Global merchant acquiring revenue will reach $100 billion by 2027

Behind the curtain of an overall attractive market segment, the merchant acquiring business is being convulsed. Changes affect every layer of the mer­chant services stack.

For incumbents—banks and payment monoliners—adapting to these realities is not just smart business. It’s a matter of survival.

Acquiring could be a $100 billion market

Boston Consulting Group expect revenue for the merchant acquiring industry to rise by 6.9% annually over the next five years, taking the global revenue pool to $100 billion by the end of 2027.

SME merchants with fewer than 250 employees make up 70% of the revenue base today and that share could increase.

Online sales—payments initiated online or over mobile devices—have been a major driver of revenue growth, and the outlook suggests continued growth of 9.9% annually through 2027.

Digital natives (such as Adyen, Checkout.com, and Stripe) and ISVs (such as Toast and Square) are winning a growing share of the merchant acquiring market.

Three years ago, these players accounted for roughly 35% of merchant acquiring market revenues in North America and Europe combined. Today that figure has increased to 40%. And momentum is in their favour.

Augmenting their traditional strength in the SME space, digital natives are now gaining share in the corporate segment globally.

In Latin America, incumbents face challenges related to advances in real-time-payments.

In Asia, widespread use of social commerce and greater integration of payments capabilities into social networks and digital media pose disintermediation threats.

In Africa, the rapid growth of mobile.

Disruption Across the Stack

Competitive pressures and technological advances reveal where the future of acquiring is heading. Acquirer-merchant disintermediation is accelerating.

In most developed countries, more than 50% of SMEs now use software platforms for their day-to-day operations. That penetration gives digital natives and ISVs a significant tailwind.

The integrated payments solutions that these challengers offer are likely to grow at twice the rate of incumbent acquirer revenues in the US. And a similar pattern is expected to develop in other regions.

Disinter­mediation is occurring outside the SME segment, too, driven by a growing need for payments orchestration, especially among large, international merchants, which often rely on five or more payment services providers.

Some merchants with complex payments flows, such as the online marketplace Backmarket, are taking on the orchestration task themselves, using a mix of in-house and externally sourced capabilities.

For acquirers, payments orchestration represents both a new disintermediation risk and an opportunity to compete on objective performance criteria.

The product universe is expanding beyond acquiring and payments. The rate of product development, espe­cially in embedded finance, is soaring.

BCG survey data shows that 64% of merchants want solutions that they can plug into their existing business operating systems.

To answer that call, merchant services are expanding their product set—and in the process, moving deeper into finan­cial services.

This year, for example, both Adyen and Square announced plans to release new embedded finance features.

Other acquirers are likely to try to match these moves, and this competitive race will fuel continued portfolio growth.

Merchants want simple front-to-back journeys—and challengers are delivering. Time-consuming setup processes and unclear pricing rank high on the list of merchant pain points.

Spying an opportu­nity, some digital natives have made easy setup a differen­tiator. Stripe’s onboarding process, for instance, requires only four inputs from merchants.

Its platform provides merchants with a single dashboard for reviewing and managing customer disputes, and automated processes simplify chargeback handling for merchants.

Enhance­ments like these put pressure on incumbents to improve the quality of their customer journeys.

Fragmented tech is a growth killer. After years of M&A-driven growth, many established players juggle multi­ple platforms and databases.

This complexity introduces risk and makes incumbents less competitive. In many cases, digital natives have a single harmonized payments platform that can grow with their business, whereas incum­bents may have to implement new product features across multiple platforms.

As a solution, GenAI could help incum­bents harmonize by refactoring coding for different plat­forms, synthesizing documentation, and supporting prod­uct and engineering teams.

But such technologies are new, and these approaches will need time to deliver proof of concept.

Incumbents can meet this moment

With the right moves, incumbent acquirers can emerge stronger than ever and capture growth in a vibrant and fast-growing market. Here are four recommendations for ambitious players to consider.

Lean into differentiating services. Many products once considered value-adding have become table stakes.

These include self-service-driven merchant onboarding, reliable payments acceptance across channels and devices, locally relevant payments methods, efficient dispute and charge­back handling, fraud prevention tools, and data analytics services.

Meanwhile, differentiating VAS opportunities are emerging in digital marketing and loyalty management and in embedded finance.

In digital marketing, merchants need to develop hyperpersonalized communications and loyalty offerings to increase customer frequency, shopping basket size, and wallet share.

Incumbents can help merchants devise these offerings by providing platforms to manage customer and transaction data and by providing analytics that model behaviour in these areas.

Embedded finance solutions can also create attractive fee- and interest-based revenue streams by providing mer­chants with business accounts, (virtual) commercial cards, and working capital solutions—all of which are convenient­ly integrated into ISV platforms.

However, they require more sophisticated risk management practices, either internally or through partnerships, to evaluate credit risk and to control merchant default rates in the current chal­lenging business environment.

Reimagine journeys from end to end. To compete with the experiences that digital natives offer, incumbents should redesign their merchant journeys front to back—linking customer experience improvements to back-end operations, automating essential processes, eliminating unnecessary ones, and making select technology upgrades that deliver tangible business and customer outcomes.

BCG client experience suggests that a well-conceived front-to-back redesign can boost acquirer revenues by 2% to 3%, cut onboarding costs by 5% to 20%, and lift net promotor scores by 15 to 30 points.