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The Green Sheet Online Edition

November 24, 2014 • Issue 14:11:02

Street SmartsSM

Merchant attrition - Part 1: Resisting the tide

By Tom Waters and Ben Abel
Bank Associates Merchant Services

In a portfolio-based industry like ours, a primary concern will always be merchant attrition. No one will keep every client; this is just a fact of life. Account closings are inevitable, like the rushing tide withdrawing back to the ocean. Because of this we, as ISOs and merchant level salespeople (MLSs), require constant account acquisition just to maintain our current portfolio levels, not to mention the growth we all strive for.

A portfolio's revenue is like a leaky tub that requires a constant open faucet just to maintain the norm. Stay inactive for too long and you risk ending up sitting in an empty vessel. Unfortunately though, if you thought the tub appears to be draining faster these days, the data supports your hypothesis.

A primary source we found for data on attrition was The Strawhecker Group, a management consulting company focused on the global electronic payments industry. TSG clients include acquiring banks, transaction processors, ISOs, card issuers, the card brands, technology and mobile companies, major merchants, bank specialty lenders and other financial institutions, and private equity firms.

According to TSG, which maintains a database of 2.2 million merchants, the last four years saw an increase in every category of merchant attrition measured, as follows:

  • One. Account attrition – Increased from 16 percent to 25 percent.
  • Two. Volume net attrition – Increased from 6 percent to 9 percent.
  • Three. Net revenue net attrition – Increased from 9 percent to 10 percent.

In light of this high amount of account turnover, we turned to GS Online's MLS Forum to discuss merchant retention and attrition. The main points forum members brought up in the preventative phase of retention were attention, to both the merchant and the account itself; communication; bundling services; and technology.

Out of sight, out of mind

Both users clearent and empire brought attention to the benefit of monitoring your merchants' batches. This can be done manually via some agent portals that display transaction information and through automation; some even include a batch threshold notification. This notification brings it to your attention if a merchant has not batched in X amount of days.

Empire noted, "If a merchant hasn't batched in three days and you know they batch every day, then you might want to reach out for attrition control and/or for a tech issue." He made a salient point that the merchant may be in the process of switching, or something could be wrong with the merchant's hardware or software.

Either way, jump on the situation with speed. This becomes harder with a merchant who may do sporadic batching based on his or her business model, such as a wholesaler or high-end equipment rental outfit. It's an invaluable tool nonetheless.

Clearent drew attention to making sure the merchant is aware of you, both on an individual and company level. He stated, "You must give a merchant a reason to stay with you, and it starts by making sure they know who you are. That starts with consistent communication that always ends with, 'Now, remember, I am your payments professional. If anyone talks to you please remember to call me' or something like that. You should also create communication pieces like newsletters, and mailers. Any tool that puts you and your company in front of your merchant is valuable."

We cannot agree more with the value in making sure your clients see you as a person, a friend and a professional they can turn to when in need, not just a statement that comes in the mail. While nothing works for everyone, making sure your clients recognize you as a person can go a long way toward motivating them to pick up the phone to call you before switching to another service provider. Sending out a periodic newsletter/mailer serves a similar purpose: providing ongoing positive interaction and keeping your company name constant in their minds.

In its 2013 Compensation Survey, ISO & Agent stated that 4.8 percent of industry professionals have been around for less than a year; another 31.2 percent fall within the one- to five-year range. This means, per this poll, roughly 36 percent of industry professionals have been around for fewer than five years: this is somewhat indicative of the kind of churn that can occur in our sphere (It is worth noting those statistics are derived solely from ISO & Agent respondents and likely heavily under represent the true volume of agents new to the industry).

Because of this, an MLS who signs a merchant may exit the industry sooner rather than later, leaving the merchant with nothing but an 800 number connected to voicemail for the merchant's processor. Many merchants have had this experience. Keeping your presence and company name fresh in your merchants' minds will go a long way toward providing them a feeling of security, stability and trust.

Get away from the basics

Empire also mentioned the use of additional services, such as gift cards, to increase an account's stickiness: "Once you have gift cards and the merchant uses them regularly, it's a large help against attrition." This is a significant point that we also cannot stress enough.

Many MLSs will balk at having to convert a gift card program if they're not particularly familiar with the process. And many merchants with outstanding gift card balances are extremely cautious about conversion, which potentially risks those funds should something go wrong. As you add additional products or services to a merchant account, it will become harder and harder for a competitor to offer a truly equivalent alternative. Also, if you've signed a merchant up for an array of value-added programs, you've increased a merchant's concern that problems could occur during a switch to another provider. More cogs and gears mean a greater chance of one getting jammed when you move the machine.

Steve Norell concurred, saying that being proactive and using products, services and technology greatly increase stickiness. He also pointed out, though, that no matter how great your value proposition may be, you cannot always defeat the gullibility of some merchants. Many will believe the first salesperson who comes in with smoke and mirrors selling a unicorn (spoiler: it's really just a horse with an ice cream cone taped to its forehead).

To avoid this he recommends going after the higher volume/higher end clients who may be less susceptible to those kinds of snake oil tactics. The TSG data supports this paradigm, showing the average life of the highest annual volume merchant tier was almost 3 times as long as the lowest volume tier. As attractive as only signing high volume accounts may sound, we will be the first to acknowledge it is not doable for MLSs as a whole. There are many market segments in between the merchant doing $150 and $150,000 monthly, all of which need to be serviced by someone.

Putting a lock on the door

As we're all fully aware, though, you can't win them all, and sometimes merchants will head to the door no matter how many proactive, preemptive measures you take. The next step to prevent attrition is contract terms, such as termination fees, which may not always prevent account loss, but can be something of a consolation prize should a merchant leave your fold. In our next article, we will discuss further views from MLS Forum members on what to do when merchants decide to use another processor. Until then, keep laying down your sandbags and keep trying to capture the tide.

end of article

Tom Waters has been dedicated to the merchant service sales profession since 2001. Currently, he is responsible for cultivating relationships with entrepreneurs in information technology, accounting, sales and marketing in his role as Sales Director of Bank Associates Merchant Services (www.bams.com). Using fresh and matter-of-fact training methods, Tom has contributed to the success of thousands of agents, affiliates and clients. He can be reached via email through t.waters@bams.com or via phone at 347-651-1065.

Ben Abel is Regional Director at Bank Associates Merchant Services. Since joining the team in 2006, he has risen through company ranks with a paradigm that his success was measured by the success of those around him. Ben is a dedicated, pioneering trainer whose methods of merchant services consultation have helped many agents expand their portfolios in terms of processing volume, deal count and profitability. He can be contacted at 347-866-9571 or ben@bams.com.

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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