Merchant Attrition & Retention Kurt Strawhecker Managing Partner, The Strawhecker Group www.TheStrawGroup.com / www.PaymentsPulse.com
The Attrition Challenge The Attrition Challenge in today’s Acquiring Market a. Market Disruption • Industry faces increasing competitive pressures, price wars and non-traditional market entrants b. Card Acceptance • Card acceptance in the U.S. has reached saturation, putting pressure on merchant acquirers’ ability to achieve volume, growth and margin targets c. Mergers and Acquisitions Common • Less organic portfolio growth pressures net operating margins
The Attrition Challenge The Attrition Challenge in today’s Acquiring Market a. These challenges are creating new pain-points for acquirers: • Sales acquisition performance is declining • The cost of sales acquisition is increasing (higher residuals, $900 merchant acquisition cost) • Added merchants are priced lower than those that are attritting • Net margins are shrinking • Meanwhile, attrition has gotten worse b. These challenges demand better retention strategies to keep current merchant customers
The Attrition Challenge What is Average Attrition in the Market? There are three ways to measure attrition: 1. Account Attrition 2. Dollar Volume Attrition 3. Net Revenue Attrition 2014 Gross Attrition Numbers: Annual (TTM) Average Account, Volume Gross, Net Revenue Gross Attrition: 2014 Account $ Volume Gross Net Revenue Gross -10.9% -15.3% -24.6% *This data is sourced from TSG’s database of more than 2 million merchants
Average Attrition With Volume and Net Revenue Attrition, Same Store Sales need to be considered Annual (TTM) Average Volume Gross & Net Revenue Gross Attrition: 2014 $ Volume Gross Net Revenue Gross Gross -10.9% -15.3% Annual (TTM) Retained Account Volume & Net Revenue Growth: 2014 + Change in Net Revenue Growth Retained $ Volume Retained +2.1% +5.8% Annual (TTM) Average Volume Net & Net Revenue Net Attrition: 2014 Net Revenue Net $ Volume Net = Net -8.8% -9.5%
Average Attrition To get the full picture on a portfolio, new sales is then added to the equation Average – Q1 2014 Attrition & Growth Account Attrition & Growth 103.5% 100% 27.7% -24.2% N/A +3.5% Beginning Attrited Chg in Ret New Sales Ending Volume Attrition & Growth 109.0% 18.5% 100% 1.6% -11.2% +9.0% Beginning Attrited Chg in Ret New Sales Ending Net Revenue Attrition & Growth 100% 107.1% -15.5% 4.9% 17.6% +7.1% Beginning Attrited Chg in Ret New Sales Ending NOTE: Metrics shown on various slides may not match as they are calculated for different time periods
Average Attrition Over the past four years, Attrition has gotten worse Account Attrition -10% -15% -16% -20% -25% -25% -30% 2011 2012 2013 2014 Volume Net Attrition -4% -6% -6% -8% -9% -10% 2011 2012 2013 2014 Net Revenue Net Attrition 0% -2% -4% -6% -8% -9% -10% -10% 2011 2012 2013 2014
Average Attrition Why do merchants leave their processing providers? Other, 3% Other notes: • 50% of merchants call when they want to leave Out of Business, • 40% of merchants that call don’t Service / 22% tell you the reason they want to Neglect, 35% leave Better Pricing, 40%
Retention Strategies Having a Retention Strategy is now more important than ever. a. Knowing where your merchants go and why they left b. Pricing review • Determine which of your merchants are over-priced vs. the market c. Utilize data regarding your portfolio • Determine weak points (SIC, Size, Geography) d. Best Practices review for merchant retention • Become more creative and adopt a scientific approach to retention management; consider a loyalty program to reward certain high value customers • Respond to customer needs through targeted, compelling value propositions • Address operational and technology gaps • Focus on improving service excellence by equipping retention reps with the tools, skills, and empowerment necessary for them to become the merchant’s single point of contact
TSG Retention Related Services TSG can help. • Attrited Merchant Research o Research and confirm what proportion of merchants have gone out of business and what proportion have moved their processing to another provider o In the case of changing providers, TSG will seek to understand reasons for switching and, where possible, which providers are selected • Portfolio Pricing Analysis o TSG will perform a comprehensive analysis of the current merchant portfolio gross and net revenue of the SME merchant portfolio and compare this to the TSG proprietary merchant industry database of 2 million merchants for key points of comparison and differentiation. o Based on this comparison to ‘market’ using different merchant characteristics (size tier, SIC, vintage, etc.) TSG will provide recommendations for pricing that is ‘over - market’ and a potential retention risk as well as potential revenue opportunities. o TSG can prepare a prioritized summary of recommendations to provide directional insights and scenarios for potential re-pricing decisions. • Review Current Retention Best Practices o Get portfolio insights and potential profit enhancement opportunities while comparing your portfolio's KPIs to industry benchmarks o Assessment of your current retention strategies o Gain an understanding of current state vs. retention management best practices Let’s talk. Call 402 -964-2617 or email Info@TheStrawGroup.com
TSG Resources Here are some free resources from TSG INFOGRAPHIC: The Top Ten Ways Acquirers Can Block the Breach TSG ANALYSIS – Vantiv’s Acquisition of Mercury Payment Systems Social Media Pages of the Top 25 U.S. Merchant Acquirers Q1 2014 U.S. Economic Indicators Report with Special TRANSACT 14 Introduction TSG Roundtable on the Target Breach, EMV, and the Ramifications TSG Analysis - Global Payments' Acquisition of PayPros at a Glance Brave New World in Payments - Tapping the Power of Big Data in Merchant Portfolio Management INFOGRAPHIC: Why are Electronic Payments Important? Trend Graphs of Payments Industry Google Search Terms Is Aggregation for Everyone? INFOGRAPHIC: What Benefits Me by Paying a Credit Card Swipe Fee?
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