Using good, old-fashioned customer service and consultation to cut down on merchant attrition has been part of the acquiring playbook for years. But that playbook is long overdue for an update.
A newer concept is to compile important data prior to any real problems to get a better handle on what merchant clients think of their payments services. The major card brands, at one time or another, have introduced programs to help their acquiring banks and independent sales organizations cut down on merchant attrition. And processors have teamed up with software providers to do the same.
Attrition is an ongoing problem that costs merchant acquirers $2 billion a year in losses, plus another $1 billion per year spent to replace the merchants they have lost, according to a report from Womply Insights and Goldman Sachs Equity last year.
Looking ahead, there are new data tools and merchant management dashboards to help acquirers attempt to lower the national average of 12% to 15% attrition rates, or give some hope to those facing 25% to 30% turnover in their portfolios. But new tools can go unused in an industry that has traditionally failed to address client concerns quickly and understand the ramifications of losing an account.
Some "old-school players" continue to feel that things are just fine if one or two merchants leave their portfolios at any given time, said Paul Martaus, a merchant acquirer consultant and industry researcher for Martaus & Associates.
"These are hot-button issues with me because we have always called this the need for basic business fundamentals," Martaus said. "They are making millions of dollars from these merchants, so just call them up and talk to them if they had called with a complaint. They have their addresses and phone numbers."
Exaggerating the problem, acquirers now face change at every turn, including new technology, new competitors and new pricing dynamics. Juggling those issues makes it more difficult to focus on the critical task of keeping the clients you have.
"These guys are facing disruptors like Square and others that they never faced before," Martaus added. "Square never really put an emphasis on profitability in terms of merchant services, but they are offering other programs like cash lending that gets undivided attention from merchants."
Acquirers that focus more on attracting new clients than on keeping the ones they have are losing out on the potential of predictive analytics that can identify pain points in their merchant relationships, said Rajesh Kamath, head of financial services solutions and incubation at Incedo Inc., a technology services firm specializing in data analysis and management for large acquiring banks.
"Some say price is the only factor in attrition, but we ask if that is really true by looking at what kind of data the banks are collecting in their card practice and looking at those models to find predictors of action," Kamath said.
After that, it is a matter of determining if the bank could be doing more with data analysis, particularly from social media channels.
"It is good to find out if the merchant is saying anything that would help us realize this merchant is likely to leave," Kamath added. "Social media tracking analysis is happening in other industries, but not so much in payments yet."
Some aspects of monitoring merchant attrition remain fairly simple, particularly when the merchant has called customer service and is obviously angry about something to the point of threatening to leave.
A less explicit indicator might be hiding in other places. In addition to a call center pattern, the merchant might suddenly cut back on transaction volume, or go to social media to express a desire for better technology.
"There are acquirers who know they have a problem, but don't know what to do about it," Kamath said. "Others know they can solve the problem and are taking the first steps to do something about it, while others are already trying different attrition-reduction models and finding some that work for them."
It's never been an easy task, however, considering so many programs have been in place at one time or another, yet merchant attrition remains a significant bottom-line woe.
"Catching attrition in time to do something about it is often very difficult," said Richard Oglesby, president of AZ Payments Group and a senior analyst at Double Diamond Payments Research. "If you are a merchant thinking about changing processors, you likely are not going to change your payment acceptance trends until the day you switch."
In that scenario, an acquirer would not see a steady transaction drop that would indicate some trouble brewing. Instead, volume would stay the same until it went to zero, Oglesby said.
"It's a very big challenge, but it doesn't mean it can't be done," Oglesby added. 'If your analytics are really good, you can get a handle on this. You have to massage the data a lot and look at multiple factors, and be very intelligent about it."
Incedo's Kamath has seen the data problem unfold in many cases.
"It's not just true for payments, but other industries as well," Kamath said. "There is a lot of data, but it may not be useful. For good analytics, you need good data."
It's also possible for large banks and companies to have proper data analysis in place, but the end-user dashboard is too complicated or never gets consistent use.
"They are doing all of the right stuff, but the last-mile delivery is a problem," Kamath added. "They are not always getting the right forms in front of the right people who are supposed to act on the data analysis. Surprisingly, this happens more often than not."