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Bridging the Gap Between Small Medium Enterprises and Payments Innovation

The retail market is so large and diverse that it both encourages and frustrates innovation at the merchant level.

Many new smart Point of Sales (POS) options have been introduced into that market in recent years, but merchant payment solution providers such as Merchant Banks, Acquirers, and Value-Added Resellers (VARs) struggle to meet merchant needs when they try to sell the same one-size-fits-all payment box to different types and size of small medium merchants. states that SMEs in Europe generate 66% of the retail sector’s value added and 70% of its employment. Running a shop is one of the most common types of a family business. Many more are engaged in other consumer-facing businesses such as hospitality and services. A European Commission Fact Sheet published in 2018 a #RevitaliseRetail Guide which “provides practical suggestions on how to help small retailers embrace technological change and attract consumers back to the high streets.”

The initiative is confirmed by data, PwC indicated in H1 2018, a net amount of 1,123 stores disappeared from Britain’s top 500 high streets, this reflects amongst other factors the consumer preference to shop online and increasingly eat, drink and entertained at home. states that SMEs in Europe generate 66% of the retail sector’s value added and 70% of its employment. Running a shop is one of the most common types of a family business.

These small businesses need innovation to be among the survivors. To be able to compete with e-comm and larger retailers, small brick and mortar stores need to make processes more efficient, re-think and improve the in-store customer experience and buying journey, but they don’t have the time and resources to experiment. That’s where the merchant payment solution channel must come into play.

A recent set of research in Retail, Food and Accommodation and Health and Beauty, conducted by PYMNTS in collaboration with AEVI, a provider of next-generation acquiring services, found that 87.4% of small merchants believe they need to innovate to stay competitive, 75% say innovation is necessary to drive sales, and 68% need it to enhance customer loyalty. The research shows merchant banks and acquirers have a challenge ahead to satisfy the new needs of merchants and that a one-size-fits-all approach is not enough. The merchant-servicing organisations have been ill-equipped to resolve these needs due to proprietary solutions, which AEVI’s CEO, Mike Camerling explains the solution to be “an open and vendor agnostic platform that give the flexibility to acquirers to tailor suites of apps, payment and devices to answer the specific needs of a merchant type”.

Complicated channels to the merchant

The payment industry, to outsiders, is quite complex, yet in Europe it used to be pretty straight forward:  a merchant that needed to accept card payment would usually go to his bank, or perhaps an alternative merchant acquirer, who would provide a limited selection of card payment terminals. The complexity came when you had to accept payment from both online and offline, as these were generally completely separated from one another.

Traditional payment terminal vendors were limited in their ability to bring innovation to the countertop because of the maze of certifications required by acquirers, which limited applications for fear they could adversely impact the core payment function.

Merchants, understandably, were reluctant to buy newer versions of such devices as they offered little in the way of additional benefit. Small, emerging businesses couldn’t justify the equipment, especially if functionality remained the same. After all, if it ain’t broke don’t fix it.

Merchants, understandably, were reluctant to buy newer versions of such devices as they offered little in the way of additional benefit.

No such constraints have held back ecommerce, with key players enticing consumers with a more satisfying experience than they could find in a physical store, and frictionless payment. According to McKinsey’s Global Payments 2018 report, “ Digital payments will double in volume over the next five years to represent approximately 29 percent of consumer POS payments, with in-app payments exceeding browser based e-commerce by 2021 (with POS “tap and pay” a distant third).”

paymentsNew era of innovation

That stagnant environment kept many small, typically one-person businesses from taking advantage of card-processing services. That was until small Fintech companies, such as iZettle and Square spotted the opportunity to simplify the provisioning process by aggregating card payments from individual merchants and providing card-swiping “dongles” that could convert a smartphone into a card-processing machine.

That simplicity opened up card processing to the smallest merchants, who had previously been locked out due to costs and the complexities of acquirer agreements and credit risk management policies. That demonstrated to venture capitalists the potential of a relative mass market for payment services, and the rush was on to fund clones and variants of these, which has spurred investment in innovation, but falls short on merchant-level services.

Clearly, physical stores need greater innovation so they can compete for consumer loyalty. With the arrival of cloud-based electronic POS (EPOS) applications, new channels have emerged to equip small and medium merchants with a whole new level of functionality. Independent software vendors (ISVs) provide tablet-based applications tailored to specific merchant verticals, with payments pre-integrated as part of the solution. That means that merchant priorities are shifting away from core payment functionality to embrace customer-facing apps that improve shopper satisfaction and business apps that improve productivity and profitability. Banks and acquirers necessarily must compete to provide next-generation payment solutions and move away from limited-function payment devices that compete primarily on costs.

Clearly, physical stores need greater innovation so they can compete for consumer loyalty.

Next-gen acquiring services

To succeed, merchant payment solution providers must evolve from the traditional single-purpose payment solution, to a robust and flexible point of interaction (POI) that improves the merchant’s business operations, integrates payments with other functions, and improves the consumer experience.

Traditional service providers can close the gap with upstart technology providers with open systems and the emergence of next-generation acquiring services that provide innovative, flexible, cost-effective and well-supported payment solutions and services. Legacy, closed environment payment terminals are giving way to an open model that builds on the Android open environment and provides an opportunity for acquirers and other service providers to bring tailored, cost-effective payment solutions to main street merchants.

Today’s merchant solution providers must be able to match merchant needs to the growing potential of apps, value added services, and the cloud. That means tapping into a marketplace of apps that have been vetted to coexist and integrate with payments. These apps must work together in an orchestrated fashion that adheres to merchant processes across multiple sites and devices.

To deliver on merchant needs for innovation, the merchant solution must be able to seamlessly share data, so that purchase, financing, payment and delivery options appear as one smooth process to the consumer. The apps must be intuitive and simple to use, given that small merchants don’t have time to experiment and must often train replacement staff.

Merchant level solution providers have a vital role to play in tailoring these new Point of Interaction solutions to individual merchant needs, and to help them adopt higher-level features and functions that will grow their businesses.

Merchant payment solution providers are best equipped to deliver on the promise of innovation to this very needy population of small merchants. They have the merchant-specific knowledge to understand those needs, and segment-specific knowledge to tailor the right mix of hardware and apps to serve the convenience store, hair salon, and other types of businesses. Today it may be a mix of payments, online ordering and marketing; tomorrow it may involve inventory management, payroll management and ecommerce.


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