They Succeed When You Fail: Rethinking Processors And Gateways

J. David Oder, President and CEO, Shift4 Corporation

Watching the payments industry recently has felt a little bit like watching "Shark Week." Every time you turn around some big bank is either buying a processor or gateway, or creating a gateway of its own. Now we hear that Visa, a card brand, has spent $2 billion purchasing Cybersource, a predominantly ecommerce processor/gateway/merchant services provider. The market space is consolidating, and it is certainly a time of change — but one that may bear dismal consequences for merchants.

As processors or gateways are absorbed by large merchant banks and now even card brands, they find themselves in a catch-22. They must be loyal advocates for their merchants while remaining loyal to their parent company. What does a loyal employee do for their company? Well, 99% of the time, they boost profits or cut costs. The problem is this: merchant banks typically make higher profits on processing by charging more money in the form of downgrades of the contractual discount rate. These downgrades come as "penalties" for not processing a payment in the prescribed way.