What is the price of convenience? When it comes to referral arrangements for merchant acquiring, the evidence suggests it is already too high and getting more costly every year.
While referrals are a common solution to delivering merchant services to SMBs, the hidden costs can outweigh the benefits. Qualified bank customers are guided out of the bank’s door and down the street to another business, which secures a profitable revenue stream, detailed data insights and the foundations of a relationship on which they can build customer primacy.
The bank becomes a junior partner in the relationship in return for limited compensation that is a fraction of the true lifetime customer value. It makes cents, which no longer makes sense.
In fact, the real value of relationship data and the revenues it can generate is growing as card adoption soars.
Cards account for around 70% of payments volume in the US. Consumer and commercial card spending on goods and services set to grow 40% ($4 trillion) in the next four years to more than $14 trillion*.
The data generated by this spending, and the strong connection it provides to millions of consumers and businesses, risks being lost unless banks adapt their approach to merchant acquiring, by delivering services directly and taking back ownership of the merchant relationship.
This is about more than payments. Merchant acquiring provides the foundation for an extensive suite of services, driven by data; for every $1 in merchant acquiring revenue, a further $4-6 can be generated from the provision of additional services.
Processors and disruptors have already carved out lucrative customer communities from banks’ SMB heartlands and as they also introduce new, added-value services to meet a broader range of needs, the cost of lost revenues could soar by 700%.
It’s time to put banks back at the heart of small businesses.
In an increasingly competitive market, where merchants can choose from a wealth of potential partners, banks need to keep pace to compete. They must match the speed of technological change and deliver exceptional experiences for merchants that help them thrive and grow.
Banks need to provide consistent, seamless experiences to merchants, breaking through their own data and departmental silos to deliver a full range of merchant solutions at the point of need.
Through a single hub, merchants should be able to interrogate payments data, obtain valuable insights about their business and access valuable services from their bank, such as loans, even reaching out to a marketplace of third-party specialists that offer integrated solutions.
In this way, all services are delivered in a consistent tone of voice, deepening the relationship with small business owners and expanding the bank’s understanding of their specific requirement, to inform longer-term product development.
We know small businesses value a single-source solution that simplifies their business operations, and banks already have the distribution and scale to deliver a solution across SMB communities.
It is a significant undertaking for banks – that’s where smart partners such as Pollinate can help – but it will unlock their potential to generate growth that easily justifies the effort required to get started.
The role of merchant acquiring has evolved and it’s time for banks to release its potential.
Nick White, Chief Product Officer for Pollinate