What challenges ISVs and PSPs face that could inhibit payments innovation

By Puja Sharma

Nuapay, EML Payments’ Open Banking and account-to-account (A2A) payments business, announces the results of research into UK payment professionals’ views on the business impact of the cost of living crisis. Every single Payment Service Provider (PSP) and Independent Software Vendor (ISV) surveyed has already felt the impact on their business.  

Both PSPs and ISVs are facing a raft of new challenges amid the cost-of-living crisis. Half of all (49%) PSPs surveyed said that it is taking longer to convert new customers and bring in new business, as did 39% of ISVs. Lengthening sales cycles could be attributed to businesses being less willing to spend in order to protect their bottom line. 

In addition to longer sales cycles, 46% of PSPs and 32% of ISVs also cited increasing business costs as a key concern. At present, these are caused by ongoing disruption to supply chains and labour shortages, as well as increased energy costs. 

Many cited declining average transaction values (40% PSPs, 35% ISVs) and a decrease in customer orders (34% PSPs, 32% ISVs) as key challenges. This combination of reduced revenues and increased costs is squeezing profit margins. 

Ruwani Hewa, Product and Propositions Director, Nuapay, said, “The business challenges faced by PSPs and ISVs could threaten payments innovation, if headcount is reduced or revenue drops further. Over the past few years in particular, innovative payment technologies have been a bright spot amid uncertainty, supporting the development of digital economies and keeping money moving. PSPs and ISVs have played a crucial role here, and it’s important that we continue to support them.” 

Furthermore, PSPs and ISVs report that Secure Customer Authentication (SCA) is further complicating matters. More than one in four (27%) ISVs and 23% of PSPs seeing checkout abandonment increase by an unbelievable 61%-100% since SCA on card payments became mandatory. 

First unveiled in 2019, Strong Customer Authentication (SCA) aimed to make e-commerce more secure. Despite this, almost half (45%) of PSPs have seen an uptick in fraud, as have more than a third (38%) of ISVs. 

Unsurprisingly, 80% of PSPs and 63% of ISVs describe current payment security measures such as SCA as ‘only somewhat’ fit for purpose. Rising checkout abandonment and increased fraud attempts could both lead to fewer sales for merchants and revenue for PSPs and ISVs. If left in its current format, in an already challenging economic climate, SCA could result in tighter profit margins for everyone. 37% of ISVs already report that they intend to take the difficult step of reducing their headcount.  

Brian Hanrahan, CEO, Nuapay, added, “It’s clear that SCA regulations haven’t been the silver bullet that regulators hoped they would be. Instead, they have created serious checkout friction for consumers paying by card and – crucially – lost sales for businesses. With Open Banking payments, the user experience is much improved, with authentication already embedded on mobile. For instance, with Open Banking, consumers can use biometrics to instantly verify and approve payments.”

Key Takeaway:

• Half of all (49%) PSPs surveyed said that it is taking longer to convert new customers and bring in new business, as did 39% of ISVs
• More than one in four (27%) ISVs and 23% of PSPs have seen checkout abandonment increase by 61%-100% since SCA on card payments became mandatory.
• 37% of PSPs will take the difficult step of reducing their headcount