The credit card acquiring industry has experienced stunning, double digit industry-average growth rates in the 1990s. But not all acquirers benefit equally.

The factors stimulating volume growth include uncontrollables such as retail sales growth and credit card issuer strategies. Nevertheless, your portfolio growth is highly dependent on your strategy and tactics.

For an individual acquirer, the single most important driver of volume growth is competitiveness - whether you are a share winner or loser.

Your segmentation strategy is decisive to your participation in the general industry growth.

Whether you are stealing share is the single biggest determinant of growth. The acquiring business is in a transition in which strong acquirers are stealing share from weaker ones.

The top 10 acquirers in 1995 controlled about 70% of the bank card volume. In 1989, the same acquirers controlled 40% of the volume, and one of them, Nova, did not yet exist. These acquirers as a group grew at a 26% annual rate between 1989 and 1995, while the rest of the industry grew at single-digit rates.

The top 10 acquirers are increasing their share of bank-card dollar volume because they are controlling an increased proportion of the merchant relationships. The top 10 controlled approximately 19% of the industry merchant base in 1989 and approximately 49% in 1995. Card-accepting merchants grew less than 2% annually over this period, but the top 10's merchant base grew nearly 18% annually.

It is conventional wisdom that the industry is being driven by price competition, and indeed pricing is continuing its downward slide in most markets.

However, our research indicates that merchants select their acquirers for a variety of reasons, and that an aggressive sales organization can steal share whether or not it is a low-cost provider. Nearly two-thirds of the merchants we surveyed indicated they selected their acquirers for reasons other than price level or structure.

Whether your portfolio participates in the general industry growth is directly related to your segmentation strategy. In the 1990s six merchant types have accounted for half of the cumulative industry dollar volume growth. These six merchant types grew at a 17.5% compound annual rate, while the rest of the industry grew at a 10.2% rate.

Acquirers that focused on these niches benefited disproportionately - and if you were not well positioned, you did not enjoy the general surge in volume.

We identified three characteristics of the merchants that accounted for the bulk of the industry growth:

*These merchant categories were not only growing fast, they were very large.

*Several of these merchant categories have retail sales in excess of $100 billion. Not only are they growing quickly, they are growing on a large base. Conversely, some very high-growth segments do not contribute significantly to industry growth because they are relatively small (for example, postage stamps, which grew 1,550% annually, represented only 0.001% of industry growth).

*The underlying merchant sector for many of these merchant types was experiencing healthy growth.

Retail sales grew 4.4% annually between 1991 and 1993. Many of the merchant segments accounting for large proportions of bank card volume growth also had retail sales growth two to three times the economywide average.

For example, building/garden stores, auto repair shops, and sporting goods shops all had sales growth over twice industry average as well as increasing rates of bank-card penetration. Car dealers, health-care providers, and general merchandisers, on the other hand, all had double- digit increases in retail sales but declining bank-card penetration rates.

*Bank cards were displacing other forms of payments at a rapid rate.

We estimate that over half of the industry growth resulted from increased credit card penetration. Even when a segment is stagnant or declining, it could contribute tremendous growth to bank card volume.

The best example of such a segment is grocery stores, which accounted for over 7% of cumulative bank-card volume growth in the 1990s. Over the period we examined, total grocery store sales grew by only 2% annually, while bank card sales grew over 100% each year, tripling bank card penetration.

Grocery stores, mail order merchants, restaurants, drug stores, and building/garden stores all lead the industry in increases in penetration rates in the 1990s.

In our view, you should be asking yourself the following questions:

*Are you well positioned to steal share from the weak? Whom are you taking merchants from, and to whom are you losing merchants? Why do your merchants select you as their acquirer and why do they leave? What are your competitors' strengths? What are yours?

*Is your segmentation strategy properly focused on tomorrow's high- growth industries? What merchant types will be the high growth segments over the rest of the decade? What are the current concentrations in your portfolio? Are you getting your share of the high growth merchants in your market? Does your parent organization have specialities you can leverage? Do you need an active research and development strategy?

The acquiring business is in the middle of a market-share battle in many respects, and for many acquirers a growth strategy is the appropriate course of action. Your growth strategy is very likely to include sales tactics designed to maximize your competitiveness and segmentation tactics designed to position your portfolio well to participate in a rising tide of bank card volume growth.

Mr. Cliff is a senior analyst and Mr. Abbey is a principal at the Maryland consulting firm.

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