Five key considerations to becoming an acquiring bank

Many organisations are looking at offering acquiring services as a means to boost customer acquisition. However, running a successful acquiring business is not easy. Razor thin margins as well as the complexities that come with the additional compliance requirements can make the decision a difficult one. Brenda Varrie, VP Group Head: Acquirer Processing & Product at Network International, an FTSE-listed payment as a service provider, shares five key considerations for organisations to help them weigh up their next steps.

Banks are taking a renewed interest in acquiring for a few reasons: firstly, they see the opportunity to drive customer acquisition by offering a full end-to-end solution; secondly, acquiring services help keep deposits up and money in the business; thirdly, acquiring services drive card spend, which is a key consideration when it comes to revenue generation; and finally, acquiring is seen as an important way to deepen relationships with transactional banking customers.

However, if a bank is to proceed, there is no room for mistakes as they will be assuming all the financial risks associated with merchant underwriting. For a bank hoping to offer acquiring services, there are five key considerations that should be thoroughly assessed before embarking on the acquiring journey.

1. Licensing

As with all things in a well-regulated industry, any organisation hoping to roll out acquiring services will need to prove they meet all the necessary requirements and secure the required licences from the various card schemes and local regulatory authorities.

2. Infrastructure

Infrastructure is one of the first major speed bumps in the journey to becoming an acquiring institution. Laying down the appropriate infrastructure is vital for the business to succeed. Buying each of the components required, such as data centres, servers and switches, can be a daunting task that carries a stiff capital outlay as well as the issue of how and where to house everything.

3. Human capital

No acquiring business can be run by one person. A bank will need to build an acquiring department and that can take some time. It also can’t be run indefinitely on existing staff who are expected to pitch in. Banks will need dedicated and trained teams, adding layers of complexity and cost.

4. Compliance

Keeping up with compliance changes can be onerous. Not only are there the fines and penalties if you slip behind the bi-annual updates, but slipping behind when it comes to security could break the business should a major breach occur. EMV, PCI certification and ISO compliance are just some of the issues that must be considered.

5. Innovation

In a hotly contested market, staying up to date with new technologies, products and services requires constant review, assessment and testing. In addition, contracting and managing your vendors and partners to ensure they are meeting industry standards and delivering products that are, at the very least, on par with your competitors is a constant challenge that sucks up resources.

Let someone else do the heavy lifting

Banks have a history of running all their systems in-house. But when it comes to rolling out a new acquisition business, the obstacles can put many off. The solution is to find a partner who has done all the heavy lifting, has scalable infrastructure and teams that are equally comfortable working with complex legacy systems and innovative forward-thinking digital solutions.

It’s also important to work with a partner who understands the local environment; who can offer on-soil processing where needed; and who has teams on the ground who can work with a bank’s staff to quickly and efficiently resolve challenges. When starting from scratch, it makes sense to work with a partner who can provide everything from the front-end acceptance channel, through switching, processing and merchant management, all the way to operational support.

Finally, when it comes to considering an outsource partner, banks should avoid seeing the exercise purely in terms of cost savings. Over time, working with a trusted outsource partner will allow organisations to build a profitable acquiring business without the associated risk. As that business grows, your partner can help you nurture your own innovation, grow your internal capacity and develop new products and services that will give you a competitive edge and a resilient business. 

For more insight into the unforeseen costs and hidden complexity that can impact tight margins (and even introduce new challenges as banks face additional compliance requirements to become an acquirer), please click here to view the infographic.