Exclusive: ‘Relieving the pressure – Kristján Brooks, Valitor in “The Fintech Magazine”
The shifting plates below the global payments landscape demand an agile strategy from payment solutions providers. And Valitor has one Head of Sales and Business Relations in Iceland, Kristján Brooks explains…
It’s no secret that the payments landscape is complex, with a bewildering number of participants in a process that consumers are barely conscious is happening.
Acronyms abound. ISOs, or independent sales organisations, for example, are the companies contracted by a card network member bank to procure new merchant relationships – although they’re also called member service providers (MSPs) by many and some even refer to themselves as acquirers, although, strictly speaking that’s the bank. Then there are the standalone payment gateways, sometimes offered by merchant account providers, that transmit the payment details. The new, more agile payment facilitators (PFs) might once have been an ISO or perhaps an independent software vendor (ISV), which traditionally would have had a symbiotic relationship with an ISO and is now probably eating its lunch. All of these and more are generically known as payment processors.
The nomenclature may be contested, but what’s clear is that the mediators, managing what can be up to eight steps in a transaction between the banks, the merchant point-of-sale or ecommerce interface, and the card network, are changing. And so is the value distribution in the payments chain.
For merchants, there is often a broad range of fees associated with these payment processes, including start-up fees, transaction fees, chargeback fees and termination fees, not to mention the lease charges for credit card processing equipment and other essential physical assets. What was once a race to the bottom in terms of how much a merchant would be charged for the privilege of getting paid, is now more about the number and utility of wraparound services a provider can offer them – or the partnerships it can form with others to do so.
It’s against this background that Icelandic payments specialist Valitor has developed the infrastructure to modernise, simplify and bring value to all players in the payment processing ecosystem – even the outdated ones transitioning to a new role.
“ISOs are battling to evolve and keep up with the changing payment landscape,” observes Kristján Brooks, Valitor’s head of sales and business relations in Iceland. “Historically, ISOs lack glue to merchants, and typically the value they can provide is better pricing. But they are limited, in terms of growth, so they have transformed into PFs, enabling them to grow through advanced technology. These companies are, in effect, now operating as fintechs.
“The fundamental difference between a legacy ISO and a PF is scalability,” he continues. “A PF’s setup is actually a key enabler in helping them to grow, and this is all done by automation. And so our philosophy is to address the various pain points of our customers and PFs, by providing them with the proper rails, the infrastructure, the technology, the expertise and the knowledge they need.”
The shifting dynamics in the market are dramatically evidenced by a recent study from Mastercard: in 2016, acquirers enrolled 85 per cent of their merchants through ISOs which had gone directly to the market; in 2020, acquirers got 70 per cent of their merchants from payment facilitators.
“New entrants coming into the payments space are the value-added re-sellers (VARs) and independent software vendors (ISVs) that have some stickiness with merchants,” says Brooks. “ISVs and VARs already outnumber ISOs by three to one. These developments will create some fantastic opportunities.”
An example of that last year was Splitit, the instalment payment platform, announcing that it would partner with Stripe, the digital financial transaction infrastructure company, to ease the onboarding process for merchants signing up for Splitit’s service. The integration will also allow the payments platform to accept more currencies, improve its reporting tools and automate the movement and acceptance of money for funded transactions, the aim being to help Splitit scale more quickly.
“Splitit is a software company that will basically become an income lead generator for Stripe,” says Brooks. “Splitit has a solution it pushes to the market, and Stripe is the default acquirer in the background. This is the same philosophy that we will adopt, and have done already here in Iceland, where we’ve signed up ISVs, VARs, and whichever solution caters to certain niches or market segments, Valitor is the default acquirer in the background, and thus the preferred acquirer by choice of those VARs and ISVs. In the pan-European market, we will find, identify and contact such players with partnership in mind.”
Established in 1983, Valitor is a licensed bank operating as an international payment solutions company, dedicated to making buying and selling easier by working directly with merchants, PFs and ISOs across Iceland, the UK, Ireland and northern Europe. It was among the first banks to gain a European crossborder licence in 2006, focussing on ecommerce. Today, it services tens of thousands of merchants by acquiring their online and offline transactions.
