acquiring license?
- What role does this development play for Mastercard and VISA in the B2B payment? Can they gain market share in the SME sector from the invoice/remittance based B2B payment of the Swift banks?
- Will the big B2B platforms/marketplaces like Ariba/Coupa/Amazon B2B/Tradeshift jump on the train and offer cards as well?
- What is the role and market share for specialized B2B corporate/travelcard providers such as Amex/Airplus when SMEs use the corporate cards of SumUp, Paypal and Co, e.g. for travel booking?
- Is such a card only the gateway to a broader range of credit offers from completely new providers? PayPal, Amazon, Klarna and Co have long since offered B2B credit lines for their small corporate customers.
- Will the network operator/acquirer/MPos provider even become the “new” house bank of the merchant in the medium term?
What do other Payment & Banking authors think about it?
Kilian Thalhammer
The topic of “issuing” and “acquiring” as a “combination” must be viewed in a differentiated manner from the perspective of the payment provider. On the one hand, it is simply a logical extension. Most providers have a “Principal membership” and thus the license from Visa/MC “anyway”. At the same time (even if some issuing/acquiring specialists don’t want to hear it) the worlds/products are not so far apart. If you are in acquiring, you will be able to provide issuing (whether you get it sold is another question). The first obvious link is in the B2B area – here the target groups (traders) overlap and therefore obvious synergies arise (payout to a card, not an account – possibility to grant loans etc.). It becomes more complex in the B2C context – there the synergies are “manageable” and only with the appropriate volume and “On – Us” fantasies can they be lifted (on the way to one’s own payment method). Only a few can really seriously achieve this.
The fact that companies from the B2C context (Klarna, PayPal) also issue cards can be explained by a different motivation. It extends the customer journey and the reach. This motivation should not be confused with approaches of B2B players like SumUp, Adyen or Wirecard.
All in all – in the B2B context, especially in the SME sector, it makes sense to have appropriate sales channels – in B2C, issuing remains a difficult business.
Marcus W. Mosen
The ever increasing number of smaller merchants with a desire for payment acceptance offers digital payment providers new revenue potential – and with the issuing of corporate debit cards, new sources for generating data. I dealt with the value of this payment data in 2014 in my article “Payment Services Provider as a Source of Big Data” (in: Smart Big Data Management, edited Keuper/Schmidt/Schomann, Logos Verlag, 2014). In 2020 these thoughts are now reality: PayPal, Stripe, Adyen and now SumUp are doing it – a (perspective) 360-degree view of financial services for the smaller merchants – in front and behind the POS, as well as in e-commerce.
“What we are now seeing at SumUp is not just a simple issuing of debit cards. It is another building block on the way to a holistic supply of merchants with everything that has to do with digital payment or financial services, including the “exploitation” of all data generated in this context. It is used for analysis, risk management and innovation. Large data sets are also a prerequisite for the sensible use of AI systems. This is a smart move!”
It can also be assumed that no complex legacy systems are used here. And this is another clear message: everything that has to do with digital payment or digital banking is now being implemented by agile Fintech companies as a service platform in the cloud instead of in “outdated” IT data center structures of the “bad banks”. In a next step we will see how the platforms of SAAS cash register systems à la Orderbird, TillHub or international players like Toast or Lightspeed/Gastrofix are integrated into such 360-degree services. For more than six years we have been talking about the smart POS in the classic acquiring retailer business. Little has been implemented there in scalable approaches so far. However, we are now encountering it more and more – and the international card organizations are once again involved or helping to make it possible.
André M. Bajorat
When I hear this, I immediately think of the term “closed loop” or in German die geschlossene “Kette”. What I mean by this is that SumUp and other players are thinking about issuing and acquiring in a new way, keeping the money in the system and thus keeping the relationship to their customers closer. In addition, the card providers get to know in this way the missing data side of their customer relationship (spending). (The fact that SumUp already knows this page through the puzzle piece of the connected accounting system (debitoor) is a side note), that the next building block – dealer financing – is already defined, I think everyone knows. Clever move.
