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CHARACTERISTICS OF A SUCCESSFUL PAYMENT METHOD: ACCEPTANCE
1.2 Macro Characteristics Acceptance
A two-sided market such as payments naturally results in network effects, whereby users on one side of the market benefit from the growth of users on the other side of the market. Merchant acceptance of a payment method is important, but so is consumer adoption, which can be determined by their bank, for example, by issuing cards. Gaining ubiquitous acceptance can be a challenge. Merchants need an incentive to introduce a new payment method, which can be a time-consuming and costly endeavor coming up against a long list of competing internal priorities. Consumers are likely to adopt the payment methods offered by their bank or fintech partners, which in turn is likely to depend on merchant adoption (as well as factors such as creditworthiness). Clearly new payment methods suffer from a causality dilemma that poses a significant barrier to entry. There are ways to address this. Evidence suggests many card interchange fees were lower in the 1990s, perhaps because of low introductory acceptance fees to encourage card adoption before critical mass was reached. 49 Consumers were often enticed with rewards for card adoption and usage too. 50 It’s not just that – as discussed, infrastructure such as error resolution framework mechanisms and network rules need to be developed before adoption takes off. Funding these incentives and building this infrastructure can be costly and it may be a long time before payment methods can become profitable, if ever. Effective regulation may be seen as a pre-requisite to achieve ubiquitous acceptance for some industry participants by, for example, mergers/acquisitions that may prevent a nascent, innovative market participant from gaining enough scale to compete with existing market leaders. Merchant Acceptance Analysis Merchants’ payment acceptance decisions can serve as a proxy for more than just operational choices, as they provide valuable insights into regional consumer behavior and preferences. When acceptance metrics are consolidated across geographies, consistent patterns emerge that can indicate what customers expect to see at checkout, and where gaps may signal inefficiencies in purchasing experience. These patterns also reflect regional regulation and maturity of payments infrastructure.
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