With New Market Challenges, How Are Payments Players Staying Relevant?
The digital payments industry is built on the principle that it must function 24/7. It’s a complex ecosystem with millions of lines of code, thousands of professionals, and hundreds of miles of data servers. While many company types enable payment acceptance, three pillar segments impact the processing function:
These highly interconnected segments operate as company divisions or standalone entities.
These segments continuously face new technologies, competition, and cultural shifts, requiring regular evaluations of strategy and infrastructure to stay relevant and make payments faster, safer, and more integrated into daily life.
“What we’re seeing across the fast and secure payments ecosystem is a remarkable convergence of technology and service,” said Jodie Kelley, CEO of ETA. “As our industry processes over $47 trillion in annual transactions worldwide, we’re not just moving money – we’re enabling commerce in ways that were unimaginable just a few years ago. ETA members are driving innovation and delivering integrated payments and services to serve consumers and businesses.”
As we look to the future, the payments industry is increasingly characterized by seamless, proprietary experiences that span the entire value chain. The traditional boundaries between payment processing, software solutions, and business management tools continue to blur. With successful players offering integrated services under one roof.
This consolidation trend reflects a deeper understanding that context matters as much as the payment itself. To thrive in this dynamic environment, payment providers must be good observers of three key stakeholders: software companies that drive innovation, merchants that demand efficiency, and consumers who expect convenience. Those who can effectively balance these perspectives while being agile with technology will be best positioned to shape the next generation of payment solutions.
This article goes deeper into each pillar segment mentioned: merchant acquirers, gateways, and point of sale. Exploring a few focal points shaping modern payments players that go beyond fleeting buzzwords.
THE MODERN MERCHANT ACQUIRER: ADAPTING TO NEW PAYMENT PARADIGMS
Merchant acquirers stand at the forefront of digital payment acceptance. They serve as the crucial link between merchants and the broader financial ecosystem. Whether operating as payment service providers, processors, or payment facilitators, these companies face mounting pressure to expand their capabilities beyond traditional payment processing, embracing new payment methods, integrated solutions, and other functions.
Payment methods are diversifying
Modern acquirers stay updated on the market’s expanding set of payment methods. Many brands enable payments through QR codes, real-time payments, account-to-account payments, peer-to-peer payments, digital wallets, buy now, pay later, cryptocurrency, and more. Some methods span more than one of these categories. Each has its use case and varies in adoption. Preferred methods vary widely across demographics, such as buyer location, generation, and purchase channel.
Here are examples:
- TSG’s Consumer Payments Trends survey commissioned by Discover® Global Network shows that 34% of Europeans frequently use digital wallets compared to 24% of North Americans.
- The Central Bank of Brazil shows that around 80% of Brazil’s adult population actively uses the Pix account-to-account system, with nearly two-thirds of users between the ages of 20 and 39.
- Japan-based buy now, pay later provider Smartpay found that its merchant clients see a 10% increase in checkout conversion rate.
During an interview TSG had with Robert Clarkson, Head of Revenue and Growth, Americas at Stripe, Clarkson said merchants that switched to the Stripe Payment Element, a web UI component that accepts payment methods from around the world, experienced an average revenue increase of 10.5% compared to similar merchants using an older Stripe integration. Clarkson said, “The results imply that businesses not using the latest payments tools are likely leaving far more money on the table than they realize.”
Dynamically presenting payment options at checkout based on buyer characteristics improves the experience and can increase purchase completion. Modern acquirers know that supporting a wide variety of payment methods is essential to compete globally.
Shifting to embedded payments
Over the past decade and into today, customer acquisition strategies are being dominated by creating a sticky solution and gaining one-to-many access through software. Acquirers can build, buy, or partner with platforms merchants rely on for daily operations like inventory management, scheduling, and marketing.
Droves of merchant acquirers are investing heavily in embedded partnerships, with some connecting to thousands of software companies. Software companies are moving towards acquirers that invest in simple integration interfaces and helpful API documentation that make it easy to start processing payments. A survey of software companies from TSG found that these companies care more about their experience with a payment processing partner than user reviews or superior products. The most important facets were account management quality, ease of implementation, and positive past interaction.
