Emerging Technologies

Vertical Integration and the Payments Value Chain

Lower transaction volumes, tighter transaction processing margins, offshore hardware competitors, PCI compliance mandates, and the economics of payments processing are pushing key players in the payments industry to rethink their business models. Led by VeriFone, nearly all POS hardware makers are either evaluating or offering software-based services to add monthly recurring revenue as a sweetener to the increasingly thin gruel of hardware margins. Processors like First Data and Heartland Payment Systems are building, via contract manufacturers, their own terminal lines to deliver new capabilities and, along the way, strengthen revenues and account control. Heartland's direct selling model, with in-house merchant services sales, takes the vertical trajectory even higher. Such vertical integration is a significant trend that will affect how small merchants in particular acquire and use payment services. This trend also demands careful consideration by Tier 1 merchants when evaluating overall card handling costs in general and security options in particular.

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