European Merchant Acquiring and Transaction Processing
Introduction
European Merchant Acquiring and Transaction Processing provides valuable insight into each of these complex topics. In-depth analysis of the processing value chain and the impact of SEPA and interchange regulation are followed by the results of Datamonitor's survey of European merchants, which highlights the key acceptance and acquiring trends across the region.
Scope
*In-depth coverage of acquiring and processing in Belgium, France, Germany, Italy, Netherlands, Spain, Turkey, and the UK
*Discusses the key trends in European processing, as well as the impact of SEPA and interchange regulation on the future landscape
*Output from Datamonitor's European Merchant Survey highlights the key trends in payment acceptance and acquiring, including acquirer market shares
*Examines merchant views on their acquirer, as well as how to encourage card payments, at the market and regional level
Highlights
Payment cards are the second most accepted payment form across the region, after cash. In terms of increasing card payments, merchants suggest that discounts on card payments and improved card loyalty programs are key.
The region has witnessed a breakdown of the traditional processing model, with interbank processors giving way to third party processors. Acquirers across the region are outsourcing functions such as data processing, customer service, terminal maintenance and fraud operation
Processing is a scale activity. Low margins have contributed to a consolidation of the processing market across the region. The biggest mergers and acquisitions have been between Interpay and Equens (the Netherlands), GZS and First Data (Germany), and SIA and SSB (Italy).
Reasons to Purchase
*Understand how the payment card market is evolving in your market, giving valuable insight and competitive edge
*Discover the likely outcome of SEPA implementation and a possible reduced level of domestic interchange on the payment industry
*Learn how to encourage more card payments in your market
Overview 1
Catalyst 1
Summary 1
Executive Summary 2
Merchant acquiring and transaction processing within Europe - key findings 3
Belgium - key findings 3
France - key findings 4
Germany - key findings 4
Italy - key findings 5
The Netherlands - key findings 5
Spain - key findings 6
Turkey - key findings 6
UK - key findings 7
Table of Contents 8
Table of figures 9
Table of tables 10
Introduction to Merchant Acquiring and Transaction Processing 11
The term 'processing' refers to a variety of activities in the payment process 11
The payment process can involve a sizeable chain of participants 11
The cardholder 11
The issuer 11
The merchant 11
The acquirer 11
The transaction processor 11
The scheme 11
The payment service provider 12
The term 'processing' refers to a variety of activities carried out by third parties 12
The merchant acquisition process involves varying numbers of players 13
The transactional information process involves data flowing from the merchant acquirer to the card issuer 13
Costs are deducted throughout the transactional fund process 15
The MSC is the fee paid by the merchant to the merchant acquirer 15
The interchange fee is paid by the merchant acquirer to the issuer 15
Some issuers work on a closed loop basis 17
The processing value chain includes all activities necessary for card payments to occur 17
In order to avoid confusion, it is important to define the processing value chain 17
A European bank divides the value chain into policy and operational functions 18
The value chain is replicated on the issuing and acquiring sides 19
European banks want to retain the relationship with the customer 20
In the US, the value chain is less in the control of the banks 21
The breakdown of traditional processing model is leading to a shift of power in some markets 22
Acquirers tend to outsource data processing activities 22
Issuers tend to outsource a wider range of activities 23
The processing side has consolidated more than the acquiring side 23
Over time, the European value chain could start to emulate the American model 24
Merchant Acquiring and Transaction Processing within Europe 25
The European market has been experiencing steady growth 25
Pay now cards are prevalent in Europe 26
Pay later cards 27
The UK is the biggest payment card market in Europe 28
Card penetration is also highest in the UK 29
The acquiring landscape is well developed throughout the region 31
The acceptance infrastructure has steadily expanded 31
Cash continues to be the most commonly accepted payment method 33
