Merchant aggregators like Square, PayPal, Groupon, and others have been garnering a lot of attention in the press lately, with Square now processing a rather significant run rate of $8bn of annual volume. Square has quickly become the ‘poster child’ for an innovative payment solution provider to the under served micro-merchant category. We view success in the category as a positive development in the war on cash, as it helps bring additional volume into the payments ecosystem.
MasterCard and VISA highlight that merchant aggregators are creating some problems for card issuers' customer service efforts. The merchant of record on these transactions is usually the aggregator itself, not the end merchant. As a result, cardholders often are unable to recognize certain transactions on their statements and have therefore been calling their banks' service centers to initiate disputes, for example. Although this poses operating issues for bank partners, we view growth in the under penetrated micro-merchant category as a net positive for the networks.