If you’ve ever made a purchase using a credit card or debit card, you’ve paid a merchant fee for someone to process that transaction on behalf of, most likely, Visa or Mastercard. These small merchant fees are minimal to the customer but over time, they build up to be substantial fees which digital payments company Novatti Group (ASX: NOV) can now secure with the granting of its merchant acquiring licences.

Having been granted Principal Acquiring Licences by both Visa and Mastercard, Novatti’s merchant acquiring division is set to improve its margin on merchant fees already being generated. Prior to the granting of their licence, Novatti had been utilising a third party licence for their acquiring division which went live earlier this year.

With the licences secured, Novatti can accelerate their merchant acquiring division which will benefit from a large network of prospective customers within the existing Novatti ecosystem that processes more than $2.3 billion in transactions annually.

“Being awarded acquiring licences by both Visa and Mastercard, two leaders of the payments industry, adds to the real strength of our ecosystem,” said Novatti Managing Director, Peter Cook.

“We see payment acquiring as an area of strong growth for Novatti, particularly as businesses continue to move online following COVID-19.

“By securing these capabilities now, we are well placed to capture significant future growth. Moving to a position of being a Principal Acquiring Member enables us to generate a higher gross margin in our acquiring business over the long term.”

Depending on where a customer shops, merchant fees on digital payments have historically been absorbed by vendors as a means to secure payment from the customer. With the exponential rise of digital payments in recent years as an alternative to cash, more merchants have been passing on the merchant fees to customers as a 1-3% surcharge.

For the convenience of paying instantly, this has become widely accepted by customers where the amount might just be $1 on a $100 purchase.

Now fully operating under their own acquiring licence, Novatti’s merchant partners can accept payment from consumers, including through credit cards, direct debits, and other mechanisms such as Alipay and WeChat Pay. This will be particularly popular for online businesses that wish to be paid quickly so that they can immediately dispatch goods or services.

In addition to being appointed a Principal Acquiring Member by Visa and Mastercard, Novatti opens up opportunities to target larger merchants, including international operators with Australian-based operations.

By using Novatti’s merchant services, customers can utilise it as a gateway for their customer payments which can then move seamlessly through other Novatti channels such as cross-border payments.

Other potential opportunities may be explored by Novatti via accounting software company Reckon (ASX: RKN), of which Novatti secured a 19.9% strategic stake in July 2021. As of their most recent update, Reckon had more than 106,000 customers using their cloud-based platform, many of whom are likely utilising some form of payment acquiring service.

As an extension of the Novatti ecosystem, the Company is expected to be awarded a banking licence in the coming months which would add to their digital payments services.

It’s been a very busy few weeks for Novatti which also acquired digital payments company ATX for $8.4m and launched Verv in Europe as a new business that enables businesses to open a digital bank account with its own unique IBAN – International Bank Account Number – for standardised banking services worldwide.

In a report published last week, market research firm MST Access issued a target price of $1.15 on NOV shares.