Lack of demand and small business size are two major reasons why cards are not accepted by more merchants 34
Minimum transaction values for card payments are fairly common on average 35
Charges for MasterCard usage are imposed by around 2.9% of respondents 36
Discounts on payments and loyalty programs are the key to encouraging card payments 37
Barclays is the leading acquirer in the aggregate market 38
Merchants are typically satisfied with their acquiring services overall 39
SEPA presents both challenges and opportunities to market players 40
Processors plan to take advantage of the new structure 42
Most issuers are not concerned by a potential fall in revenue from international transactions 42
Domestic schemes are likely to survive for the moment 42
The possible reduction of the multilateral interchange fee could see issuer revenues fall in certain markets 43
Merchants want the components of interchange to be unbundled and reflect costs more accurately 43
Merchants argue that the high costs of interchange are to detriment of consumers, as they are forced to pass the charges on in the form of higher retail prices 43
The industry argues that the current setup balances the cost of the industry over those who benefit 44
Levels of interchange and MSC have already been subject to domestic regulation in many markets - the general consensus is they are set to fall further 44
Domestic regulators are pushing to make interchange a more accurate reflection of costs, possibly reducing them to as low as 0.04% 45
Cuts in interchange will see costs cut and revenue recouped elsewhere, leading to a fall in consumer welfare 46
A reduction of interchange in Australia gives an indication of the results of a similar cut in Europe 46
Issuers face two options in the face of falling levels of interchange 50
Option one: fight the reduction in interchange 50
Option two: rethink pricing strategies in order to cope with a reduction in interchange 51
Belgium 52
The Belgian market was worth €59.8 billion in 2006 52
Pay now cards are dominant in Belgium 53
Pay later cards are less important in Belgium 54
The Belgian cards market is forecast to grow at a CAGR of 5.4% to 2011 55
Banksys is central to the Belgian processing landscape 56
Banksys dominates processing in Belgium 56
ATOS Origin also acquired BankCard Company, a major merchant acquirer 56
The acquiring landscape is dominated by Banksys 57
There is one POS terminal for every 90 people in Belgium 57
Levels of acceptance in the Belgian card market 58
Lack of demand, and expense are two major reasons that cards are not accepted by more merchants 58
Minimum transaction values for card payments are relatively rare in Belgium 59
The application of minimum transaction thresholds for cards is stronger in certain sectors 60
Charges for credit card usage are imposed by around 2.5% merchants in Belgium 61
Increasing security and efficiency are the key to encouraging card payments 62
Banksys is the dominant acquirer in Belgium 63
Belgian merchants are typically satisfied with their acquiring services 64
France 66
The French market was worth €334 billion in 2006 66
Pay now cards are less important in France 67
Pay later cards dominate the French market 68
The French cards market is forecast to grow at a CAGR of 7.1% to 2011 69
The processing landscape is governed by Cartes Bancaires 70
Processing is typically kept in-house 71
The French acquiring landscape is dominated by Crédit Agricole 72
There is one POS for every 55 people in France 72
Levels of acceptance in the French card market 73
Lack of demand and small business size are two major reasons why cards are not accepted by more merchants 73
Minimum transaction values for card payments are relatively common in France 74
Minimum transaction value thresholds for payments are common for around a quarter of card payments 75
Charges for debit card usage are imposed by around 1.8% of respondents in France 76
Increasing security and efficiency are the keys to encouraging card payments 77
Merchant acquiring is controlled by Cartes Bancaires 78
Crédit Agricole is the dominant acquirer in France 79
French merchants are typically satisfied with their acquiring services 80
Germany 82
The German market was worth €475 billion in 2006 82
Pay now cards are dominant in Germany 83
Pay later cards are relatively rare in Germany 84
The German cards market is forecast to grow at a CAGR of 4.7% to 2011 85
The German processing landscape is dominated by First Data and ATOS 86
Acquiring in Germany is dominated by Volksbank 86
There is one POS for every 142 people in Germany 87
