I used to work at a large payments processor focussed on POS card transactions and ACH payments. Around 2000 we started adding e-commerce propositions, typicaly low volume high investment activity at that time. At first we missed success due to our focus on security with SET, the protocol from the brands based on a PKI infrastructure. PKI proved to be userunfriendly and complex.

We moved to new platforms and attracted banks to offer our services to the market. I felt we were competing with the upcomming e-commerce payment service providers. To be honest our clients the banks and my organization couldn´t follow the speed that the more agile PSP could develop. Also banks where afraid to offer an internet solution they hardly understood, the complexity and the effort to connect merchants to the platform.

Main reasons for not achieving success where, the required amount of functionality and continuous speed of development, the lack of focus at the salesorganizations from our customers the banks, and as a result the reduced volumes achieved. 

At the end we closed the services down in 2004 and our processor remained happy with its focus on POS card volumes that kept steadily rising at 8% a year without extra effort.

The PSP´s went on and attracted up to tens of thousand of merchants. The e-commerce volumes reached huge growth while maintaining high margins. Now e-commerce is 15% of total retail sales.

At that time I did not view the PSP´s as payment processor similar to our processor services. Wrong I whas! Sure they didn´t need to offer 99.999% availability at low costs, comply with regulations as we did and surely had more effective and direct sales channels. But what a success they achieved, what a profitable business they operate and what a scale of operations is reached often offering worldwide services to multiple specific marketsegments.

Several PSP´s have been valuated at 100´s of millions of Euro´s in acquisitions.

Who will be the payment processor of the future?

Hard to tell, both the traditional payment processor and the PSP have stopped beeing innovative. They still focus on a single channel and miss the convergence of channels that is taking place in retail. Both have legacy systems and operations hard to change or only at huge costs and risk.

The PSP perhaps has best cards in hand. They still directly have the merchant in view as their customer where the regular payment processor works for financial institutions and only has indirect marketcontacts. PSP´s are used in operating multiple interfaces at reasonable effort, this is not the case at traditional processors. More importantly PSP´s offer added value services like reconciliation, fraud screening, e-wallet solutions and a broad range of payment methods.

So more customer centric and highly valued as they are I would suggest PSP´s to have a look at the physical retail POS environment as well and offer a multi channel solution to the retailer.

A great start for any payment processor would be to offer every e-tailer a mobile internet version, disclose the suitable payments methods and start innovating. Mobile internet will also be used to order services or products without a direct payment, payment could be performed at the pick up point, perhaps the physical shop. So a new playing field will emerge as mobile will bring the channels together and the processors cannot wait any longer. Most important is to think in terms of service providing to the merchant and redevelop services around this fact.

The payment processor of the future will have to walk some extra miles. Help the merchant increase his turnover by offering multi channel acceptance, reporting and added value services. Design together with the merchant a smart set of payment options for this channels that support sales while reducing costs.

Payment processor and acquirers could also have an important role in providing the merchants with knowledge and contracts for important services like Foursquare, Living Social and the likes that help merchants to distinguish themselves and attract customers.  

If anyone can see the next generation payment processors I would be very interested.