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This article appears in the March 12, 2009, edition of ISO&Agent Weekly.
The difficult economy is affecting voluntary and involuntary merchant attrition differently, with involuntary attrition on the rise as voluntary attrition slows, according to industry insiders. Merchant attrition is a concern for ISOs and acquirers, which constantly have to protect themselves from competing merchant-service providers seeking their clients' business.
With voluntary merchant attrition, a merchant chooses to switch to a different service provider, says Vaden C. Landers, CEO of Profit Point Inc., a Nashville, Tenn.-based provider of gift card, loyalty and merchant services. Involuntary attrition occurs when a merchant no longer is in business or stops accepting card payments, he says.
The recession is causing involuntary attrition to increase, says Vic Susman, chief operating officer at First National Merchant Solutions, an Omaha, Neb.-based processor. "We've seen merchant attrition related to merchants going out of business go up slightly," Susman tells ISO&Agent Weekly.
Many merchants, from small to national retailers, such as Linens 'n Things and Circuit City, filed for bankruptcy protection in 2008, and the economy likely will continue to affect many retailers negatively this year. Retail-industry sales will decrease 0.5% in 2009 from 2008, predicts the National Retail Federation, a Washington, D.C.-based retail trade association. Retail sales grew 1.4% from 2007-2008 and grew 3.3% from 2006-2007, states the federation. The federation excludes automobiles, gas stations and restaurants in its retail-sales numbers.
"Most of the consumer behavior we saw in 2008 will continue well into this year," says Rosalind Wells, the federation's chief economist.
While involuntary attrition has increased, voluntary attrition has decreased because of the difficult economy, says Susman. There has been "a hunkering down on behalf of merchants who want to switch because of price. They are more hesitant" because of the economy, he says.
Merchants are looking for stability with their existing service providers instead of less-expensive rates with a different provider, says Landers. "Merchants just switching for the sake of switching, I don't see that happening in this turbulent economy," he says. "If someone wants something cheaper, they are more inclined in this environment to call me and ask for a better price."
Industry Attrition Rates
The average industry merchant-attrition rate, including both voluntary and involuntary attrition, is between 22% and 27%, says Nicole Schrader, senior consultant with First Annapolis Consulting, a Linthicum, Md.-based consulting firm. She does not have estimates for voluntary and involuntary attrition separately.
Overall merchant churn can be between 21% and 27%, agrees Darrel Anderson, senior vice president of sales and marketing for TSYS Acquiring Solutions.
"Attrition tends to be 9% to 15% from merchant losses due to leaving to other processors," says Anderson. "There are additional losses that are attributable to merchants going out of business. I have seen it as high as an additional 12% turnover."
The annual merchant-attrition rate in the United States is 12%, a recent Aite Group LLC report estimates. To reach its estimate, Boston-based Aite defined merchant attrition as the number of merchants that leave their processors over a one-year period, according to the report "The Allure of Greener Grass: An Analysis of Merchant Attrition." Aite says it surveyed 160 merchants between May and August last year for its research.
Roughly one-half of all merchant attrition is because of business failure, estimates Michelle Wagner, Elavon vice president of global marketing. However, Schrader estimates up to 75% of merchant attrition is involuntary.
Differences in industry attrition estimates can occur because service providers measure attrition differently, according to industry insiders.
"We never talk about actual attrition rates because there is no actual industry measure to define attrition," says Wagner. "The industry is going to measure attrition differently. Some will measure by volume, some by merchant locations, some by revenue lost."
Elavon uses all three methods to measure merchant-attrition rates, she says, noting the processor does not publish the data.
The lack of an industry standard for measuring attrition among ISOs and acquirers makes measuring and discussing merchant-attrition rates on an industrywide level difficult, says Wagner.
