Consumerization drives growth opportunities for payment service providers and multichannel retail IT vendors

The partnerships developing between payment service providers (PSPs) and IT vendors signal an important trend in the industry. For instance, Oracle ATG and IBM are validating integration with PSPs CyberSource and WorldPay, respectively, in order to better service their joint customers. PayPal, meanwhile, is negotiating a series of acquisitions to emerge as a complete end-to-end e-commerce solution provider. However, the objective of each model is the same: to gain access to the partner’s or acquired company’s customers and therefore expand the business.

Oracle ATG and CyberSource integrate to better service their joint customers

CyberSource, a wholly owned subsidiary of Visa, is a payment management company which processes online payments, streamlines fraud management, and simplifies payment security, while Oracle ATG provides e-commerce, retail applications, and CRM software solutions. CyberSource has a customer base of over 390,000 businesses globally, and Oracle has 5,000 retail customers in over 68 countries.

In January 2012, Oracle validated integration of CyberSource’s payment management services with its ATG Commerce Suite 10. With CyberSource payment, fraud, and tax interfaces built into ATG Commerce solutions, around 70 joint customers in over 190 countries, such as Louis Vuitton, Viking Range, and Nike, can serve their customers more rapidly and at lower cost.

CyberSource payments services for ATG Commerce Suite include:

• global payment services to accept payments and conduct transactions,
• compliance services comprising global tax calculation and export compliance,
• fraud management services consisting of billing address verification (AVS), global delivery address verification, card verification number (CVV), decision manager and payer authentication (by Visa and MasterCard),
• payment security (Payment Card Industry Data Security Standard, known as PCI DSS) services comprising payment tokenization and hosted payment acceptance.

Oracle’s technical review for validating integration includes productized repeatable integrations from system integrators and access to Oracle applications and technology software, tools, and technical resources. It also includes training to help partners integrate with its products, based on the company’s standards and best practices.

Although the integration’s scope only includes around 70 customers so far, in future it could encourage customers of each partner to subscribe to the other’s services, therefore increasing each company’s customer base.

IBM and PayPal forge similar partnerships

In October 2011, WorldPay partnered with CSI, a UK multichannel solution provider, to create a platform for IBM’s e-commerce platform on retailers’ websites. The integration will help retailers to access built-in commerce solutions more easily and to substantially reduce implementation time and costs. IBM WebSphere Commerce’s USP is that it gives retailers access to an extensive library of pre-built capabilities and integrations, which reduces the complexities associated with using disparate e-commerce technologies. 

In January 2012, PayPal forged a similar partnership with AJB Software Designs, which provides software to integrate retailers’ point-of-sale (PoS) terminals with PSPs and financial institutions. AJB is building PayPal’s mobile payment interface, which will allow PayPal users to pay through 250,000 PoS terminals that use AJB software. The company services 20% of North American retailers, and the integration should be available to retailers in the first quarter of 2012.

Retailers can choose whether or not to upgrade to the PayPal interface application. However, in either case they will have to confirm any transaction with a PIN, after which AJB will connect to PayPal to authenticate the user. PayPal can send coupons or deals to the user’s PayPal application, which they can choose to apply before making a payment and checking out. After the transaction, the user will receive an e-receipt. The application does not require NFC technology, which eliminates the need for a complete overhaul of existing PoS infrastructure, meaning substantial cost-savings for retailers.

Auction website eBay, which launched its X.commerce platform to take advantage of the increasing convergence of physical and online stores, has been buying several companies to power its platform. One such company is Magento, an e-commerce open source web application development company, while another is GSI Commerce, which processes online payments, fulfills orders, and manages customer service for bricks-and-mortar retailers. With the acquisition of GSI, eBay – which is best known as an auction website for individuals and smaller businesses – can now claim to be on a similar footing as Amazon, since it gives the company access to more than 180 retailer accounts such as Toys “R” Us, NFL, and Ralph Lauren.

Similarly, its acquisitions of RedLaser (a price comparison application using barcode scanning), Milo (a database of traditional retailers’ products and prices by location), and Where.com (a location-based advertising company) are all intended to help it to gain market traction as a complete end-to-end e-commerce solution provider.

Vendor-PSP partnerships will help firms to expand their customer bases

The industry is currently witnessing the emergence of two types of business model. One is the type used by Oracle and IBM, whereby these vendors validate integration with PSPs such as CyberSource and WorldPay. The other is the PayPal model, whereby the vendor is taking the acquisition route to becoming a complete e-commerce solution provider, while also validating integration with IT vendors such as AJB Software Designs.

However, the objective of each model is the same: for a company to gain access to a partner’s or acquired company’s customers, and therefore grow their business.

It will be interesting to see how such partnerships will develop in the future; whether initial partnerships will evolve into fully fledged alliances or if acquisitions emerge as a better way to gain a strong foothold in the market. Ovum believes that the outcome will be a win-win situation for all players in the value chain and, more importantly, customers, since it will accelerate implementation cycles, reduce complexities and costs, and build a better interface between various, disparate e-commerce technologies.