As the payments industry becomes increasingly commoditized, it faces new challenges. Among the biggest hurdles is how to keep customers loyal.
Switching costs are low, new players are flooding the market and competition is fierce. In a recent survey conducted by CAN Capital, a leading alternative finance specialist, 52% small business owners, said they would switch payments processors if a new provider offered a lower transaction fee and/or superior value.
In an effort to remain competitive, payments processors are starting to offer value-added services to their customers. In a 2013 survey by the Electronic Transactions Association (ETA) and Goldman Sachs, most respondents said loyalty-based solutions and value-added services are the key to lower attrition and a way to open new revenue streams.
Many processors value-added programs have the goal of making their customers businesses more successful and addressing pain points. Using a critical tool they have developed over the past several yearsthe collection and analysis of customer dataprocessors can offer any number of value-added services, such as helping merchants to time promotions or segment customers to make advertising more effective.
Some payments processors are going directly to one of small businesses major pain pointsaccess to capital. In the CAN Capital survey mentioned earlier, 65% of small business owners said that accessing capital is quite or extremely challenging. In a nascent trend that is expected to accelerate, payments processors are partnering with finance companies such as CAN Capital to ease access to funding.
Leveraging the customer data that processors collect as a matter of coursesuch as numbers and size of transactions, revenue, sales flow, location, years in business, customer loyalty and business performance trendsare at the heart of these partnerships.
This information is typically part of a small business loan application. The difference is that processors can easily make this data available to other finance companies. This spares the business owner from having to go through the time-consuming (and not always successful) process of applying for capital through their banks or other traditional sources. The business owner no longer has to use limited time and resources to collect, compile and submit financial records, business plans and other documents.
Equally important, the finance company can offer a fast quote that reflects how much capital could be available for an individual business.
This is a smart approach for payments processors on many levels it helps their customers expand and improve their operations, encourages stickier relationships and drives additional revenue because healthier, well-funded businesses conduct more transactions.
Further, ETA found that merchants are willing to pay 2 to 4 times the merchant discount rate (MDR) for loyalty-based solutions.
Processors looking to offer value-added services such as access to capital need to carefully consider how to integrate the service into their existing business and how to find the right partner. The following tips may be helpful.
Get to know your customer base. Take the time to understand your customers businesses, including their health, growth plans and the competitive landscape. Taken together with the data, this will help you form a clearer picture of which businesses might benefit from an infusion of capital.
Be vigilant about choosing the right partner. Some criteria to consider when choosing a capital provider to offer services to your customers include track record, knowledge of your customers industry, reputation, financial soundness and quality of management.
Be sure your technology and that of the provider are compatible. When choosing a partner, ensure their technology integrates with your platform. The partner must also have the capacity to scale as your business grows. Note that in most cases, full integration isnt necessary or even desirable and there are multiple ways to ensure the right technology is in place.
Theres no doubt that payment processors are facing new and stiff competition, and if customers see them as providing a commodity service, there is no basis for loyalty. To succeed in a difficult environment, processors need to look at relevant service providers. For many of their small business customers, solving their main challengeaccess to capitalwill help build a strong, enduring relationship.
Daniel DeMeo is the Chief Executive Officer at CAN Capital.