“Valitor is an agile and nimble acquirer, with its own acquiring platform and developers. We provide partners with programmatic access to our systems, via APIs. So, we have created the rails for PSPs to be self-sufficient, to onboard merchants, put them live, settle, etc. We’ve basically outsourced many of the roles we, as an acquirer, must do, to PFs, giving them the automation, speed, simplicity and scalability to be successful,” says Brooks.
He points to the experience of one particular PSP that took the partnership approach offered by Valitor
“It has now become its own acquirer with a global licence, valued at US $100billion. When we struck an agreement with that company, back in 2012, there were 55 staff; now there are 3,500-plus. Another grew from 550 staff in 2013 to 2,800, and a third from 55 in 2015 to 350 today.
“We can run a lot faster and act quicker to accommodate the needs of our partner payment facilitators – and we do look on them as partners, not just as revenue-generating channels. We want to build a relationship with them,” says Brooks.
In that way, of course, Valitor itself can scale beyond its somewhat-limited domestic market.
“We only have 350,000 people living in Iceland,” says Brooks. “We realised, early on, that for Valitor to grow, it would have to be crossborder.”
It might be small, but Iceland is mighty when it comes to fintech. In a December 2020 report on the Nordic fintech scene by Findexable, there are more fintechs per head of population in Iceland than anywhere else in the region – 9.7 per 100,000 people. The success of the sector, which includes several international players, is a reflection of the Icelandic character: determination and focus on execution, with an outward-looking attitude to commerce, says Brooks. That came to the fore after the hardship the nation faced following the financial crisis, when they showed they were ready to accept the challenge to change an outdated financial system.
That period coincided with the arrival of new technology that has dramatically altered consumer behaviour.
“We were already seeing a rise in contactless payment solutions such as QR codes and PIN-on-glass, and so on [before the pandemic]. This was already happening internationally and is now picking up pace due to social distancing and other restrictions. Instead of putting your card into, or tapping it on, a point-of-sale terminal, we will see many more QR code solutions being rolled out. We have a very exciting partner that we’ll be implementing this with in the UK later this year, and we have had many enquiries coming in from prospective partners with similar solutions.”
Card-present transactions have inevitably been cannibalised by increased online activity due to the current pandemic.
Valitor, which has a dominant market share of around 45 per cent in Iceland, on the acquiring side, has witnessed a sharp drop on that side, while ecommerce volumes went from 14 per cent of its domestic volume in 2018/2019 to 24 per cent by the end of 2020. Ecommerce partners in many sectors across Europe also saw ‘tremendous growth of 30, 40 even 50 per cent, month to month’.
“Those numbers will stabilise, but I firmly believe this trend is here to stay,” says Brooks.
That’s not to say there isn’t room for growth in face-to-face, contactless transactions. In fact, later this year, Valitor will offer PFs the option to set up for card-present transactions, ‘giving them all the same benefits as ecomm PFs: scalability, automation, simplicity’, says Brooks.
One partner whose customer-present payment solution was on, quite literally, a roll pre-pandemic and has seen an uptick in recent months, is Littlepay. Valitor’s relationship with the transit-focussed paytech is one good example of its innovative integrated model in action in card-present payments.
Valitor became the startup’s acquirer four years ago. Its ability to incorporate the functions of payment processor and payment gateway, and capacity to handle large volumes, allowed Littlepay to quickly roll out its ‘tap-and-go’ contactless Europay, Mastercard and Visa (EMV) card solution for a range of readers and fare engines.
Littlepay now processes contactless EMV payments for more than 200 operators in the UK and Ireland, with many more in Europe and beyond now wanting help to deliver contactless quickly as part of their pandemic response.
Littlepay’s Thea Fisher says Valitor took a risk backing the startup.
“But as we continue our expansion, Valitor will remain a valuable partner for us, particularly in regions where its licence as an acquiring bank and operational experience is established,” she says.