Levels of acceptance in the German card market 87
Expense and small business size are two major reasons why cards are not accepted by more merchants 88
Minimum transaction value thresholds for payments are fairly uncommon in Germany 89
The application of minimum transaction thresholds for cards is stronger in certain sectors 89
Charges for credit card usage are imposed by around 2.5% of merchants in Germany 91
Increasing efficiency and security are key to encouraging card payments 92
Volksbank is the dominant acquirer in Germany 93
The large majority of German merchants are satisfied with their acquiring services 94
Italy 96
The Italian market was worth €176 billion in 2006 96
Pay now cards are dominant in Italy 97
Pay later cards are less important in Italy 98
The Italian cards market is forecast to grow at a CAGR of 7.3% to 2011 99
Acquirers typically outsource processing to SIA-SSB 100
Acquiring in Italy is dominated by Banca Popolare 102
There is one POS terminal for every 52 people in Italy 102
Levels of acceptance in the Italian card market 102
Business size and expense are two major reasons why cards are not accepted by more merchants 103
Minimum transaction values for card payments are relatively rare in Italy 104
Charges for credit card usage are imposed by around 1.3% of merchants in Italy 105
Offering discounts and improving security are key to encouraging card payments 106
Banca Popolare is the dominant acquirer in Italy 107
Italian merchants are typically satisfied with their acquiring services 108
The Netherlands 110
The Dutch market was worth €138.9 billion in 2006 110
Pay now cards are dominant in the Netherlands 111
Pay later cards are very uncommon in the Netherlands 112
The Dutch cards market is forecast to grow at a CAGR of 4.3% to 2011 113
Processing in the Netherlands is dominated by Equens 114
Acquiring in the Netherlands is dominated by Interpay 114
Infrastructure 115
Levels of acceptance in the Dutch card market 115
Lack of demand and expense are two major reasons why cards are not accepted by more merchants 116
Minimum transaction value thresholds for payments are fairly uncommon in the Netherlands 117
The application of minimum transaction thresholds for cards is stronger in certain sectors 118
Charges for credit card usage are imposed by around 5.5% of respondents 119
Decreasing the cost of using cards and increasing security are key to encouraging card payments 120
Interpay is the dominant acquirer in the Netherlands 121
Dutch merchants are typically satisfied with their acquiring services 122
Spain 124
The Spanish market was worth €204 billion in 2006 124
Pay now cards are common in Spain 125
Pay later cards are less common in Spain 126
The Spanish market is forecast to grow at a CAGR of 8% to 2011 127
There are three major interbank associations in Spain 128
Acquiring in Spain is dominated by BBVA 129
There is one POS for every 34 people in Spain 130
Lack of demand and expense are two major reasons why cards are not accepted by more merchants 131
Minimum transaction values for certain card payments are widespread in Spain 132
The application of minimum transaction thresholds for cards is stronger in certain sectors 133
Charges for credit card usage are imposed by only 0.5% of merchants in Spain 134
Discounts on card payments and loyalty programs are the key to encouraging card payments 135
BBVA is the dominant acquirer in Spain 136
Spanish merchants are typically satisfied with their acquiring services 137
Turkey 139
The Turkish market was worth €115.7 billion in 2006 139
Pay now cards in are just in the majority in Turkey 140
Pay later cards account for just under half of all cards in issue in Turkey 141
The Turkish cards market is forecast to grow at a CAGR of 17.9% to 2011 142
The processing landscape is under the control of BKM 143
Acquiring is dominated by Isbank 144
There is one POS for every 55 people in Turkey 144
Levels of acceptance in the Turkish card market 145
Lack of demand and small business size are two major reasons why cards are not accepted by more merchants 146
Minimum transaction value thresholds for payments are uncommon in Turkey 147
The application of minimum transaction thresholds for cards is stronger in certain sectors 148
Charges for credit card usage are imposed by around 0.7% of merchants in Turkey 149
Loyalty programs and greater promotion are key to encouraging card payments 150
Isbank is the dominant acquirer in Turkey 151
Turkish merchants are typically satisfied with their acquiring services 152
UK 154
The UK market was worth €749 billion in 2006 154
