US merchant acquiring market framework

US merchant acquiring revenue swimlanes build
We update our illustrative US merchant acquiring swimlanes build, providing a directional view of both size and growth rates. Our analysis suggests the fastest growing channel will be the Owned Software channel (owners of the software and their portion of payments revenues), followed by the payments partners to these software companies. We expect the Enterprise channel to maintain stable growth, at rates slightly below the industry (driven by low levels of churn, Same store sales (SSS) growth, mild pricing pressure). Importantly, our build suggests the Server Message Block (SMB) direct channel will continue to decline over the coming years, while the broader software-led distribution channel (owned and partners) will increasingly capture share of both volumes and unit economics.

Software platforms’ importance within SMB revenue opportunity
We continue to believe that software-led distribution is increasingly becoming the channel required to participate in the ~70% of industry revenues sourced via underlying SMBs, of which the vast majority could ultimately be running through a software platform (i.e., vertical- or horizontal-Software as a Service (SaaS) company, Independent software vendor (ISV), marketplace, etc.) longer term. We conclude that those best positioned will be either: Owners of the software – either a standalone modern Point of sale (POS) system and/or platform (or owned software assets within a broader business or the preferred partners to these software companies for embedding and monetization-enhancing financial services across multiple channels, products, and geographies. Said differently, preferred partners will essentially become the “app-store” for payments and more, across multiple regions, and all available “as-a- Service.”

Net acquiring revenue
We estimate that total US merchant acquiring net revenue in 2023 was ~USD 35b based on total US acquiring volume of ~USD 12.3tr and an average acquiring take rate of ~29bps. We estimate US net acquiring revenue grew at a ~7% Compound annual growth rate (CAGR) from 2016 to 2019 and will grow at a ~6% CAGR from 2023 to 2028, a slight discount to industry volume growth due to a mild degree of pricing compression (which we believe has been more focused within the enterprise segment relative to SMB in recent years, in part due to the increasing importance of the software-led distribution channel).