On 14 September 2019, the PSD2 will become applicable national law. Along with it the obligations for strong customer authentication according to Art. 97, which are specified in the "Regulatory Technical Standards (RTS) for strong customer authentication and secure communication in cashless payment transactions", also become effective.
The blogpost shows pitfalls and outlines a framework for successful mergers. The history of payment methods is almost as dynamic as human history itself. While a few hundred years ago goods were still commonly paid for in gold or silver, the introduction of checks in 1681 and card payments (first charge card in 1914, first credit card in 1958, first debit card in 1978) started an unbroken trend towards making non-cash payments an everyday occurrence and increasingly usual in everyday life.
The payment market is changing significantly; Payment transaction providers are under strategic pressure as revenue per transaction is shrinking and a technologically-induced convergence between POS (Point of Sale/stationary) and CnP (Card not present - is considered equivalent to eCommerce transactions) transactions is increasingly manifesting itself.
Two primary patterns of reaction can currently be observed: Market consolidation by way of merger between (acquiring) processors, to generate larger accumulated transaction volumes and technical synergies (economies of scale) – significantly accelerated by private equity companies. Expansion of processor’s service portfolios and deepening of value chain (partly also by strategic acquisitions) – whereas companies originating in the CnP sector have a relative advantage over POS providers to establish themselves successfully in both areas (CnP and POS).
As technology is one of the main success factors in this changing market, technological aspects are a primary concern in any merger or acquisition activity. Portfolio expansion and mergers are not a success by default in this regard. Enabling and executing technical integration is key as a precondition to improving innovation capability and exploiting synergies. This must be ensured from the outset of a M&A deal, i.e. starting with the due diligence. A specific and significantly differing set of skills and frameworks is therefore required; deploying them right from the start is essential. Strategic fit and, above all, technological assessment should be in focus, rather than primarily financial figures. Moreover, on operative level, technical integration must be thoroughly planned and execution capacity secured.
The three major players Apple, Mastercard and Goldman Sachs established a cooperation to launch a dedicated Apple credit card alongside an attractive ecosystem for consumers. This article elaborates on the structure of this ecosystem and potential implications for other actors in the financial industry.
The Apple Card constitutes another major step in Apple‘s transformation from a hardware manufacturer to more of a service provider and seems to be a win-win-win scenario for the involved partners. Goldman Sachs attains new retail business and card revenues, Apple gains another tool to increase customer loyalty and Mastercard is further leveraging its business model including its scheme fees into the digital world. This setup seems rather coherent, as in contrast to other potential card issuers Goldman Sachs does not cannibalize itself since its retail business is not as strong. Mastercard, on the other hand, realizes additional revenue while offering Goldman Sachs an exclusive credit card setup with a relatively simple card layout without CVC, signature fields or NFC functionality. It seems likely, that similar to Apple Pay, Apple will strive for internationalization of its card service.
The authors argue that this case highlights how banks can turn into replaceable infrastructure providers, while tech companies such as Apple become the drivers of ecosystem business models. Thinking further, Apple or Mastercard becoming card issuers themselves does not seem impossible either. In this regard, the Apple Card example showcases that banks following established methods might lose strategic relevance in the future. The article elaborates that banks should aim for a two-pronged strategy of defining their smart answer for a potential cooperation with Apple in the short term while embedding this answer in a holistic payment strategy in the mid to long term.