Pay now cards are prevalent in the UK 155
Pay later cards are slightly less common in the UK 156
The UK cards market is forecast to grow at a CAGR of 6.6% to 2011 157
Banks in the UK tend to outsource most non-core activities 158
Acquiring in the UK is dominated by Barclays 159
There is one POS for every 58 people in the UK 159
Levels of acceptance in the UK card market 160
Lack of demand and small business size are two major reasons why cards are not accepted by more merchants 161
Minimum transaction value thresholds are quite common for card payments in the UK 162
The application of minimum transaction thresholds for cards is stronger in certain sectors 163
Charges for credit card usage are imposed by around 8.5% merchants in UK 164
Introducing loyalty programs and decreasing card usage are key to encouraging card payments 165
UK merchants are typically satisfied with their acquiring services 167
Appendix 169
Supplementary data 169
Definitions 170
AAGR 170
APACS 170
Average transaction value 171
Balances outstanding 171
Bank of England base rate 171
CAGR 171
Charge card 171
Credit card 171
CVV 171
Debit card 171
EMV 172
Fraudulent use of card details (card-not-present fraud), also known as fraud on phone, mail order or internet transactions 172
Interchange 172
Non-standard 172
OFT 172
Methodology 172
Primary research 172
Secondary research 173
Further reading 174
Ask the analyst 175
Datamonitor consulting 175
Disclaimer 175
List of Tables
Table 1: Merchant Service Charges across eight European markets, 2004-2008 44
Table 2: Proportion of cards with minimum transaction spend by sector, Belgium, 2006 61
Table 3: Proportion of cards with minimum transaction spend, by sector, France, 2006 76
Table 4: Proportion of cards with minimum transaction spend, by sector, Germany, 2006 91
Table 5: Proportion of cards with minimum transaction spend, by sector, Netherlands, 2006 119
Table 6: Proportion of cards with minimum transaction spend, by sector, Spain, 2006 134
Table 7: Proportion of cards with minimum transaction spend, by sector, Turkey, 2006 149
Table 8: Proportion of cards with minimum transaction spend, by sector, UK, 2006 164
Table 9: Number of payment cards in eight European markets 169
Table 10: Number of transactions on payment cards in eight European markets 169
Table 11: Value of transactions on payment cards in eight European markets 170
Table 12: Number of POS terminals in eight European markets 170
Table 13: Current relevant Datamonitor publications, 2008 174
Table 14: Future relevant Datamonitor publications, 2008 175
List of Figures
Figure 1: Issuers often outsource non-core activities to processors 13
Figure 2: The transactional information process, 2008 14
Figure 3: Card issuers, processors and acquirers all take their share of the MSC 17
Figure 4: Value is added to the chain at several points throughout the payment process 19
Figure 5: The value chain is replicated on the issuing and acquiring side 20
Figure 6: In the US, the value chain has disintegrated into several separate parts 22
Figure 7: The value of transactions in the markets measured has grown steadily, 2002-2006 26
Figure 8: The aggregate pay now market has seen healthy growth, 2002-2006 27
Figure 9: The aggregate pay later market has seen healthy growth, 2002-2006 28
Figure 10: In terms of transaction value, the UK has the largest market for payment cards 29
Figure 11: The UK has the highest payment card penetration at 2.8 cards per person 30
Figure 12: The aggregate payment market is forecast to slow over the following four years 31
Figure 13: The number of POS terminals in the aggregate market has increased steadily between 2002 and 2006. 32
Figure 14: Germany has the highest population per POS terminal 33
Figure 15: Cash is the most commonly accepted payment type, 2006 34
Figure 16: Lack of customer demand and small business size are two major reasons why merchants do not accept cards 35
Figure 17: Minimum transaction values are most commonly imposed on credit card transactions, 2006 36
Figure 18: On average MasterCard credit cards most frequently attract charges, 2006 37
Figure 19: Discounts on card payments are seen as a key way to encourage card use 38
Figure 20: Barclays is the leading acquirer in Europe 39
Figure 21: Merchants are typically very satisfied with the service they receive from their acquirers 40
Figure 22: The interchange fees levied by Australian card schemes, 2004 48
Figure 23: Australian issuers increased annual fees in response to a cut in interchange, 2002 & 2003 50
Figure 24: The Belgian market has grown at a CAGR of 8.5% from 2002 to 2006 53
