As acquirers spend most of their time trying to figure out how to get the next biggest and best merchant or sales office, they often forget about their base book of business. Such neglect can lead to high attrition or churn, and can spell “death” for any acquirer. The demise can happen in one of two ways: (1) The merchant can go out of business. This is manageable if you focus on existing, financially- sound merchants instead of those just getting off the ground. (2) The merchant can be procured by another acquirer. All of those new products and slick marketing campaigns are often just the bait to move merchants from one acquirer or ISO to the next. In those cases, there is no net gain to the payment network, only a winner and a loser on the acquirer side of things. This type of attrition must be managed actively by acquirers. Savvy organizations are constantly looking for new ways to service their merchants and create sticky environments to keep competition out.
As you can see from the chart below, the loss of revenue due to churn can be tremendous. Lowering churn by as little as 0.5% per month can save an acquirer with only 10,000 small ($75 in
acquiring revenue per month) merchants almost $290,000 per year.
Imagine the savings to an acquirer with 100,000 merchants - it’s almost $3 million. If the portfolio has larger merchants then the savings will be even greater. Lowering attrition by 1% will double the previously-mentioned savings. Even for the small ISOs, attrition can have an incredible impact. An increase in attrition of 1% per month on a small 1,000 merchant portfolio can cost an ISO $58,000 per year.
While attrition can’t be stopped, it can be managed. One way of managing it is through basic TLC or Tender Loving Care. Acquirers can spend more time with their core clients through a customer retention department. This sub-group of the customer service department can proactively call clients on a regular basis to check on their basic needs. Special attention should be spent on the larger and more profitable clients as these merchants often make up a disproportionate amount of an acquirer’s revenue and profits. In addition, many acquirers assign dedicated account managers and flag incoming calls from these premier clients to move them to the top of the call queues and/or send them to more experienced representatives. Telephonic technology can help streamline this process and aid in its success, but an acquirer must make this a priority if it is to be effective. These types of proactive service can make a merchant think twice before switching acquirers.
Another meaningful way to control attrition is through products and service offerings. Merchants that buy numerous products from one acquirer find it more difficult to leave. POS certifications may not match-up between platforms and both acquirers and merchants often prefer one-stop-shopping. By cross-selling merchants both on the way in (new signings) and after the original sale, attrition can be minimized. Similarly, integrated and/or proprietary solutions make it much more difficult for merchants to leave, but this option may be available only to the largest of acquirers. Again, merchants will think twice before changing multiple payments services or POS solutions so it is crucial to think this through thoroughly as you are designing your product, sales, and marketing strategies.
Managing attrition is critical. It is often said that getting a new
client costs five to seven times more than keeping an existing one.
If this is the case, all acquirers should spend more time focusing on their base portfolio of merchants – their most valuable assets.
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