The merchant acquirer space is staging for significant changes. Very large players, like Intuit, PayPal, and Square, are breaking away from traditional merchant acquirer business models and creating new merchant experiences that include increased speed and scale while providing a more frictionless experience. This combined with the influence of mobile devices and customer expectations of usability, will soon lead to massive changes in the acquirer space.
While it may come as a surprise, the best way to view the coming industry consolidation is based on customer experience. Merchants, at heart, are just consumers with a business. While they have tolerated slow and inefficient acquirer processes for years, they will soon see alternatives from new merchant acquirers. For example, a new merchant shared with me that while on hold waiting for his acquirer to review his application, he was able to complete the application for a Square account and be approved. The acquirer lost his business while manually reviewing the application. Merchants today expect the same kind of speed that they are used to when transacting as a consumer. A few years ago it might have seemed reasonable to leave a merchant on hold for five minutes. In a few years, it will be unbelievable.
New best practices will enable middle market acquirers to compete effectively against the onslaught of innovative competitive forces. The three key factors to address are speed, scale, and frictionless interactions. How well will acquirers address the need for instant gratification, deploy the human resources they are using, and handle customer friction?
The Need for Speed
Automation in the application process addresses the need for speed. By automating as many tasks as possible, the time necessary to process applications can be greatly reduced. Square is a great example of this. Rather than asking 50-100 questions for their underwriters, they ask the minimum questions necessary then use alternate data sources and get the rest of the information they need to fill it in. They are able to simplify the process from the consumer’s perspective and reduce the labor time it takes for them to complete the application. One of the beauties of automation is it facilitates scale because we’re not spending as much time on each application; instead we’re able to use our people for things that have the most positive impacts on customer experience and our relationships.
Last year at an acquirer show, I was talking to a woman when her phone buzzed. She looked at it and frowned, then casually explained to me that she just had to shut off a merchant. My wife has an online store, so I was curious—if an acquirer shut her off she would be out of business. I asked, “What do you mean you just shut her off?”
She replied “Well, you know, they are probably fraudulent and I’ll just call them back next week. If they are real, if it’s not fraud, they’ll call me, so I don’t really need to worry about it.” When I thought of the customer’s perception, I was amazed that she was so comfortable leaving the merchant hanging.
Automating the process can improve how exceptions are handled and communication with customers. If something potentially adverse happens to the client, they can be proactively notified. With the right tools and training in place, issues can be resolved quickly and politely with minimal disruption to the merchant.
The Correlation between Speed and Scale
Larger acquirers are able to distribute the costs of their automated systems across thousands or millions of customers. That allows them to automate much more of the process than smaller organizations. Unfortunately, some large players focus so heavily on efficiency, that they lose sight of the importance of customer intimacy. Your customers want to feel that they matter to you. It is here that middle market acquirers have a great advantage. While automating key parts of their process to improve efficiency, they can also rely on their staff to provide crucial customer service. This combination can create a powerful customer experience.
A Pain Free Experience
That brings us to the third point, reducing friction. In any interaction we have with our clients or prospects, there are opportunities for friction to occur, creating frustrations in the relationship. We want to avoid those as much as possible.
One example of this is with mobile devices. A few months ago I was refinancing my house, and I thought, ‘Well, that’s something I should be able to do on my cell phone. I will be able to fill out forms and I have a camera if I need to take pictures of documents.’
I was at a banking conference and had time to complete my loan application. When I am at home there are a multitude of other things that can’t be done on the road, so this seemed like a great way to check this task off my list without interrupting my free time. You would be surprised how few banks actually allow you to even start a mortgage application on the phone. It’s rather sad. When I asked a few bankers about it, they replied that mortgages are too complex for a mobile device. They missed the point.
Think about your merchant onboarding process from a consumer perspective. What is your application process like? How easy is your process of opening merchant accounts through a mobile device? Your prospects have a lot going on when they start their business. The few minutes that they are actually sitting at their computer can be very precious to them. The times that they are waiting in line at the city permit office might actually be the best time for them to open a merchant account.
Where Do We Go from Here?
The merchant acquirer space is changing quickly and middle market acquirers have more opportunities and threats than ever. Customer experience will be the deciding factor that separates the winners and losers. Increased speed, scale, and the ability to create frictionless experiences will enable acquirers to meet the markets changing expectations. Many acquirers realize this and are already striving to provide great experiences to their merchants. What will your response be?
Eric Lindeen is marketing director for Zoot Enterprises Inc., a provider of loan origination, account acquisition and credit risk management solutions for large financial institutions. You can follow him on Twitter @EricLindeen.
