Payment transactions, once one of the most important pillars of earnings for banks and savings banks are in a state of change. In today’s guest post, causes and backgrounds are analyzed using an example from the field of credit cards. for further clarification

PayPal is changing the market

PayPal is changing the market

If you are currently talking about payment transactions, the name “PayPal” occurs in every second sentence. Classic, especially lending, procedures, especially in internet-based payment transactions, have fallen significantly in recent years. This fact is clearly evident in the Internet Payment Transactions studies that have been carried out regularly since 1998. As early as 2000, the credit card was the third most used online payment method in Germany (after cash on delivery and transfer, before direct debit and other procedures).

In 2013 the purchase on account takes place, followed by direct debit, PayPal, advance payment, immediate transfer and only then comes the credit card. This development is also reflected in the commission income from banks and savings banks. There are no significant commission revenues for the five most important procedures.

Apart from the commission income of the retail banks, these shifts in usage behavior have an even greater impact on the credit card acquiring business model. Traditionally, the card acceptance merchant business was with banking companies.

As a rule, the companies only supply the trade with the necessary contracts for card acceptance. The actual operational processing of a transaction takes place separately via a network operator/payment service provider with which a trader has to conclude another contract. This separation between acquiring and network operation is currently very much in motion and the fronts are shifting for three reasons:

  1. Increasing complexity through new payment methods.
  2. Vertical integration – the boundaries between business models are blurring.
  3. Migration is offline to online – multichannel trading.

These reasons are examined in more detail below.

Increasing complexity through new payment methods


The study impressively shows how new payment methods have established themselves in online payment. The payment behavior in online games can serve as a proxy for the future use of payment methods by the so-called digital natives. These grew up playfully with the technologies known today in school/childhood.

Bigpoint, a leading global developer, and provider of online games is already showing a different payment behavior today. The majority of adolescents and young adults no longer use banks’ traditional payment methods. It is unlikely that this behavior will change significantly as adolescents get older.

With an increase in externally processed payment methods (prepayment, cash on delivery, etc., the merchant usually processes itself), the added value in payment transactions shifts more to the payment service provider (PSP). Payment service providers handle a variety of payment methods for merchants via a single interface. The more fragmented the payment mix becomes, the more important is the role of the service provider who consolidates the multitude of processes.

A credit card acquirer is only one of many payment providers and is therefore only perceived as a pure processor in the background (behind the payment service provider). The decline in the importance of credit cards in the payment mix is ​​further encouraging this development. The business model, therefore, faces even greater commoditization and price competition, while differentiation and service lie with the payment service provider.

Vertical integration – the boundaries between business models are blurring

Vertical integration - the boundaries between business models are blurring

In recent years, the business models of the payment service provider/network operator and the acquirer have come very close. Payment service providers, in particular, have acquired their own acquiring licenses or act as resellers of acquirers.

With many payment service providers who also handle the acquiring business, it is no longer transparent who the actual acquirer is in the background. Often, the acquirer is selected by the payment service provider at the transaction level, for example, according to the least cost routing or based on approval/rejection rates per country and merchant segment.

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