Published by Wanda Rich
Posted on January 18, 2022
6 min readLast updated: January 28, 2026
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Merchant acquirers face challenges from rising ecommerce costs and interchange fees. SMEs are key to growth, but need personalized pricing to thrive.
By Viktorija Raizina, Managing Director, xpate Links
Over the past decade, payment technology has experienced an almost unprecedented hyper-acceleration. Huge leaps forward in critical areas such as ecommerce, as well as a COVID-driven change to consumer behaviours and an almost exponential growth in new fintech’s has changed the landscape for businesses across the payments sphere, including merchant acquirers
Economies across the globe have redefined their ways of working across the past two years, with the Covid crisis forcing businesses to adapt to store closures, rising home deliveries and widespread moves to ecommerce and digital payments. In fact, this shift has been so large that more than 65% of acquiring growth is forecast to come from ecommerce channels alone this year, with SMEs entering the digital space being one of the main contributing factors to the explosion.
This trend builds on the huge effect that SMEs have already had on the acquiring space, with the global management consultancy McKinsey reporting that SMEs have accounted for nearly 75% of all new revenue growth in the merchant acquiring arena over the past 36 months.
The widespread growth has led to the formation of a highly competitive marketplace for acquirers, who are all striving to capture these newly-digital SMEs, all while under increasing pressures from shifting regulations and compliance, pricing competition and the saturated marketplace. Indeed, the wide variety of choice for merchants looking for an acquirer has enabled them to be choosy about who they work with, with many taking their time to evaluate acquirers to source the best rates, value-added services and customer service.
Pricing pressures drive up costs for merchants
So what are the main pressure points acquirers need to solve in order to gain the edge in an increasingly competitive marketplace? Expanding payment choice and the shift to higher-cost ecommerce channels will drive up merchants’ payment acceptance costs by between 6-10% to an estimated $15 billion by 2023, according to McKinsey.
Online merchants selling globally face lower approval rates, higher decline rates, higher cross-border and foreign currency fees, and greater fraud risk, all of which add to the cost of accepting payments. However, increasing ecommerce volumes are just one piece in the puzzle.
Since ecommerce payment acceptance is more expensive than traditional physical point of sale (POS) acceptance, at the start of the pandemic, payment schemes and many governments around the world capped interchange fees for online payments to help SME merchants weather the storm. Many acquirers had to overhaul their pricing in response. But now a new storm is brewing, as merchants in the UK and EU face the threat of higher interchange fees for card-not-present (CNP) transactions, planned for from October 2021.
Following the UK’s withdrawal from the EU, the payment schemes Visa and Mastercard announced hikes in interchange fees applicable to CNP transactions between the UK and European Economic Area (EEA), with these transactions classed as international transactions. According to one estimate from CMSPI, this hike could cost European merchants around €200 million, and could devastate smaller online merchants without the resources to absorb a rise in fees.
Given that merchants in high-risk sectors are charged higher fees from acquirers, due to the increased risks of fraud and chargebacks, the dangers of further fee rises are obvious. Smaller merchants don’t have the bargaining power of their larger competitors to lower acceptance costs, and could face a threat to their survival.
But at the same time, acquirers are under pressure to deliver even more value to merchants. Those that can offer merchants highly personalised pricing according to their circumstances will be the ones to win new customers. Even just a few hundredths of a percent in fees can make all the difference to a small merchant – and their choice of acquirer.
Size matters? Tailored customer service matters even more
Acquirer consolidation over the past decade has created a top tier of pan-regional giants with vast coverage and breadth of services. In fact, almost 100 merchant acquiring and processing mergers and acquisitions took place in 2020 alone, clear evidence of how fast-moving e-commerce trends are driving urgent competitive jostling in the sector.
But when enlarged acquirers gain in size, they also get lumbered with several duplicated systems and solutions that cannibalise each other, and legacy payment gateways and core systems which can’t be easily adapted for every market or merchant. In fact, some big acquirers have as many as 2-3 different regional payment gateways or platforms with different payment methods, services, reporting options, compliance and complexity levels for acquirers to manage and for merchants to implement. Sometimes, too much choice can be a bad thing, especially when it adds to cost overheads, and impedes the ability to deliver tailored services.
While enlarged acquiring entities can leverage economies of scale, and be hard-nosed about pricing, they lack the ability to offer the tailored, customer-centric service that merchants desire. No merchant wants to be seen as just another client, treated with a one-size-fits-all attitude by their acquirer.
Modern acquiring is more than just hardware
Value-added services are generating a larger share of acquiring revenues, and acquirers are now on a quest to sell feature-rich, data-driven value-added services to merchants as competitive must-haves. Merchants are willing to pay more for positive results, such as improved authorisation rates, better customer payments experience, and increased checkout conversions. For SMEs wanting to scale across borders, these data-driven insights are gold mines.
Unified payment gateways are also quickly becoming top of the wish-lists for acquirers and their merchant clients. Such gateways deliver all the things merchants need – a simplified, faster, and smoother buying experience for customers on all devices, localised currency and language support, plug-and-play and API integrations, and deep data analytics functionality to aid marketing strategies and checkout conversions. All of these elements give merchants the 360-degree overview of customer behaviour they need to fine-tune their businesses.
xpate’s Links is a white-label payment gateway specifically designed to remove all merchant acquiring pain points, and takes care of the most common operational burdens for acquirers, like end-to-end fraud control, dispute management, and data reporting. What’s more, Links offers customisation for individual acquirers to scale and tailor services to merchants. Onboarding processes, like AML settings, can also be implemented, and geared for specific markets or sanctioned countries, so that regulatory compliance is assured.
For any modern acquirer, implementing a cutting edge unified payment gateway should be an absolute priority to support future growth. These systems offer a raft of benefits, from uniquely tailored value-added services to advanced data analytics and automated process management, helping acquirers to access and onboard more revenue-generating merchants faster than ever before.
The latest and greatest of these platform-led services enable businesses to evolve with changing market conditions, providing the right services at the right time and scale to support SMEs to quickly scale. Whether it’s a new raft of services or a regional expansion, acquirers will be able to support their customers more effectively than ever, enhancing merchant retention and creating incredible value for both their business and their customers.
The article discusses how merchant acquirers can help SMEs thrive amidst ecommerce growth and rising interchange fees.
Interchange fees for card-not-present transactions are rising, impacting smaller merchants' ability to absorb costs.
SMEs have contributed 75% of new revenue growth in the merchant acquiring sector over the past 36 months.
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