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Many facets of traditional banks are under direct threat from digital innovations. Merchant acquiring, specifically, provides an interesting example. Merchant acquirers facilitate card-based payments for merchants (i.e. retailers, restaurants, any business accepting cards). Wells Fargo is the 6^th largest merchant acquirer in the US and processes >$280B in payments a year. While not the largest, Wells provides an interesting look into how 鈥榙igital鈥� is not only impacting the acquiring business, but also the face of payments and commerce more broadly.

Digital trends are threatening the ways merchant acquirers service and retain existing clients as well as their ability to attract new merchants. As such, given the stickiness of payments services, Wells鈥檚 ability to cross sell its vast suite of financial products (i.e. treasury services) is also at risk. Trends include:

• eCommerce growth: retail eCommerce growth is forecasted to reach ~14% of total retail sales globally by 2020 driven by forecasted CAGRs of ~21.3%, vs. ~5.9% for total retail. In the US, digital spend is expected to comprise over 50% of retail spend in the near future.
• Mobile commerce (mCommerce) growth: there is a strong argument to say that eCommerce is 鈥榦ld hat鈥�. Compared to ~9.5% forecasted eCommerce growth in the US, mCommerce in the US is expected to see ~23% CAGRs and share of almost 50% of all digital spend by 2020.
• Future growth arenas: the explosion of e and mCommerce begs us to ask 鈥榳hat鈥檚 next?鈥� for commerce. What鈥檚 next could include true omnichannel shopping (i.e. a true blend of in-store and digital shipping), social/platform driven commerce (i.e. Facebook, WeChat as channels), and VR-hosted shopping experiences (i.e. a virtual dressing room).

Given these trends, merchants are grappling to keep up with consumer demands. Merchant service providers must adapt and facilitate.

In addition to challenges in keeping existing clients happy, the ways merchants find, assess, and contract for pay

ments services are changing.

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• Traditionally, merchants would first look for in-store solutions, such as a cash register and physical card reader. However, low barriers and cost to establish an online presence has shifted that first step. Popular enablers also facilitate payments services. For example, website builder Shopify has partnered with payment provider Stripe to offer Shopify Payments, delivering both digital and in store payments solutions. Shopify Payments now generates ~50% of Shopify鈥檚 revenues.
• Even if merchants bypass digital-first options, smaller merchants are afforded a wealth of out of the box, self-service tools from players like Square.
• In addition to providing easy-to-implement solutions at competitive prices, these players (and others) have developed application ecosystems that allow merchants access to multitudes of other tools. For example, if a Shopify merchant is interested in reaching new sales channels 鈥� that merchant can access integrated software solutions via Shopify.

  

  Some may contend that the trends above cater to smaller merchants; however, these smaller merchants represent an acquirer鈥檚 highest margin accounts as well the enterprise-scale merchants of tomorrow.

So this leads us to ask: 鈥榳hat has Wells done?鈥�. Outside of one stroke of luck, Wells hasn鈥檛 done a whole lot. Wells鈥檚 eCommerce offerings, through a partnership with First Data, are old and clunky. Also, Wells still adheres to the circa 2010 definition of 鈥榤obile鈥� payments鈥� e.g. in store payments via mobile phones (Apple Pay, etc.). They also don鈥檛 provide a solution for in-app payment acceptance, and have to rely on their promoted Payeezy gateway to facilitate mobile-in-browser acceptance.

What is fascinating about Wells鈥� lack of action, is their partnership with Stripe, one of the critical drivers of the aforementioned trends. For context, Stripe provides solutions for digital/mobile-forward merchants (i.e. Warby Parker, Lyft, Doordash), platforms (i.e. Shopify, Facebook, Twitter), and even enterprise class merchants (i.e. Best Buy, Adidas, Target) – and their partnership with Wells has been key to Stripe鈥檚 success. While Wells acts as the merchant acquiring back end for Stripe, they are completely obfuscated from the merchant experience. Stripe is the one-stop-shop for the merchant, and with their incredible APIs and developer tools, is easily consumed and optimized. Funnily enough, Wells doesn鈥檛 promote the relationship or Stripe鈥檚 services. Perhaps they鈥檙e limited contractually – or even more pessimistically, perhaps Wells doesn鈥檛 want to hamper Stripe鈥檚 growth with an association to a stodgy old provider.

Going forward, there are a number of things Wells should consider to better position their acquiring business for digitization, including:

• Deepening partnership with and support of Stripe. An acquisition is likely not possible given the need for Stripe to integrate with other financial institutions abroad
• How to facilitate ex-US growth of Stripe and establish corresponding merchant acquiring relationships in key geographies
• Replace First Data鈥檚 Payeezy gateway as their digital offering. Address potential for mobile in-app acceptance
• How to engage the platforms and aggregators of that will drive the future of commerce (e.g. Facebook, Uber, Amazon, WeChat)

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eMarketer eCommerce Retail Sales Forecasts:

eMarketer US mCommerce Retail Sales Forecasts:

Shopify Quarterly Reports:

Stripe Customers:

Wells Acquiring Stats:

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Context: http://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/the-rise-of-the-digital-bank