Banks didn’t exactly lose their small business customers—but they did leave the door open. By treating merchant services as a low-margin utility instead of a strategic data engine, they’ve watched fintech competitors step in and turn those relationships into highly profitable platforms.
A new study from Javelin Strategy & Research, Banks Not Focused on Merchant Acquiring Are Giving Their Business Customers to Fintechs, examines the mistakes banks have made in ceding this ground and how they can win it back. According to Don Apgar, Director of Merchant Payments at Javelin, too many banks overlook how the data they already possess could help them provide more comprehensive services to merchants.
POS Platforms Have Changed the Game
The most significant change in merchant acquiring has been the rise of SaaS-based point-of-sale platforms like Toast, which allow an entire business to operate through the POS system.
Fintechs excel at mining data from these platforms. They can determine not only what products their customers need, but also when they need them. When banks view merchant services strictly as a revenue-generating product, they miss the wealth hidden in the data.
By and large, banks are still looking at small businesses through a keyhole. Deposits in one window, card processing in another—useful but incomplete. POS platforms, meanwhile, sit at the center of the business itself. They see every transaction, every product sold, and every shift in demand in real time.
“If you have Toast, you run your payroll on there, you run your tips on there, every sale gets run up regardless of how it’s paid for,” said Apgar. “Supplier invoices run through there. They are getting way more information than just basic financials, like a bank would see just from deposits.”
That end-to-end visibility turns the POS layer into an engine for targeted financial services—from lending and payroll to checking and supplier payments.
“Toast doesn’t have to ask you if you’re interested in stuff,” said Apgar. “Based on your business data, they know when your slow times and busy times are. And they know when to offer you a line of credit. It’s the difference between getting a random mailer that says you’re pre-approved versus, a business going into its slow season and being tight for cash—then the letter shows up that says you’re pre-approved.”
Squandering the Advantages
Banks still hold a structural advantage over fintech startups: trust, regulation, licensing, and scale. In theory, that combination should make them the natural first choice for small businesses.
In practice, they often fail to turn it into anything meaningful.
Many smaller banks outsource core merchant services to third parties like Fiserv. When a customer wants to accept credit cards, the bank effectively steps aside and routes them elsewhere. The relationship—and the onboarding moment—shifts outside the bank’s control. At that point, the “bank product” becomes little more than a referral. And once the customer is speaking directly to the fintech, the bank’s advantage starts to disappear.
Even banks trying to modernize their merchant offerings tend to fall into the same pattern—disconnected products, separate teams, and no single ownership of the customer experience.
“If you say, I just opened a bike shop and want to open a checking account, you’ll have to fill out some paperwork and they write a credit report and they say, here you go,” said Apgar. “And then you say, by the way, I need to take credit cards. Then you fill out this other paperwork, which asks for 99% of the same information, and they run another credit check.”
Detecting Money in Motion
Banking has always been a place to store and borrow money, but it has become apparent that money creates value when it moves. Payments have moved front and center in banks’ offerings because customers no longer want to simply park their money there. They want banking to serve as a launching pad for the things they want to accomplish.
How money moves, where it goes, when it moves, and in what amounts—that is the data that provides true insight into the customer. Some of the early fintechs realized their business was built not around the service itself, but around the data the service collected.
Square’s first product was a swipe reader that plugged into a phone’s headphone jack. Because it was connected to a mobile phone, it was easy to determine where the phone was and how it moved during specific transactions. A Square dongle provided an instant record of where transactions originated, when they occurred, and how the merchant moved between transactions.
The next step was allowing merchants to purchase software, place a computer on the counter, and run a point-of-sale system that tracked sales and inventory. What made the shift even more valuable was the move from installed software to cloud-based services. At Toast’s 100,000 locations, the data is not sitting on a laptop in the store—it’s stored in the cloud.
Fiserv’s Clover platform also operates in the cloud.
“If I’m PNC and I’m selling Clover devices for merchants, I should be able to go to Fiserv and say, you have all the data for all my merchants,” Apgar said. “Mine that data and tell me who needs a loan, who needs a business credit card, who doesn’t have automated payroll? That’s the paradigm shift. Even if I don’t make a lot of money on merchant services, it gets me access to so much data that then is now becomes the driver for all the other products.”
AI Sorts the Data
As more business activity moves into the cloud, the challenge is no longer collecting data—it’s making sense of it. A merchant with thousands of customers is generating a constant stream of signals: sales patterns, seasonality shifts, inventory cycles, and cash flow behavior.
This is where AI changes the equation. It doesn’t just process data faster; it reveals structure inside it. It can identify when demand is peaking, when cash flow is tightening, and when a customer is most likely to need credit or additional services.
And for the first time, financial institutions have the ability to act on it at scale.
“Deep data can power insightful decisions, but only if you can analyze the data quickly and regularly with algorithms that identify what you are looking for,” said Apgar. “The needle in the haystack is incredibly valuable, but only if you can find it.”
