Oliver Wyman and the Merchant Advisory Group (MAG) jointly sponsored the 2023 Voice of the Merchant study to examine how leading merchants are transforming their payments ecosystem to meet customers’ ever-evolving shopping expectations. The 2023 study builds on the findings from our 2022 Voice of the Merchant study.

The payments landscape continues to grow and transform rapidly, with new technologies, new rules and regulations, and new providers entering the fray. Merchants are sifting through these dynamic trends as they focus on delivering superior consumer experiences centered around speed, convenience, and frictionless shopping journeys. Against this backdrop, how merchants approach their payments strategy, operating model and key partnerships is critical for strengthening customer relationships and driving sustained growth.

The 2023 Voice of the Merchant study presents a detailed view of the evolving payments ecosystem based on a survey of over 50 enterprise merchants, followed by targeted interviews covering the following topics:

• Payments strategy
• Recent regulatory changes
• Payments technology and infrastructure
• Partnership approaches
• Payments organizational structure

We unpack the recent developments across the payments value chain – spanning the customer, merchant, merchant services provider, network, and card issuer hops of the traditional payments flow – all from the merchants’ perspective.

A customer-first view

Customer interactions with merchants continue to proliferate across new channels, forms of payments, means of authentication, and new ways of engagement. Over a third of merchants now support proprietary cards and mobile wallets. Similarly, both proprietary and third-party shopping channels continue to gain traction, with more than 60% of merchants supporting three or more channels. As a result of the changing needs of customers, merchants need to embrace a comprehensive approach across payments mix, technology, operations, and stakeholder management to stay ahead of the curve.

Merchants are shifting their focus to a more strategic mindset

Since the last survey, there has been a noticeable shift in focus away from cost to a more strategic mindset around payments services, reflecting merchants’ customer-first view. Nearly 60% of merchants now actively manage their form of payment (FOP) mix. A proactive and strategic approach to managing payments has also contributed to new technology partnerships, team size expansions, and increased cross-functional collaboration for merchants.

Evolving role of merchant services providers

Merchant payments teams spend much of their time on operations and cost. About 80% of merchants leverage at least one solution for operational needs beyond core payments processing – highlighting the importance of value-added services offered by merchant services providers. However, as merchants increasingly focus on strategic priorities and technological specialization, they are looking towards specialists to fulfill those needs. Only approximately 20% of merchants seek innovation and customization from their payments provider as the top quality. Additionally, in a bid to address some of the pain points and sources of friction (for example, cost, outages without resiliency), among other strategic reasons, half of all merchants have opted for multi-acquirer set ups.

Five key industry developments impact card rails

There are five key payments industry developments that have further advanced over the last year:

• Card Not Present (CNP) debit routing
• Credit Card Competition Act (CCCA)
• Enhancements to friendly fraud programs by the card schemes
• Real-time consumer payments use cases
• Enhanced regulatory scrutiny for BNPL

Of the above developments, CNP debit routing and the CCCA are top of mind; merchants believe competition in debit and credit will be impactful to their organizations. Relatedly, half of all merchants expect to implement smart CNP debit routing by the end of 2023.

Issuer partnerships for proprietary card programs are also evolving

About half of all merchants surveyed offer private label and/or co-branded credit cards, with more than 80% of big box retailers supporting both forms of propriety card programs. Merchants strategically leverage these programs for greater customer loyalty, spend, and retention, among other benefits. The role of issuers in the success of proprietary card programs remains significant, but it appears that the pendulum is shifting in favor of merchants with regards to the economics, and roles and responsibilities.

You can download the complete version of the 2023 Voice of the Merchant study, below.