TSG’s AIM analytics platform shows that merchants integrated into their acquirer through software partners have ~5% less attrition than non-integrated merchants when comparing annual payment volume attrition. TSG data also shows that software-integrated merchants are typically 20% larger than non-integrated merchants.
As more software companies mature in their payments knowledge and understand the value they offer. Moreover, as more acquirers invest in this area, competition and maturity will increase. Modern acquirers aim for differentiation and seamless experiences to leverage this trend.
The future market will be even more integrated. This allows software companies and their customers to switch financial services on and off easily. This will impact how merchants do business and who they work with.
Bank strategies are passing the test of time
Cushman & Wakefield data shows that for every physical bank branch that opens, 2.6 branches close. Banking’s digital moves pair well with the digital nature of merchant acquiring. This legacy channel has proven its place in modern merchant acquiring.
According to TSG’s annual Directory of U.S. Merchant Acquirers, 31% of 300+ acquirers analyzed distribute services through financial institutions. This rises to 38% among acquirers that generate between $10B and $50B in annual processing volume. The top five U.S. players process over 60% of the volume reported in TSG’s directory. Each focuses heavily on this channel. In Europe, financial institutions are even more involved in acquiring than in the U.S. Large global players often leverage this channel to access the region. An example is Global Payments’ partnership with Commerzbank.
Non-bank acquirers are even getting bank licenses. Amsterdam-based Adyen has a banking license in the E.U., U.K., and the U.S. This enables more end-to-end processing control, free from the infrastructure limitations of a third-party sponsor bank. Block’s Square brand has a U.S. banking license offering merchants checking, savings, and loan services.
Financial institutions are heavily involved in merchant acquiring across many global markets. A strong strategy here is key to the success of many modern acquirers.
Fraud mitigation is getting more intelligent
A fraudulent payment will cost a merchant up to 2.5 times more than the goods and services purchased. With a lot at stake, the payments industry has demonstrated impressive sophistication in its fight against fraud. Visa invested $10 billion in cybersecurity over the past five years. Noting that AI-based large language models are a pillar of protection. LexisNexis Risk Solutions has a risk decision engine backed by a global data network spanning 200 countries, with over 3.3 billion identities and billions of transactions, email addresses, phones, and IP addresses.
Today’s acquirers benefit from tools like automated application software with built-in Know Your Customer (KYC) data collection, machine learning with dynamic risk rules, tokenization to replace sensitive account numbers, and 3D Secure for extra identity verification.
Modern acquirers are known for building or partnering with best-in-class fraud tools. That also provides a mix of automation and manual control. With the rise of complex cross-border payments, AI, data, and international footprints help combat fraud.
Zooming out
The future of merchant acquiring lies in creating sticky, integrated solutions that address the full spectrum of merchant needs. As the industry matures, successful acquirers will distinguish themselves through robust fraud protection, seamless software integration, and the ability to support an ever-expanding array of payment methods. The winners in this space will be those who can balance technological innovation with practical merchant needs.
THE MODERN PAYMENT GATEWAY: BEYOND TRANSACTION PROCESSING
Numerous behind-the-scenes systems drive digital payment infrastructure globally. These are payment gateways, intelligent applications that route transactions from a point-of-sale device or eCommerce site to a merchant acquirer. Many merchant acquirers own multiple gateways, and more are taking this technology in-house to control development and performance.
Payment gateways ensure payments run smoothly in a competitive space where 99.999% uptime is table stakes. Modern gateways highly prioritize availability, as downtime can creep in unexpectedly. TSG’s Global Experience Monitoring (GEM) platform showed that North American gateways were measured to only be accessible 99.974% of the time during 2023’s Thanksgiving holiday week.
Seamless API experiences and flexible infrastructure are at the top of modern gateways’ minds.
APIs are becoming top of mind
The market is demanding seamless integrations with payment gateways. Developers are notoriously impatient; they don’t want to spend a lot of time troubleshooting. A recent TSG survey found that ease of implementation is one of the top three reasons software companies choose their payment processing partner. Developer experiences largely relate to gateway API sets. TSG recently analyzed 120+ payment gateways serving a variety of geographies and identified that 66% have open developer center pages with full access to their APIs (no credentials required). This share is up from 48% in 2020.
Al Novacek, TSG’s Senior Director of Product Operations, explains, “Developer decisions are influenced by the path of least resistance, and assessing the strengths and weaknesses of API sets relative to the market gives an advantage when addressing points of friction and roadblocks.”
Gateways with clear API documentation, adequate code examples, and a robust sandbox environment lead the way.
Infrastructure is getting more adaptable
TSG Senior Associate Cliff Gray said, “No gateway is competitive anymore if all they do is transactions.” Modern gateways have an open architecture and are flexible to user needs. Gray added, “They need to have some broadening of their functionality.”
Modern players enable merchants to solve their unique payment challenges in areas like these:
- Acceptance options like real-time payments, text-to-pay, and ERP or CRM integration
- Cross-border coverage so merchants can accept payments in their customers’ local currencies
- Automated onboarding across the application, risk assessment, and integration for quick, cost-effective experiences
- 3D Secure support for an extra identity verification layer using methods such as a PIN code, one-time password, or biometrics like fingerprint or facial recognition.
Zooming out
The next generation of payment gateways will be defined by their ability to provide flexible, developer-friendly solutions that extend well beyond transaction processing. Success in this space requires maintaining perfect uptime while offering robust API integration options. While supporting an expanding array of payment methods. Those who can deliver on these requirements while maintaining security and speed will lead the market.
THE MODERN POINT-OF-SALE
Modern point-of-sale (POS) products have become full-fledged business management systems synonymous with the popular term “ISV” (independent or integrated software vendor). Today’s systems are cloud-based, feature-rich, and available in various formats, ranging from handhelds to self-service kiosks. While a few brands like Square, SumUp, Lightspeed, PAX, and Clover are popular, the POS space is saturated with hundreds of players. Analysis of 200 point-of-sale players in TSG’s Directory of Smart POS Providers reveals the market is highly diverse in ownership, vertical focus, geographic reach, and overall company size.
Modern POS systems are notable for their form factors, software features, and transaction processing control.
Form Factors are being reimagined
Leading POS solutions enable merchants to accept payments in the best way for them. This includes offering small, medium, and large hardware devices, mobile devices, integrate-your-own phone/tablet options, and all-in-one systems. Many times, these devices are proprietary to the POS player. Fiserv’s Clover brand has nine different devices tailored for various use cases. Proprietary products let POS companies craft quality user experiences while making it more difficult for clients to switch, as they would need to purchase and relearn a new system. Switching often requires changing the payment processing platform as well.
Devices have become visually focused with large screens that engage customers beyond the payment. When Adyen announced its new countertop device, SF01, the company said it will change the way consumers interact with merchants during checkout by enabling customized experiences such as interactive promotions or product highlight videos.
Alongside the increasing variety of proprietary device options and a shift toward broader engagement, the modern POS space has a contrasting trend with softPOS. SoftPOS turns a smartphone or tablet into a POS device to accept contactless payments without extra hardware. SoftPOS can help merchants save money and quickly start accepting payments. The Asia-Pacific region adopts contactless payments more widely than North America. The U.S., home to many major payments companies, drives the fastest growth in softPOS. As contactless cards and digital wallets proliferate, softPOS’ use case strengthens.
Separately, trends in business efficiency and consumer preferences have driven rapid growth in self-service checkouts, influencing POS form factors. According to the American Institute for Economic Research, restaurants face significant cost hurdles, and many major brands experienced closures in 2024. Given the move toward automation, more POS players are introducing kiosk products. With Square and Clover launching theirs in early 2024. The CEO of Recess, a quick-service restaurant chain, said guests can use Square Kiosk to modify multiple items and order in less than a minute. This is faster than the restaurant’s previous QR code ordering method.
Beyond kiosks, the next level of checkout automation is AI-powered walk-out and ‘scan & go’ app technology. At Sam’s Club, customers can use an app to scan product barcodes as they shop, pay in the app, and quickly walk out through devices that use video with AI to verify items were paid for. Sam’s Club said 30% of customers use this app feature regularly, and the walk-out technology speeds up exit time by 23%.
The Intuit Dome stadium has over 40 checkout-free concession stands, and its GameFace ID feature lets customers grab food and leave after a face scan. The NBA Clippers stated 70% to 75% of people sign up for facial recognition after most events. Modern POS systems create fast, automated, customer-led experiences.
Feature sets are getting richer and more vertically-focused
From AI-powered menu creation to direct checkout in social media posts, modern POS systems are marked by offering numerous features. In 2023, Square launched nearly 100 new features across various POS products. With verticals having unique needs, offering a range of features lets merchants choose what they need for their context.
A relevant example is the salon and spa market. TSG Senior Associate, Cliff Gray said, “Salons and spas are demanding more than ever from their point-of-sale technology, driven by multiple factors. Alternative payment types like PayPal and Venmo are proving especially viable in these markets. Due in large part to the independent nature of many operators. Leading products tailored for this space include cost-saving and revenue-generating features. Such as auto-surcharging and tip suggestions, and marketing tools such as coupons, email campaigns, and repeat-user programs. Integrations with reservation systems have become standard equipment. While developers everywhere are looking to leverage AI for stickier consumer relationships and cost-saving automation.”
Tailored options are a focal point for modern POS players.
Relationship management is moving in-house
Modern POS solutions are moving away from being open systems that allow merchants to choose a merchant acquirer. They’re taking more control of the transactions they touch and gaining more revenue and influence over their customer experience. In other cases, POS solutions are bought by large merchant acquirers, causing a similar effect.
Payment facilitation is a trending model for POS solutions that tightly connects them with a specific merchant acquirer while enabling quick merchant onboarding.
A quick scan of the market shows these trends:
- Toast and SumUp are payment facilitators through Worldpay
- Bindo Labs in Hong Kong is a payment facilitator and an ISO
- Fiserv processes all Clover POS transactions, which is resold by many banks and ISOs
- Shift4 acquired over five POS companies, strengthening its presence in the hospitality space
The economies of scale transaction processing offers and market demand for best-in-class software and hardware experiences are bringing merchant acquiring and point-of-sale closer together than ever.
Zooming out
As POS systems continue to evolve, the line between payment acceptance and business management increasingly blurs. The future belongs to solutions that can combine automated experiences, AI-driven insights, and seamless payment processing into unified platforms. Success in this space will require constant innovation and a deep understanding of merchant operations across various verticals.
Shaping the future of payments
As the payments landscape evolves, success increasingly depends on orchestrating seamless experiences across the entire merchant journey. The convergence of payment processing, business software, and value-added services reflects a fundamental shift. Payments are no longer just about moving money. Modern payment providers must master a complex ecosystem. Where software innovation drives adoption, merchant needs define solutions, and consumer preferences shape experiences. Those who can build and control these integrated relationships, while maintaining the agility to adapt to changing market demands, will define the future of commerce. The next chapter in payments is about creating comprehensive, sticky solutions that make merchants and their customers more successful.
“Today’s payments landscape demands excellence across multiple dimensions – from fraud prevention and data security to seamless integration and innovation,” said Scott Talbott, EVP at ETA. “What we’re seeing is not just technological evolution, but a fundamental reimagining of how payments can serve both merchants and consumers. The most successful players in our industry are those who can turn these complex challenges into opportunities for innovation and growth.”
About TSG
TSG (The Strawhecker Group) is a globally recognized analytics and consulting firm that supports the entire payments ecosystem, serving over 1,000 clients from Fortune 500 leaders to more than a dozen of the world’s most valuable brands. Trusted by industry leaders, TSG’s strategic services, market intelligence, and analytics merge to empower clients with actionable and accessible information.