On January 19, 2007, the Payment Cards Center (PCC) of the Federal Reserve Bank of Philadelphia hosted a workshop led by Marc Abbey, the managing partner at First Annapolis Consulting,1 to discuss the merchant-acquiring side of the payment cards industry.
In his role at First Annapolis, Abbey, who has been with the company since its inception in 1991, focuses on the merchant-acquiring, transaction-processing, and card-issuing businesses. The workshop’s purpose was to learn more about merchant acquiring, a relatively less understood section of the payment cards industry. This paper, which is based in large part on Abbey’s remarks, will describe the merchant-acquiring function, the industry structure, and how the business has evolved.
The paper begins with background information that describes the role of merchant acquiring in the payment cards business, outlines key functions performed by merchant acquirers, and defines various entities generally associated with the business. To help workshop participants better understand the current market structure, Abbey outlined several factors that have affected the evolution of the industry. He then described the current state of industry dynamics in terms of growth, competition, and business economics.
The paper concludes with a discussion of two recent developments that have heightened the focus on the industry and may have important implications for the merchant-acquiring business: the emergence of the Payment Card Industry (PCI) Security Standards and other responses to highly publicized data breaches involving merchants and the recent decisions by Visa and MasterCard to become publicly traded corporations.