Figure 25: The pay now market in Belgium has seen healthy growth in the 2002 to 2006 period 54
Figure 26: Growth in the Belgian pay later market has been much more subdued, 2002-2006 55
Figure 27: The rate of growth in the Belgian cards market is expected to slow, 2002-2011 56
Figure 28: The number of POS terminals in Belgium has fallen, 2002-2006 57
Figure 29: Cash is still the most commonly accepted payment type in Belgium, 2006 58
Figure 30: Lack of customer demand and expense are two major reasons why merchants do not accept cards in Belgium 59
Figure 31: Minimum transaction values are most commonly imposed on credit card transactions, Belgium, 2006 60
Figure 32: Visa credit cards most frequently attract charges in Belgium, 2006 62
Figure 33: Increasing security is seen as a key way to encourage card use, Belgium, 2006 63
Figure 34: Banksys is the prevalent merchant acquirer in Belgium 64
Figure 35: Belgian Acquirers are typically satisfied with the service they receive from merchant acquirers 65
Figure 36: The French market has grown at a CAGR of 8.6% from 2002 to 2006 67
Figure 37: The pay now market in France has seen healthy growth in the 2002 to 2006 period 68
Figure 38: The French pay later market has grown at a similar rate to the pay now market, 2002-2006 69
Figure 39: The rate of growth in the French cards market is expected to slow, 2002-2011 70
Figure 40: The table of figures is an optional section and can be removed 71
Figure 41: The number of POS terminals in France has increased steadily between 2002 and 2006. 72
Figure 42: Cheques are the most commonly accepted payment type in France, 2006 73
Figure 43: Lack of customer demand and small business size are two major reasons why merchants do not accept cards in France 74
Figure 44: Minimum transaction values are most commonly imposed on debit card transactions, France, 2006 75
Figure 45: Visa credit cards most frequently attract charges in France, 2006 77
Figure 46: Increasing security is seen as a key way to encourage card use, France, 2006 78
Figure 47: Credit Agricole is the prevalent merchant acquirer in France 80
Figure 48: French acquirers are typically very satisfied with the service they receive from merchant acquirers 81
Figure 49: The German market has grown at a CAGR of 8.7% from 2002 to 2006 83
Figure 50: The pay now market in Germany has seen healthy growth in the 2002 to 2006 period 84
Figure 51: The pay later market in Germany has seen healthy growth in the 2002 to 2006 period 85
Figure 52: The rate of growth in the German cards market is expected to slow, 2002-2011 86
Figure 53: The number of POS terminals in Germany has increased steadily between 2002 and 2006. 87
Figure 54: Cash is still the most commonly accepted payment type in Germany, 2006 88
Figure 55: Expense and business size are two major reasons why merchants do not accept cards in Germany 89
Figure 56: Minimum transaction values are most commonly imposed on credit card transactions, Germany, 2006 90
Figure 57: MasterCard credit cards most frequently attract charges in Germany, 2006 92
Figure 58: Increasing efficiency is seen as a key way to encourage card use, Germany, 2006 93
Figure 59: Volksbank is the prevalent merchant acquirer in Germany, 2006 94
Figure 60: The large majority of German merchants are satisfied with their acquiring services 95
Figure 61: The Italian market has grown at a CAGR of 4% from 2002 to 2006 97
Figure 62: The pay now market in Italy has seen healthy growth in the 2002 to 2006 period 98
Figure 63: The pay later market in Italy has seen healthy growth in the 2002 to 2006 period 99
Figure 64: The rate of growth in the Italian cards market is expected to accelerate, 2002-2011 100
Figure 65: SIA-SSB provides a full range of outsourcing to the Italian market 101
Figure 66: The number of POS terminals in Italy has increased significantly between 2002 and 2006. 102
Figure 67: Cash is still the most commonly accepted payment type in Italy, 2006 103
Figure 68: Lack of customer demand and not being accepted by an acquirer are two major reasons why merchants do not accept cards in Italy 104
Figure 69: Minimum transaction values are most commonly imposed on debit card transactions, Italy, 2006 105
Figure 70: Domestic debit cards most frequently attract charges in Italy, 2006 106
Figure 71: Offering discounts on card purchases is seen as a key way to encourage card use, Italy, 2006 107
Figure 72: Banca Popolare is the prevalent merchant acquirer in Italy, 2006 108
Figure 73: Italian merchants are typically satisfied with their acquiring services 109
