What’s Next for Merchant Services?

A female customer holds her iPhone over an electronic payment scanner to pay for her coffee.

Business owners increasingly require innovative tools from their payment systems. Merchants are dealing with tight margins, changing markets, and easily diverted customers. In turn, solutions have to not only support payments effectively, but also enable new opportunities for efficiency and growth—giving their users a competitive edge.

The merchant services space is changing rapidly, in the face of rising customer expectations reshaping the industry and tech players expanding their footprint in the payments market. That’s also leading to new opportunities created by emerging trends. The following areas have a growing influence on the ways merchants approach their payments needs, distribution operations, and customer relationships.

Embedded Payments, Unique to Industry Needs

As merchants transform their businesses to deliver better customer experience, technology is playing a greater role in their operations. But exactly how that looks is unique to every merchant’s needs, both for digital and in-person payments.

In recent years, more industry-specific technology solutions have emerged to service merchant needs by vertical—many with payments capabilities embedded in their offerings. Examples are companies like Toast for restaurants, Vagaro for salons, and MINDBODY for fitness and wellness studios.

For companies in those and other niche sectors, using an industry-specific solution can mean fewer invoices and simpler, more holistic operational management across payments, compliance/reporting, and customer accounts. These systems often house customer, inventory, and sale information in the same platform as payments.

That kind of integration can make it possible for merchants to improve or personalize the point-of-sale experience in online or offline environments. Merchants can often brand the POS interface, for example, or easily integrate special offers or useful features like tipping or appointment reminders.

The customizability of these vertical-specific solutions can ultimately help merchants drive sales. By delivering a better front-end experience to customers, merchants can spend less time on payments and more time on elevating their service. That ideally leads to increased conversions and repeat customers.

Order Fulfillment Made Easy

Merchants whose businesses depend on goods delivery, meanwhile, have a different set of needs than restaurants, studios, or other stores.

For those businesses, larger tech players offer solutions that take over more and more of merchants’ distribution operations. Fulfillment by Amazon (FBA) is one such service that has been around for years. eBay, too, will offer select warehousing and shipping services beginning next year. Both services are designed for the needs of eCommerce merchants, but neither service is exclusive to customers selling on either platform. (Additionally, only 40-50% of items on eBay will qualify at launch.)

Third-party fulfillment is nothing new, but utilizing the broad logistics footprint of platforms like Amazon or eBay—as opposed to managing it yourself or working with a regional player—can equip growing small businesses with a more robust distribution infrastructure and the ability to store inventory in multiple geographies. The support can help businesses better serve customers across markets with faster speed and more accurate deliveries and tracking.

That said, there are drawbacks to outsourcing distribution. With FBA, fees are high and customer service interactions are out of the merchant’s control, as Amazon handles all inquiries. FBA also ships products in Amazon-branded boxes – eliminating the retailer’s opportunity to reinforce their brand with customized packaging.

Getting More and More 'Connected’

Consumer tech trends are reshaping the payment space every day, but options like digital wallets and ‘contactless’ cards haven’t changed very much about the payments experience for retailers. Customer behavior remains largely the same; whether customers are using stored digital cards or regular plastic ones, they’re still reaching for something in their purses or pockets to complete the point-of-sale- transaction.

What has changed for retailers, thanks to the growing influence of tech on consumers, is their level of always-on ‘connectivity’ to customers – and the opportunities that creates. For example, mobile devices have made order-ahead options more accessible and popular among consumers—whether for a Starbucks drive-thru run or a grocery-store curbside pickup.

With connected-tech like Alexa playing a growing role in consumers’ everyday lives, smartphones aren’t the only payments “vehicles” for those pre-orders, either. According to one advisory group, 57% of consumers are now willing to make payments via their connected car.

True payments-by-voice are likely still a few years away, of course, given that secure authentication through voice biometrics isn’t widely available yet for consumer-facing solutions. But as voice tech continues to move beyond search commands into more payments-related areas, merchants will have new opportunities to combine connected/voice-tech with order-ahead for elevating on-the-go customer experience.

More opportunities for connected payments will emerge for retailers as authentication tech advances. In future, audio-enabled payments (or entire purchase processes) may make today’s point-of-sale behavior into a thing of the past.

In the meantime, more and more payments behavior will migrate toward mobile phones and other smart devices for both consumer and business payments. The continued digital transformation of retail and business will demand that merchants stay on top of changing security best practices, as well as maintain high standards of user experience on mobile and online channels.

It will be key for business owners to work with well-informed banking partners that can help them seize new opportunities for efficiency and gain that critical competitive edge.

The views expressed by the author are not necessarily those of Fifth Third Bank and are solely the opinions of the author. This article is for informational purposes only. It does not constitute the rendering of legal, accounting, or other professional services by Fifth Third Bank or any of their subsidiaries or affiliates, and are provided without any warranty whatsoever.