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www.TheStrawGroup.com / www.PaymentsPulse.com
Merchant Attrition & Retention
Kurt Strawhecker Managing Partner, The Strawhecker Group
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:
*This data is sourced from TSG’s database of more than 2 million merchants
-24.6%
-10.9% -15.3%
Annual (TTM) Average Account, Volume Gross, Net Revenue Gross Attrition: 2014
Account $ Volume Gross Net Revenue Gross
Net Revenue Net
Average Attrition
-8.8% -9.5%
Annual (TTM) Average Volume Net & Net Revenue Net Attrition: 2014
With Volume and Net Revenue Attrition, Same Store Sales need to be considered
+2.1% +5.8%
Annual (TTM) Retained Account Volume & Net Revenue Growth: 2014
-10.9% -15.3%
Annual (TTM) Average Volume Gross & Net Revenue Gross Attrition: 2014
$ Volume Gross Net Revenue Gross
Retained $ Volume Net Revenue Growth
$ Volume Net
Gross
Net =
Change in Retained
+
Average Attrition
To get the full picture on a portfolio, new sales is then added to the equation
Average – Q1 2014 Attrition & Growth
100% 109.0% -11.2% 1.6% 18.5%
Beginning Attrited Chg in Ret New Sales Ending
100% 107.1% -15.5% 4.9% 17.6%
Beginning Attrited Chg in Ret New Sales Ending
Account Attrition & Growth
Volume Attrition & Growth
Net Revenue Attrition & Growth
NOTE: Metrics shown on various slides may not match as they are calculated for different time periods
+3.5%
+9.0%
+7.1%
100% 103.5% -24.2% N/A
27.7%
Beginning Attrited Chg in Ret New Sales Ending
Average Attrition
Over the past four years, Attrition has gotten worse
-16%
-25% -30%
-25%
-20%
-15%
-10%
2011 2012 2013 2014
Account Attrition
-6%
-9% -10%
-8%
-6%
-4%
2011 2012 2013 2014
Volume Net Attrition
Net Revenue Net Attrition
-9% -10% -10%
-8%
-6%
-4%
-2%
0%
2011 2012 2013 2014
Average Attrition
Why do merchants leave their processing providers?
Out of Business,
22%
Better Pricing, 40%
Service / Neglect, 35%
Other, 3% Other notes:
• 50% of merchants call when they
want to leave
• 40% of merchants that call don’t tell you the reason they want to leave
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 [email protected]
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?
