Jul 28, 2008

Are Asian banks having second thoughts about outsourcing acquiring to third party processors?

Last week, an executive with a regional bank in Asia explained to me that they were beginning to regret the decision to outsource their acquiring activities to a major third party processor. They are finding that without direct control of their acquiring business, it is now much harder to develop marketing promotions and partnerships with merchants.

These promotions have become very important for credit card issuers in Asia. They're all over the place. As just one example, I took a picture on Saturday of a Citibank promotion at a restaurant in Singapore. See other examples here of joint bank/merchant promotions that are possible when banks retain their acquiring activities.

In a separate discussion, this same complaint was echoed by another regional banker who had looked at outsourcing their acquiring activities as well, but had decided against it for the same reason. They had come to the conclusion that they would quickly lose the ability to develop promotions with merchants. Acquiring was considered too strategic to outsource.

In yet another discussion, an executive with a third party processor mentioned that there is a growing desire among Australian banks to look at issuing and acquiring holistically, in order to get more out of their payment activities. This after seeing the issuing side of the business hamstrung by interchange regulations.

Third party processors are not usually the right people to understand and offer marketing services to banks and merchants. They focus heavily on technical operations, getting lots of terminals out and churning through lots of transactions, the more the better. Now, to satisfy banks better, third party processors may need to look at things more from a marketing angle and move up the value chain a bit.

No comments: