We spoke with Mark Beresford at Edgar Dunn, an independent global financial services and payments consulting firm focused on providing deep expertise in payments and digital financial services to enhance clients’ perspectives and deliver actionable advice. Mark shares his 20+ years of background in developing and managing financial services businesses. He gives us enlightening insights into how payments are evolving within the retail space, the importance of local and alternative payment methods, agnostic Payments Orchestration, and much more.
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Payments Dialog Full Transcript:
Peter Mollins: Hi, everybody. This is Peter Mollins with Spreedly. Really excited to be joined by Mark Beresford, who's the director and head of retail payments practice at Edgar Dunn. Really excited to have you on the program today, Mark. Welcome.
Mark Beresford: Thank you, Peter. Nice to be joining you today.
Peter Mollins: Excellent. Well, you have an incredible amount of experience in the payment space and have written extensively, not only on payments for retailers, but also on payment orchestration. I'd love it if you could give sort of a background on yourself and your work with Edgar Dunn.
Mark Beresford: Yeah. Surprisingly, I joined Edgar Dunn 19 years ago. I'm an old timer here, and I'm a director. I look after the, as you say, retail payments practice. I guess throughout my career, I've kind of come from a technical background more into program management background, managing large change programs, but always within financial services, always within payments, and not necessarily by design, just the way it's turned out.
And really, sort of worked closely with retailers to optimize payments and work more effectively with merchant acquiring banks and merchant acquirers, payment service providers, and more recently, payment optimization platforms. I'm sure we'll get into the detail there.
Peter Mollins: That's terrific. Now, I imagine over the course of 19 years, there's been an incredible amount of change, too, in terms of what you're seeing from retailers. Any kind of sense for what's been changing over that period?
Mark Beresford: I think it's interesting from a retailer's point of view. One thing that hasn't changed is that payments, it's like they don't die. Cash is still there. People actually write checks in certain countries. And cards are still around, probably 50, 60 years. What tends to happen is those payment methods don't disappear. New ones are being laid on all the time.
And if you go around the world, and if you assume a domestic card scheme or domestic payment network is an alternative form of payment, an alternative payment method compared to, say, a standard Visa or MasterCard or an AmEx card, which are international card schemes or card networks, they just keep coming.
Payment methods, whether you're in the middle of Brazil or Argentina or over in Asia Pacific, there's new payment methods. We were doing some work in LatAm relatively recently, and just a couple of years ago, they had a faster payment network, real time payments network, which was kind of a government backed consortium of banks initiative within Brazil.
And two years ago, it just didn't exist. And now, it's taking a significant proportion of consumer payments. Consumers find it convenient. They don't necessarily have access to cards or credit.
And so what is really interesting is that it doesn't matter where you are in the world. There's going to be local payment methods. There's going to be alternative forms of payments. And it can be very, very different.
And retailers are open to layering on these new payment methods and to be... because effectively, it helps conversion. It helps bring in customers in demographic segments of customers that you might not be serving, particularly in more of a virtual Internet based world where everything is always remote now, as you and I are today.
Peter Mollins: That's very true. Well, you mentioned about Brazil, and at Spreedly, we do so much work in Latin America. In fact, some of our largest customers are indeed in Latin America or are from outside and have expanded into Latin America. And that notion of local and alternative payment methods is absolutely such a key one for them to be able to expand into those markets, being able to offer that.
Mark Beresford: Yeah. Particularly if you're an international player, whether you're an IKEA or a luxury brand operating, selling luxury goods over the Internet all over the world, because you're a recognized brand, or you're even just a normal consumer brand like, I don't know, Nike or Adidas, or an IKEA in the furniture world.
Peter Mollins: Right. That's so true. And in your earlier point there, it is so true, isn't it, that as a retailer, you want to be able to reduce friction on the transaction, because let's say you're a travel website, an online travel agent.
And you have a customer who comes in. They do a lot of searching. They find the right flight. They find through the right airline. It's the right dates. Everything looks terrific. Perhaps they've added a car rental.
And then they get to the final checkout, and they're not a Visa customer. They're not a MasterCard customer perhaps. And what do they do? There's going to be high friction at the end.
Or maybe they are a Visa customer, and there's a decline at the end, a false decline at the end. And so anything that a retailer can do to remove that friction at the end has got to be vital.
Mark Beresford: Yeah. No. You're totally right. And I think a lot of retailers, maybe I'm skipping ahead, but a lot of retailers, 10, 15 years ago, as the Internet and eCommerce grew, they rapidly realized the need to make those international connections and support those different alternative forms of payment and local payment methods.
And so the larger retailers that were operating on an international basis really built a lot of that orchestration. Now, they didn't know at the time. They didn't know it was orchestration, or it wasn't known as orchestration.
It was really just a question of bolting on new payment methods or bolting on payment... It's what I basically alluded to right at the beginning of the story, is that retailers, things don't die away. We're still using cards, but we're using a load more payment methods like alternative forms of payment, wallets, PayPal, Venmo, whatever.
And so they want to be able to be flexible enough to respond to that. I remember working with, and it was over 10 years ago, it was a consortium of airlines, mentioning no names, but a consortium of airlines that actually wanted to come together and acquire their own business, acquire their own transactions, because they were so fragmented, different airlines. I think it was, at the time, it was 26 airlines.
Why don't we come together and aggregate this and process these transactions ourselves? And there were some terrific hurdles at the time, because I think the concept of to be able to bolt all that together was extremely difficult. It was IT intensive.
And a lot of retailers have gone through that process and having to take a step back, because the alternative forms of payment, the new forms of payment, whether it's crypto or whatever, or even new ways of paying, whether it's installment payments or buy now pay later, those things are still coming down the line.
I think of buy now pay later. There's 20 different providers, 26 different providers around the world. You can't integrate them all yourself.
Peter Mollins: Right. Well, I guess that comes back to that notion that you were talking about, about orchestration. And so I know your team has been focused and has done research on payment orchestration. Are there any key trends that you're seeing in that area around payment orchestration and platforms?
Mark Beresford: Yeah. What we sensed, just pre-pandemic, and just as the pandemic became a pandemic, early 2020, we were starting to sense that there was a lot more talk about eCommerce and how to internationalize, gain geographic reach, gain access to new customer groups.
And I think that was a turning point, and we started to develop a database of payment orchestration providers. And I think at the time, when we first started this exercise, there were five providers that talked about payment orchestration in a fairly crude, smart routing.
That's what they talked about, or dynamic routing. And that was being talked about not just by payment orchestration companies, but also payment service providers, or merchant acquirers were talking about that terminology, or multi acquiring.
And we felt there was a turning point. And now, if we look at our database today, two years down the line, two and a half years down the line, there's 21 providers on the database.
It's incredible. And so what we've done is collected a lot of information about what functionality, what services, what promises are they articulating in their information?
We've engaged with not all of them, but engaged with all the major providers to get a better and get under the hood of understanding what they are actually doing in terms of customer acquisition, in terms of checkout support, whether it's network tokens or the support of routing and smart routing and reconciliation reporting.
What are they doing? And how well are they doing it? And who are they doing it for? When will it be available? There's a lot of promises out there.
But, yes. It's been a really educational exercise. I think it's been extremely important for us as a business and advisors to the retailers. Yeah. It's been an interesting exercise.
And I forget the numbers off the top of my head, but a terrific amount of investment into this sector. The investors, the private equity companies that are putting money into this obviously see there's some value.
And I think retailers are now starting to see the value, and the ones that have built it themselves are now having to revisit. And maybe this is the right time to work with specialist payment orchestration companies.
Peter Mollins: Right. Now, you mentioned a few kind of the key functional categories that help to define payment orchestration. You mentioned things like vaulting, smart routing, network tokenization, optimization. Are there other elements that you think of when you think of those things that characterize payment orchestration that you'd like to share?
Mark Beresford: Yeah. I think you already mentioned routing. I think that it has to be at least cost routing, and that boosts conversion. There's an obvious return on investment that retailers will look at. That's a feature.
To be a true payment orchestration platform, you've got to be the merchant advocate. Yeah? Got to be the advocate for the merchant. You can't be an acquirer.
There's a couple of examples out there in the market where an acquirer has bought a payment orchestration company or a smart routing company or a data company to add more rules, more intelligence, or random routing. That hasn't necessarily worked out well for those players.
I think a payment orchestration platform has to be independent of the completely agnostic to the acquirer.
Peter Mollins: I agree.
Mark Beresford: Retailers...
Peter Mollins: I think that independence-
Mark Beresford: Yeah.
Peter Mollins: Yeah. Exactly. If one of the very notions of orchestration is the idea of routing transactions to the optimal provider for the best customer experience and the best retailer experience, that does connote independence, doesn't it?
Mark Beresford: Yeah.
Peter Mollins: Well, terrific. Now, one of the things, and before this conversation we're having today, my colleague and I talked to you about, was that previously, back perhaps when there were five vendors or even before there were five vendors, that retailers had been building orchestration on their own.
Do you see that there's... That growth of five to 21 vendors, seems like there's a tipping point in there, where perhaps merchants, retailers are looking to outsource this notion of orchestration. Are you seeing any trends around that?
Mark Beresford: I think, yeah. It's an interesting question around the tipping point, because I think the conversations that we're having with retailers and travel companies, particularly airlines, are starting to look at the conversion. They look at conversion, obviously. They look at geographic reach. They look at the cost of development and maintenance internally, the access to technology, the access to resources.
And as these payment orchestration companies have matured, they have got a little bit more sophisticated about how they open their APIs and open access to the functionality, and a little bit more clearer definition and a lot less IT intensive.
And I think that's kind of a tipping point, a lot of retailers are saying to us. And they look to us to look at that return on investment. Is it the complexity or the geographic scope? Is it the sheer volume of traffic, the actual number of transactions?
There's quite a few factors to look at and always bake into the business case. It's not rocket science. I think a lot of it is, one of the reasons why retailers talk to us is because we're not promoting any one particular provider. We will give the best and most independent advice based on a solid and robust business case.
With the greatest respect to retailers, a lot of them don't know how to do that. And they get, particularly the bigger ones tend to be the ones that we talk to, the international players, the omni channel players, who are really, really focused, and they've got big IT businesses. It's almost like they're inwardly looking and just, it's so big, it can't fail.
And I think sometimes they have to be transformational in how they think about what to buy and what to build or what to buy in house or what to outsource. And I think that question is, I think a good retailer will ask that question on a regular basis and look at their own internal situation.
Peter Mollins: That's great. You mentioned a few things that sort of drive that tipping point, like perhaps it's volumes. Perhaps it's geographic expansion. Really interesting, because we see a lot of that ourselves, where there are moments where there's a business requirement, and development just can't keep up with it. The engineering teams can't keep up with the pace of changes.
Geographic expansion's a great example, where it's go to Latin America, or go to, as a North American company, go to Europe, or vice versa. And the requirement to get into market in three months doesn't match with development's backlog.
And so that's one of the things that we see as being that forcing function, is you have these business drivers, but then development is just simply not able to keep pace.
Mark Beresford: Yeah. I think you're right. I think you're dead right. And I think as you say, a North American business or retailer, they can only do so much research to understand about selling products and services in Japan, for example, or Singapore or China. Likewise, the other way around. A European business looking at the North America market would be a different set of criteria.
Peter Mollins: Right. Yeah. That's fair. Now, one of the other sort of differences that we see amongst retailers or maybe perhaps just digital businesses more generally is a difference between a merchant record and more of an aggregate or a platform type model, where the merchant may be concerned about things like expansion or authorization rate, maximization ROI of a given transaction, whereas a platform or an aggregate or a marketplace, they're very concerned about things like, am I providing the right mix of services for my merchants to draw them in?
Have you been seeing similar differentiation, I guess, between companies' digital businesses based on what their model is or how they're structured?
Mark Beresford: Yeah. It's an interesting question. And it's almost, the merchant aggregators, the record providers are... It's questionable. Is it an alternative to a payment orchestration proposition?
I think, as you mentioned, just the marketplaces, a lot of it boils down the size of the merchant. There may be lots and lots, a long tail of small to medium businesses that are operating on a, whether it's through merchant aggregator or marketplace, Etsy or eBay type model. It's questionable whether payment orchestration is the right fit for that demographic of merchant.
We've looked at it, and it hasn't leaped out. There's no aha moment in this area. I think it's almost like, well, you've got marketplaces. They're growing terrifically large. They've got their own challenges around safeguarding the funds, commission payments, the buyers and the sellers, making the ecosystem, getting the right liquidity. They've got their own challenges.
The market aggregators, sorry, the merchant aggregators, I should say, and then there's the merchant record providers, they are sitting in different silos at the moment and operating in different use cases. Whether there's any overlap with payment orchestration is one to watch how that evolves over the next few years.
Yeah. I think it's an interesting question. We've not seen it come out and change the landscape.
Peter Mollins: Right. Okay. One of the things that we see for those merchant aggregators is sort of a difference between aggregators that are aggregating very small merchants, extremely small, versus those that are aggregating much larger ones, let's say a delivery company, let's say, one that's aggregating-
Mark Beresford: More of a B2B
Peter Mollins: Yeah. The bigger the-
Peter Mollins: ... the B2B2C kind of thing, then those providers, those larger merchants that they're aggregating often have their own gateway, so there's sort of a bring your own gateway type model where orchestration comes into play. That's one of the things we're seeing in the market.
Mark Beresford: Yeah. No. That's a good point, and I think like a logistics company, those types of organizations, a DHL type of operation that is obviously international might have their own gateway, and they are effectively aggregating lots of things and lots of activities. It's business to business to consumer.
Peter Mollins: Right. And one to watch also is the idea of aggregators being able to resell value added services, things like network tokenization or account updater, being able to resell those to their merchants, even smaller ones, but most likely larger. That's another area that we're looking at.
Mark Beresford: Yeah. No. That makes perfect sense. I can see obvious synergies there. We've not had direct exposure, not that I'm aware of, to that.
Peter Mollins: No. That makes sense. Just as we're coming to the end, I'd like to kind of get a view on, when you're thinking about a retailer or digital business that wants to evaluate the idea of orchestration, what factors do you think they should be looking at?
Mark Beresford: Yeah. It's a challenge. I think we're seeing a lot more interest around orchestration from not just a eCommerce point of view. The physical environment, a lot of retailers operate in a physical environment on an international basis.
And the expectation, if we can optimize the eCommerce business and make that fully orchestrated, the proper phraseology, if you look at the physical retailers, I think that's kind of the next area of change rationalization and less reliance on local IT technology and more payment in the cloud, so to speak, payment as a service, payment acceptance as a service.
I think that's more likely to be happening, smart payments, smart pods, smart point of sale, PIN on glass, those types of propositions that we're more likely to see in the future. That would be one.
Another one is, and I think quite a lot of payment orchestration companies are alluding to anticipating the need for better reconciliation reporting, backend reporting, management reports, exception reports, dealing with fees, dealing with chargebacks, dealing with the exceptions.
How can you make a retailer turn an unhappy experience into a happy experience? I think that's the key. That's what we're seeing. They're the two areas that we're seeing.
Commercial independence, I guess. When we talk about commercial independence, we mean retailers are looking for the ability to be more agnostic to the commercial arrangements.
If one commercial arrangement isn't working out in a particular market, then they've got the ability to route transactions to an alternative form of payment or an alternative provider within that country. That's what payment orchestration should be doing, kind of a fundamental evaluation criteria.
A few. I don't know whether that's answered your question.
Peter Mollins: It has. It has. Yes. Very helpful. Well, Mark, this has been a fascinating discussion. Before I let you go, though, we just have one follow on question, which is, where's your research headed? What are some topics that you're going to be thinking about and writing about and sharing in the future?
Mark Beresford: Yeah. I think that's a good point. I think it's one that is evolving. I think payment orchestration is kind of evolving in that it's almost finding its way. There's a few leaders in the pack. I think that's obvious through experience, and I think that speaks volume.
Back to my point about reconciliation, better reporting, I think they're the types of things that are high on the agenda for a lot of these organizations and retailers alike. Whether it's truly omni channel, everything digital, it's more of a digitization of the physical store. I think that is inevitable.
And if that can be rolled into the payment orchestration proposition, I think that's going to be a very, very interesting development in the future.
Peter Mollins: That's terrific. Well, great words to end on. Mark, again, thank you very much for your insight and the chance to chat about the topic.
Mark Beresford: It's been a pleasure. Great to meet you.
Peter Mollins: Absolutely. Same here.
Mark Beresford: Thank you.
Peter Mollins: Thank you.