Merchant Attrition Dipped in 2014 But Larger ISOs And Acquirers Saw Less Benefit

Merchant attrition fell to 21% in 2014, down from 22% in 2013, reflecting continuing merchant use of specialty point-of-sale software that helps them run their businesses in addition to enabling payment acceptance, finds a report from Adil Consulting.

The report, “Merchant Attrition: Strategies, Tactics, Best Practices & Industry Benchmarking,” examines merchant attrition among 37 independent sales organizations and acquirers of varying sizes.

Typified by the likes of ShopKeep.com Inc. and Revel Systems, these specialty POS systems combine the functionality of a tablet, in many instances, and apps with payment processing. These apps may help monitor inventory, provide sales insights, or aid employee management. “Merchants are less inclined to leave a provider that offers relevant products for the merchant’s business,” notes Adil Moussa, principal of Omaha, Neb.-based Adil Consulting, in the report.

Out of the estimated 10.5 million U.S. merchants, approximately 1.7 million left a payments provider for another one. That means 8.4 million stayed put, the report says. About 420,000 merchants went out of business in the year.

Smaller ISOs and acquirers—those processing less than $1 billion annually—experienced an attrition rate of 13%, while the largest—with more than $30 billion in annual processing volume—had an 18% rate.

Those in the middle—processing between $1 billion and $9.9 billion and those processing from $10 billion to $29.9 billion—had attrition rates of 19% and 22%, respectively. That reflects the difficulties of managing large portfolios, often without greater investment in retention strategies.

The impending broader adoption of EMV chip payments likely will affect attrition rates. Moussa says that 30% of ISOs and acquirers are using EMV as a strategy to acquire new accounts.

“The market players should be ready to counteract by educating their merchants about EMV and dispelling some myths in order not to suffer from a large drain,” the report says.

Though education, at 62%, is a popular way to save accounts, pricing, at 73%, is the most popular option. The survey also found that customer service, 54%, product integration, 30%, bank relationship, 16%, managing the end of a contract, 14%, predicting attrition, 11%, and offering free equipment, 8%, worked, too.

Among Moussa’s many recommendations for combatting attrition, he says that educating merchants about payments and emphasizing customer service before and after the sale can help.

“With every change of the tide, companies need to regroup and evaluate their current situation,” Moussa notes in the report. “What used to work four years ago is not going to today.”