February 9th, 2016

Managing Merchant Attrition through Advanced Analytics

Rapidly emerging newer ways of doing business and disruptive new entrants like Square and other mobile processors have brought about a sea change in the payment processing landscape. This has caused some confusion with merchants looking at different ways to reduce the cost of card processing. As a result, when a contract renewal comes up, many merchants choose to switch processors.

This attrition, however, benefits neither the merchants nor the acquirers. For an acquirer, it may take as many as three new accounts to overcome the diminished value of a single, lost merchant account. Due to this, stemming attrition has become a major challenge. In order to combat this problem, it’s important to comprehend the nature of the situation as a starting point. Sometimes the solution may simply entail adopting a more merchant-centric approach by adopting a better operating strategy, while at other times leveraging advanced analytics may be more suitable.

An Inherently Complex Industry

Zeroing in on the right merchant service provider is quite a task, as most merchants find the payment processing mechanism, including the fee structure, complex. With payment processors constantly finding new ways to differentiate their offerings in a competitive environment, complexity seems to be increasing by the day. While many acquirers proactively communicate their value add to their merchants, some deliberately withhold or distort crucial information, especially when it comes to the fee structure. As a result, merchants often complain of not being able to access the full information needed.

Keeping the entire process transparent should be the most important concern for acquirers seeking to reduce attrition. Their relationship to their merchants should not be restricted to just signing the contract. Instead, acquirers need to be in touch with merchants as much as possible, disclosing their fee structure and terms and conditions. They must proactively deal with problems and concerns long after the contract has been signed.

Leveraging Analytics

The payment processing industry is characterized by low margins and high costs, stringent regulations, new technological developments and a flurry of new market participants. Savvy processors and ISO’s are increasingly turning to advanced analytics to predict attrition, recommend the next best product for cross-sell opportunities, maximize margins and create a merchant-centric pricing strategy. This will draw new customers and act as a catalyst to existing business.

Upon noticing a decline in revenue of merchant processing business, a large payment processing company used the services of DMI to implement a merchant-centric pricing strategy for its 400,000 merchants. DMI implemented analytics modules for segmentation, benchmarking, attrition alerts, cross-sell opportunities, and a pricing calculator. The company started reaping benefits shortly thereafter with revenues increasing by 15% and attrition reducing by 10% in the first six months.

To succeed using the analytics approach, companies need to take into consideration people, processes, organization, culture, and available tools. They steps to follow are:

1. Defining Scope
Once the most pressing problem has been identified, analytics can help identify root causes. Then businesses can set realistic goals in areas where they can achieve measurable success over six to 12 months.

2. Bridging the Gap
It’s important to find the right person to communicate effectively with both senior leadership and technology/analytical employees to get to actionable insights.

3. Resist the Urge to Wait for the Perfect Data Set
Waiting for the perfect set for analytics may not always be the best course of action as there are literally thousands of data points which could be collected for every new challenge. So dive in with a proof-of-concept project, and measure initial results within three to six months. Balancing speed with accuracy is what is needed. Take raw data from a specific, focused business area and then apply analytics to that one area.

4. Astute Data Visualization
Actionable visualizations such as price or attrition alerts can help sales teams better engage with customers instead of analyzing a plethora of reports. Reports should be easy to understand and recommend the next actionable step for business leaders. Condensing piles of data to just a few charts is recommended.

Conclusion

With traditional, established players and a horde of new entrants going head-to-head, merchant acquirers grappling with merchant attrition can adopt the above prescribed steps to see positive results. But remember, identifying the root cause is the first step and only then should you work towards a solution.

Tags: analytics big data

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