Pricing Doesn’t Tell the Whole Story About Merchant Attrition

Pricing is by far the biggest reason merchants cite when asked why they left their previous payment card processor, but there's more to the attrition story than meets the eye, according to a new study by Aite Group LLC. “Pricing is only the proverbial straw that breaks the camel's back,” author Adil Moussa, an analyst at Boston-based Aite, says in the report. He notes that merchant dissatisfaction over customer service, confusing statements, and other factors spur businesses to seek a new independent sales organization or other merchant acquirer. And processors often raise their discount rates in the spring and fall when Visa Inc. and MasterCard Inc. re-set interchange rates, the single biggest component of payment card pricing. “Suddenly, all that dissatisfaction with what they felt before is exacerbated by this increase and they start shopping around,” Moussa tells Digital Transactions News. Aite surveyed the attrition experiences of 160 small and mid-sized merchants with up to $3 million in annualized credit card volume?40 apiece in e-commerce, brick-and-mortar retailing, health care, and restaurants?from last May to August. Some 51% of the merchants reported they had left their original processor since they began accepting card payments. Aite estimates that 12% of merchants had changed processors in the past year. Brick-and-mortar merchants, the focus of intense competition among ISOs and acquirers, had the highest attrition rate, 26%, compared with 15% for restaurants and only 5% for health-care providers and 3% for e-commerce merchants. Merchants have a notorious reputation for being sensitive to payment card pricing, and in some respects Aite's data affirm that view. Some 78% of merchants that had changed processors cited pricing as important or very important in their decisions to switch. The next most common “important” to “very important” exit reasons were, both at 48%, “slow reaction to my needs” and poor customer service. But processors that concentrate too much on pricing as a retention tool could be missing signals from their merchants about problems, according to Aite. Out of the total number of merchants reporting they were likely to leave their processor in the next 12 months, 58% were dissatisfied with the processor's products or features, 50% were dissatisfied with the processor's customer service, and 50% were dissatisfied with the processor's accessibility. Only 32% said they were dissatisfied with pricing. Other factors also influence merchants' happiness with their processors. Among those that had left a processor, 33% cited their inability to understand their processor's statements as an important to extremely important reason for leaving. Similarly, some 28% cited their inability to reconcile their statements and transaction data with accounting software. On the flip side, merchant inertia plays a role in keeping a lid on attrition. “Even when merchants experience dissatisfaction with their processor, only 53% express the desire to switch to a new processor,” the report says. “In fact, only 30% of dissatisfied merchants actively seek a new processor.” One reason why the e-commerce merchants Aite surveyed have such a low attrition rate is that most were very young businesses, Moussa says. Health-care merchants, meanwhile, have a low attrition rate in part because they value multiple relationships with their banks and also put a lower priority on their payment processor's customer service and the clarity of merchant statements, according to Aite.