In a traditional set-up, these products and services are typically provided by different providers and, therefore, are not (or only with effort) interoperable. mPOS providers can pool data between the offerings and develop new and better products and services. For example, a highly automated risk-scoring process for merchant financing based on transactional data can allow for a faster credit granting process, compared to traditional Small and Medium-Sized Enterprise (SME) financing options.
Offering value-added services can also benefit mPOS providers by:
- Increasing the stickiness of merchants
- Allowing for product and service differentiation to mitigate pricing commoditization
- Cross-selling products to an existing merchant base
With this in mind, most mPOS providers, depending on their maturity and level of success, are transitioning from being pure payments players to becoming a full-SME solution provider. But, a successful transformation requires a diligent platform strategy. Players will need to decide whether to make, buy or partner to acquire the capabilities and technologies they need to offer the value-added services merchants demand. While less complex services such as inventory management software might be built in-house, other products may be best obtained through M&A or partnerships.
A blueprint for adoption across payments?
mPOS providers have enjoyed fast growth within the small and micro merchant segment, almost undisturbed by industry incumbents. And, free from the constraints of legacy systems, these providers have developed new merchant acceptance solutions that include feature-rich ecosystems centered around payments. In a market environment where fees from transaction processing come under pressure, a strategic focus on value-added services will allow providers to continue their high growth.
The one-stop SME solution being developed by mPOS providers is a model that may be a blueprint for traditional acquirers faced with similar challenges. But, it also highlights the market entry barriers in the micro and small merchant segment for traditional acquirers, and raises concerns that mPOS providers wanting to accompany high-growth merchants on their journey are increasingly targeting larger merchants too.
This article originally appeared in our #payments newsletter - volume 24.