Figure 74: The Dutch market has grown at a CAGR of 13.3% from 2002 to 2006 111
Figure 75: The pay now market in the Netherlands has seen strong growth in the 2002 to 2006 period 112
Figure 76: The pay now market in the Netherlands has seen strong growth in the 2002 to 2006 period 113
Figure 77: The rate of growth in the Dutch cards market is expected to slow, 2002-2011 114
Figure 78: The number of POS terminals in the Netherlands has increased steadily between 2002 and 2006. 115
Figure 79: Cash is still the most commonly accepted payment type in the Netherlands, 2006 116
Figure 80: Lack of customer demand and expense are two major reasons why merchants do not accept cards in the Netherlands 117
Figure 81: Minimum transaction values are most commonly imposed on debit card transactions, the Netherlands, 2006 118
Figure 82: Visa credit cards most frequently attract charges in the Netherlands, 2006 120
Figure 83: Decreasing the cost of using cards is seen as a key way to encourage card use, Netherlands, 2006 121
Figure 84: Interpay is the prevalent merchant acquirer in the Netherlands 122
Figure 85: Dutch Acquirers are typically satisfied with the service they receive from merchant acquirers 123
Figure 86: The Spanish market has grown at a CAGR of 12.5% from 2002 to 2006 125
Figure 87: The pay now market in Spain has seen healthy growth in the 2002 to 2006 period 126
Figure 88: The pay now market in Spain has shown strong growth in the 2002 to 2006 period 127
Figure 89: The rate of growth in the Spanish cards market is expected to slow, 2002-2011 128
Figure 90: The number of POS terminals in Spain has increased steadily between 2002 and 2006. 130
Figure 91: Cash is still the most commonly accepted payment type in Spain, 2006 131
Figure 92: Lack of customer demand and expense are two major reasons why merchants do not accept cards in Spain 132
Figure 93: Minimum transaction values are most commonly imposed on credit card transactions, Spain, 2006 133
Figure 94: Visa credit cards most frequently attract charges in Spain, 2006 135
Figure 95: Discounts are seen as a key way to encourage card use, Spain, 2006 136
Figure 96: BBVA is the prevalent merchant acquirer in Spain 137
Figure 97: Spanish merchants are typically satisfied with the service they receive from merchant acquirers 138
Figure 98: The Turkish market has grown at a CAGR of 29.9% from 2002 to 2006 140
Figure 99: The pay now market in Turkey has seen strong growth in the 2002 to 2006 period 141
Figure 100: Growth in the Turkish pay later market has been much stronger, 2002-2006 142
Figure 101: The rate of growth in the Turkish cards market is expected to slow, 2002-2011 143
Figure 102: The number of POS terminals in Turkey has grown steadily between 2002 and 2006. 145
Figure 103: Cash is still the most commonly accepted payment type in Turkey, 2006 146
Figure 104: Lack of customer demand and small business size are two major reasons why merchants do not accept cards in Turkey 147
Figure 105: Minimum transaction values are most commonly imposed on credit card transactions, Turkey, 2006 148
Figure 106: MasterCard credit cards most frequently attract charges in Turkey, 2006 150
Figure 107: Loyalty programs are seen as a key way to encourage card use, Turkey, 2006 151
Figure 108: Isbank is the prevalent merchant acquirer in Turkey 152
Figure 109: Turkish merchants are typically satisfied with the service they receive from acquirers 153
Figure 110: The UK market has grown at a CAGR of 10.5% from 2002 to 2006 155
Figure 111: The pay now market in the UK has seen strong growth in the 2002 to 2006 period 156
Figure 112: The pay now market in the UK has seen strong growth in the 2002 to 2006 period 157
Figure 113: The rate of growth in the UK cards market is expected to slow, 2002-2011 158
Figure 114: The number of POS terminals in the UK has increased steadily between 2002 and 2006. 160
Figure 115: Cheques are the most commonly accepted payment type in UK, 2006 161
Figure 116: Lack of customer demand and small business size are two major reasons why merchants do not accept cards in the UK 162
Figure 117: Minimum transaction values are most commonly imposed on credit card transactions, UK, 2006 163
Figure 118: MasterCard and Visa credit cards most frequently attract charges in the UK, 2006 165
Figure 119: Loyalty programs are seen as a key way to encourage card use, UK, 2006 166
Figure 120: Barclays is the prevalent merchant acquirer in the UK 167
Figure 121: UK merchants are typically satisfied with the service they receive from merchant acquirers 168
