The Difference a Decade Makes in Payments

In 2009/2010, banks wanted very little to do with merchant processing and outsourced most of it to a merchant acquirer partner, such as First Data, Elavon or Worldpay. Fast forward to today, payments processing is the freshest battleground.

Back in the financial crisis, many banks struck deals with payment processors to offer merchant services. This created a ‘mailbox money stream’ for banks without the underwriting, risk or cost associated with servicing merchant payments. Now, banks are not only feeling the impact of smaller checks (due to rising fees or attrition), they’re also seeing that many of their relationship agreements are coming due. A decade seemed like eternity back then, but now, with agreements coming to an end, banks are forced to make go-forward decisions.

What’s more, the merchant acquiring industry is in a state of flux. Acquisitions like Fiserv/First Data and FIS/Worldpay are adding a new level of complexity for banks re-evaluating their arrangements. What should a bank do to breathe new life into their acquiring relationships and revenue streams?

Here are three things to keep in mind as you evaluate your acquirer relationship.

  • Portfolio Valuation goes beyond transactions: we’ve seen a dollar figure put on an acquiring portfolio based on the amount of transaction volume. While this is a good first step, not all clients are created equal. What are your client’s true relationship value?

  • Switching cost: not only does this include buying out contracts, but it also means, potential costs to you in client goodwill or hard dollars for them to switch out their hardware?

  • Who owns the client: While your acquirer typically thinks they own the client, they really don’t. They may have your data but you own the relationship. In fact, a major small business trend is where banks reward deep relationships (aka bundling). How will you capitalize on the relationship you own but don’t currently maintain? Those considerations are the tip of the iceberg. We strongly believe that it’s good practice to evaluate decade-long relationships, especially with such an important product for your clients.

To do this, we recommend using a framework and if needed, outside expertise. All to often banks don’t have the deep industry knowledge in merchant acquiring because they’ve outsourced it for too long.

Trusting in a processor-agnostic partner will help you evaluate your current contracts and potential options, guide you through any transition, and ultimately result in a better processor relationship and happier customers.

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