Customer attrition has long been an issue for the bottom line of almost every company, and this is also true for the merchant acquiring sector.
Due to the industry's extremely concentrated market, there has always been a fierce rivalry, with every acquirer striving to outperform their competitors for market dominance. The conventional merchant acquiring sector is now facing growing competition as new competitors or Fintech players have swiftly gained the merchant's trust, thanks to their quick turn times, more advanced technologies, and value-added solutions.
Acquirers have different business models - full-service acquirers offer a direct interface to the card networks while others serve as a third-party agent (TPA) or handler (TPP) between those full-service acquiring firms and merchants. TPAs might extend partial solutions to retailers or act as transaction facilitators or independent sales organizations (ISO) for full-service acquirers. Credit card providers, including Visa and MasterCard, need TPAs to enroll with them even if they are not directly connected. This makes merchant retention even more complicated and competitive. Additionally, newer Fintech companies are eager to fill the void left by established merchant acquirers and the card service providers they work with.
Solving a seemingly straightforward problem
In business, fixing challenges that appear to be surprisingly simple can be full of deadly pitfalls. The instinct is to use the same remedy that was successful in the past. But the industry is rapidly evolving. Outdated ideas may not work.
Here are some key factors to look at:
The changing expectations of customers
We hear of terms like the "Amazon Effect," and "the client is always right". The same applies to merchant acquirers - particularly as smaller merchants depend more on their acquirers to provide them with value-added goods and services faster and handle a lot of their business and technical problems.
It has become more complex and harder for merchant acquirers to maintain profitability due to rising regulatory costs, diminishing yields, and pricing constriction while trying to match with their competitors' offers.
New players are disrupting the industry
One frequently mentioned company in this space is Next Square, whose entry into an existing established industry has been phenomenal. However, there are other companies also aspiring to be the Next Square, and the sector will see many more in the coming years.
So what are the solutions being used?
Since merchant attrition seems to be a long-standing issue, many acquirers are used to losing a certain amount of business each year.
Over 20% of merchants are expected to switch from their present provider-independent marketing organization or acquiring firm. About 16–17 % of that total is deliberate attrition that may be potentially avoidable.
Additionally, industry agreement shows that turnover is pricey: To replace the losses from each merchant customer who departs the network, it typically takes three new ones. The industry invests well over $1 billion annually to compensate the retailers they have lost.
However, because attrition isn't a new issue, many organizations turn to traditional customer support as their first remedy. Some businesses may try to retain merchants by trying an expanded call center, providing some expertise on dispute resolution, and initiating proactive communication. These 'client relationship management' ideas may have provided a solution in the past but are becoming ineffective now.
Others will sway to the opposite side and adopt advanced technology. Many businesses have already succumbed to big data's seductive appeal, and executives are now compiling reams of client information and deploying pricey algorithms to tell them when they're about to lose a customer. There are several issues with these strategies.
The big data strategy is pricey. It costs more money to establish the standards for acquiring the data, build up the infrastructure to store the data (possibly getting better with cloud technology), and then create the algorithms to process the data. Furthermore, perfecting this requires time. When everything goes according to plan, businesses can utilize big data to learn more about their clients, but it might not be sufficient to keep the relationship intact.
Finally, it may be challenging to determine if you are gathering the appropriate data. By then, the funds might be running low even as the entity is losing clients.
Better solutions address the underlying causes of the attrition
So what needs to be done about the merchant attrition concern and the escalating costs related to it? Should we use conventional remedies or cutting-edge high-tech solutions or neither? Finding a solution suitable to any concern/ issue requires concentrating on two things, the first is the root cause of the issue and the second is the best possible solution based on the causes.
There are a variety of reasons why businesses might change providers. Even if it may be challenging, we must concentrate on a few of the most important ones. In actuality, we have found that there are three primary causes that are obvious:
Customers quit businesses if they are unhappy with how their concerns (or existing issues) are resolved,
when they think the charges are excessive, or
when a rival company provides a better or even more comprehensive solution.
All three of these are fundamental issues that must be addressed for any attrition solution to be successful. Big data analytics or traditional CRM won’t be able to solve all three of these issues.
From the viewpoint of the merchant consumer, focusing on the preferred results of a positive resolution is also beneficial. When we looked at what merchants desired from the partnership with an acquirer, we found that they want the following:
More transaction volume (healthier businesses)
Services designed to make them more successful
Quick solutions to the card payment-related problems they face
Data security protection
There may be irrational merchants who demand the entire world in exchange for a few pennies, but generally speaking the aspirations cover the above-listed advantages. The effective method to address the issue of merchant attrition is by providing merchants with the benefits they are seeking from the partnership. Providing these advantages by addressing each of the issues raised above could be a topic of separate discussion – but the first step is that acquirers acknowledge and understand these for their specific scenario. The willingness of acquirers to take the initiative will determine retention in the short term. Utilizing client data to spot possible lack of the above services - before they arise - is one method to achieve this. And armed with information from that step, acquirers can start strategizing and developing unique solutions for dissatisfied merchants.
We at Coforge talk about these concerns with our customers daily. The methods acquirers use are unique, and this distinguishes companies in the eyes of their customers - but the issues they are attempting to address and the advantages that they offer the merchants are similar.