Banks find themselves at a crossroads in today's rapidly evolving payments landscape. The traditional dominance of banks in the merchant payment acceptance space is under significant threat, as agile fintech companies, ISVs, and SaaS platforms continue to capture market share. However, the narrative that banks are losing the battle is not the complete picture. Based on my experience working with major US banks, there is a path forward for banks to reclaim lost ground and redefine their role in the payment ecosystem.
Understanding the Current Landscape
The decline in banks' market share in merchant payment acceptance, especially among small and medium-sized businesses (SMBs), is well-documented. The key challenge here is the competition from Payment Service Providers (PSPs) and the growing influence of ISVs and SaaS platforms. These platforms have become the default choice for SMBs, primarily because they offer integrated payment solutions that are convenient and easy to use.
Banks face a series of challenges that inhibit their ability to compete effectively in this space
- Over-reliance on internal operation: Most large banks rely heavily on in-house operations, which can detract from their ability to focus on higher-value distribution efforts. This internal focus often leads to inefficiencies and a lack of agility in responding to market needs.
- Late investment to broader digital experiences: Banks have historically underinvested in e-commerce capabilities, resulting in products that are not competitive with those offered by PSPs and SaaS providers. This lack of investment extends to the broader digital experience, where banks struggle to match the seamless, user-friendly interfaces that customers have come to expect.
- Complex internal processes: The risk management and compliance focus of banks, while crucial, often makes them difficult partners for merchants. The complex processes within banks can be a significant barrier to innovation and quick decision-making, leading to missed opportunities.
- Lack of industry market vertical specialization: Merchant payments require a level of specialization that most banks find challenging to achieve, particularly when payment acceptance is just one out of many products to offer. This lack of focus dilutes the bank’s ability to deliver best-in-class payment solutions.
- Misalignment of culture: The integration of fintech acquisitions into traditional banking operations often presents challenges due to cultural clashes. The tech-driven, agile culture of fintechs can be difficult to reconcile with the more conservative, hierarchical structure of banks.
Despite these challenges, banks have unique strengths that, if leveraged correctly, can enable them to stage a comeback in the merchant payment acceptance space. Here is how:
- Position Payment Acceptance as Core to the Bank’s Value Proposition: Payment acceptance should not be viewed as a minor product offering but as a critical component of the bank’s overall transactional banking proposition. This requires a shift in mindset and a commitment to investing in the technology and resources necessary to compete effectively
- Leverage Trust and Referral channels as Distribution Networks: Banks are among the most trusted brands. This trust, combined with their extensive distribution networks, gives them a competitive advantage that fintechs and SaaS providers cannot easily replicate. By bundling payment acceptance with other banking services, banks can offer a "One Bank " solution that is highly attractive to SMBs
- Focus on Specific Industry Market Vertical: Most large banks are uniquely positioned to succeed in Enterprise verticals, particularly where Account-to-Account (A2A) payments, check services, and commercial card offerings are important. By developing a comprehensive dashboard for all transactions, generating relevant insights to address a significant capability gap in the market, and their right to win
- Innovate through Partnerships: While banks have struggled to innovate internally, partnerships with PSPs and fintechs offer a viable path forward. The most generic form of go-to-market plan is the Contractual Alliance or Revenue-Sharing Alliance, where the bank acts as the primary distributor and the partner provides the product and operations. This model allows banks to combine their strengths with their partners, creating a more competitive offering, and shorter time to market
- Enhance Digital Presence and Customer Engagement: A clear, attractive digital presence is essential in today’s digital-first world. Banks must invest in their digital marketing and customer journeys, ensuring that payment acceptance solutions are easy to find, understand, and use. This includes simplifying the path to information on their digital channels and enhancing the overall user experience
- Insights-driven decision-making: Banks must harness the power of transactional data generated through payment acceptance. By analyzing this data, banks can gain insights into customer behavior, identify trends, and personalize offerings to meet the needs of their clients. This data-driven approach can also enhance the customer experience and increase customer loyalty
- Sales Force Enablement & Measure Effectiveness: The success of any payment acceptance strategy depends heavily on the effectiveness of the bank’s sales-to-service model enablement for the salesforce. Banks should implement clear incentives and measurement frameworks to ensure that teams are focused on driving payment acceptance as a core component of their broader sales efforts
The idea that banks are inevitably losing the payment battle is not definitive. With the right strategy, banks can use their inherent strengths - such as brand trust, distribution capabilities, and customer relationships to regain market share & lead the industry forward. The crucial point is to consider payment acceptance as a strategic priority, invest in technology and partnerships, and align internal stakeholders around this vision.
The opportunities for banks in the payment acceptance space are significant. However, realizing them requires a clear strategy, focused execution, and a willingness to adapt to the evolving market landscape. As someone deeply involved in shaping these strategies for leading US banks, I foresee a prosperous future for banks that are ready to innovate and accept the challenge.
This perspective stems directly from my recent work with leading global banks and engaging in in-depth discussions with senior bank executives, where we have successfully navigated these challenges and positioned for sustained success. The time for banks to act is now. Those who seize this moment will undoubtedly lead the charge in the next wave of payment innovation.
What do you think? How can banks capitalize on these opportunities? I'd love to hear your thoughts in the comments below. Let's start a conversation about the future of payment acceptance for Banks.
