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This article appears in the March 19, 2009, edition of ISO&Agent Weekly.
Most merchants, 78%, cite price as the primary factor that prompted them to switch processors, according to a recent Aite Group LLC report. However, price alone typically is not the only reason a merchant chooses to leave: product selection and service also affect merchants' decisions, according to industry insiders.
Though merchants most often give price as their reason for changing providers, they typically have additional problems when they switch, says Adil Moussa, the Aite analyst who wrote the merchant-attrition report. "Pricing is really the proverbial straw that breaks the camel's back," says Moussa.
The predominant drivers for voluntary merchant attrition are "price, service and product," says Vaden C. Landers, CEO of Profit Point Inc., a Nashville, Tenn.-based provider of gift card, loyalty and merchant services.
Though roughly one-fourth of the merchants Aite surveyed said they are unlikely to remain with their current processor, few are shopping for new processors, the report states. Twenty-six percent of the merchants reported they are "not at all likely" or "not likely" to stay with their current processors, but only 8% reported they were searching for a replacement.
Merchants experience "inertia" and "just don't want to move" despite being unhappy with their processors, says Moussa.
Changing processors "is a perceived hassle. People flat just don't want to change," says Moussa. Some merchants believe "it's better to stick with the [processor] you have versus trying to move to someone else and [face] a glitch in the system," he says.
Lowering Merchant Attrition
Though some merchants choose not to switch providers despite unhappiness, ISOs and acquirers still should work to lower client attrition because acquiring new accounts can be costly. The acquisition cost for a merchant account is roughly $1,010, says Moussa. This year, "ISOs and acquirers will be spending $1 billion in merchant acquisition," he estimates from sales and marketing costs.
To effectively combat attrition, ISOs and acquirers should consider reducing merchant attrition at all times during a client relationship and not solely when the client is considering leaving, says
"People that are engaged in actively managing merchant attrition do better than the ones that just hope for the best," says Anderson. "It's more than waiting for the complaint or the phone to ring to salvage a relationship. That's not a great strategy."
Providing consistent customer service and periodically surveying merchants regarding satisfaction can help lower ISO and acquirer merchant-attrition rates, agrees Wagner. "The lesson is, if you are proactive in your outreach versus reactive when a merchant is leaving, you will be more successful," she says. Service providers tend to focus on new merchants and not on existing clients, but providers should deliver customer service to all clients equally throughout the relationship, says Wagner.
Offering a "good price and a terminal" no longer is enough to keep a merchant's business, agrees
Some merchants value customer service over price or other factors, agrees Landers. "I've seen a number of scenarios when a guy will get a better price from another provider, but they'll pass because they appreciate the relationship" with their existing provider, he says.
Convincing Merchants To Stay
Providing customer service and communicating with clients should continue even after a merchant announces intentions to switch service providers. ISOs can reverse their clients' decisions to cancel service by consulting with each regarding the reasons for the potential switch and addressing the problems, according to some ISOs.
"If any merchant wants to leave, we're on the phone with them prior to cancellation" asking why, says Svoronos.
Profit Point performs an "educational and informative consultation with each customer" when a merchant reveals an intention to switch service providers, Landers says. The first step is to "identify the issue and deal with it" to retain the account, he says.
For instance, an ISO can renegotiate a merchant's rate if the primary concern is price, says Svoronos. By conducting consultations, Group ISO retains between 20% and 25% of merchants that approach the ISO to cancel service and switch providers, he estimates.
Typically, it is easier to get a merchant to stay if the concern is price because "we can drop the rate and make them happy," says Svoronos. If the decision to leave "is based on products that we may not have—a specific gift card program or rewards program—they're going to go," he says.
ISOs, processors and acquirers have "more options" to retain a merchant unhappy with price, agrees
Some products that service providers offer may increase the likelihood a merchant will remain with an existing provider, note industry insiders.
Selling gift card services to merchants decreases the likelihood they will leave to contract with other processors or ISOs, says Landers.
"In the stored-value world, attrition is almost nonexistent," he says. "Once you get the merchant up and running and get a thousand gift cards out, it becomes a challenge to move the program from one place to another."
Gift cards are one of the "stickiest" applications a service provider can sell to a merchant, agrees Wagner.
Merchants can be hesitant to move gift card services among providers because they fear complications that may render the cards inactive, says Landers. "When that customer has a card with $50 on it and wants to use it, you better be able to process that card," he says.
Landers estimates Profit Point's merchant attrition among stored-value clients at between 3% and 4%, and he attributes it primarily to "involuntary attrition," such as when merchants go out of business or no longer can afford the card service.
Overall, keeping clients is about maintaining "best practices," says Svoronos. "To lower your merchant-attrition rate, show more value and interest in your merchant," he recommends. "That's what it comes down to: professionalism, price, education and value."
