Merchant Enterprise F2F Payment Architectures Struggling

Major merchants are struggling to build their 3rd generation enterprise payments architectures as a result of the freefall in pureplay gateway providers and their displacement by the Fintech integrated gateway acquirer service.  Unfortunately, this model is becoming increasingly disruptive as Fintechs push back against customisation, exclude competitor acquirer routing and risk becoming a single point of failure.

10 years ago, building a second-generation enterprise merchant payments architecture was relatively easy.  For eCommerce only players, there was already a wide choice of gateway providers to enable PCI, tokenisation, APMs and most importantly routing to acquirers.  For large F2F supermarkets with 6/7 brands the options for core store operations were more complex.  Option 1 – was to continue with their own terminals directly connected to a traditional acquirer front end switch. Option 2 – was to use a F2F gateway for terminal supply and acquirer interfaces.  Option 3 – was to use licensed switching software inhouse.  Option 4 – for small eCommerce volumes, a decentralised approach was common often with individual brands contracting directly with eCommerce gateways.  Many platforms were enhanced and tailored to enable loyalty schemes and deliver specialised services for petrol, hotels, restaurants and fast-food business units.

Over time, this simple and often siloed supplier model was expanded becoming quite complex, adding separate fraud engines, APM acceptance, network middleware, self-service TMS and BNPL and often based on 8/9 different suppliers.

However, 10 years on, this second-generation payments architecture looks increasingly misaligned with market trends, modern retailing requirements and technology.  Group and the brands want innovation and cutting edge as well as flexibility, standardisation, simplification, cost reduction and automation.

Mature second generation architectures are not without problems. Spaghetti front ends are commonplace.  Multiple suppliers must be co-ordinated as new store/franchises are set up and new websites constructed or enhanced.  In addition, licensed software payment switches installed by merchants and traditional acquirers are reaching legacy and almost at end of life. 

Also, most large F2F merchants are now significant eCommerce players and as a result need more substantial platforms linked to F2F, and able to deliver much improved services.

Architects realise loosely coupled, separate and siloed F2F and eCommerce platforms have low resilience and 99.9% uptime no longer suffices.  Customers want omnichannel and Operations want five nines performance.

So, architects need to rethink third generation payments platforms.  However, several very important market changes have occurred which complicate redesign.  These are having a significant impact on building new payments architectures for the next 10 years.  As a result, many merchants are struggling to identify solutions and suppliers who can deliver for the following reasons:

First, the number of large-scale pureplay processing only gateways has declined as a result of competition.  Pureplay processing decline has accelerated because of price compression which has forced suppliers to move up the value chain, use PFs or join the card schemes and become full on-risk acquirers.  In addition, many eCommerce gateways have added F2F capabilities to deliver omnichannel.  Similarly, F2F gateways have bridged with eCommerce providers to similarly enable.  So, solutions to meet requirements for multi-channel gateway routing services are increasingly difficult to identify reducing switching to fallback acquirers and enabling business continuity.

Second, because major omnichannel gateway acquirer providers have invested heavily in developing their vertical sector application features, many are now reluctant to tailor and add brand specific enhancements.  Several now almost mandate ‘standard services’ at RFP time on a ‘take it or leave it’ basis and decline to replace existing and deliver future customisation.

Third, one of the advantages of the old-style spaghetti architecture was merchant’s ability to control individual components in the payments value chain as well as ensuring resilience and fallback.  However, the new breed of omnichannel gateway acquirers (of which Adyen, Checkout and Stripe are best examples) offer a much-expanded end to end service, which now includes eCommerce, F2F, omnichannel, terminal supply and acquiring.  Despite the very comprehensive services delivered, the worry is that an end-to-end integrated service is potentially a single point of failure.

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So, what are the architectural options left for the enterprise payments architect given the very significant narrowing of build components and supplier choice?  Building a basic inhouse enterprise gateway platform would be a very high risk and expensive investment – perhaps €20m-€30m over three years.  Unravelling the spaghetti and choosing a modern end to end single supplier gateway acquirer service would enable a slimmed down architecture would reduce central payments costs but may not deliver brand customisation and resilience and fallback.  Outsourcing to a pureplay omnichannel technical processing only platform provider for example (ACI, Verifone, Ingenico, Cybersource) and displacing the spaghetti front end with semi-distributed inhouse components is a possible solution but potentially complex and costly. Finally, use of a credible orchestration platform in front of the ‘As Is’ legacy platform which would route to multiple acquirers and alternative gateway and service providers would be a low cost, but hardly a cutting-edge option and such a service has potential to become another point of failure.

So, architects take care.  Your design choices for a third-generation platform are shrinking and unless you plan carefully, you may struggle to identify suppliers who can deliver the components you need.

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