Pac-Man was never a very realistic game. He would eat and eat and eat but never get any bigger.
The Merchant Acquiring game is very much like a realistic version of Pac-Man. If Acquirers and ISOs don’t “acquire” merchants, they’ll be eaten. But make no mistake, the ones who do the most acquiring are getting bigger and bigger, and the pace is only quickening. Take for example Merchant Acquiring giants Global Payments and Heartland Payments. Global Payments announced in December of 2015 that they would be purchasing their “smaller” rival Heartland Payments for $4.3 billion. Gobble gobble.
If Global Payments is considered the top of the market, then Square is the bottom of the market, accepting razor-thin margins to serve the underserved micro-merchant market. While they’ve been dismissed by Merchant Acquirers who believe they are in an entirely different market, Square just released 2015 Q4 results, detailing a 49% increase in sales volume over the previous year, amounting to $374 million in revenue. That aggressive growth means they are slowly but surely eating the market from the bottom up.
With the Global Payments of the world eating the market from the top down, and the Squares of the world eating the market from the bottom up, the rest of the Merchant Acquirers are left with one choice: figure out how to onboard more merchants than their nearest competitor to stay alive.
How do most Merchant Acquirers approach growth strategy? They hire more sales people, introduce a new product, and hire more back-office staff to support growth. Then they realise they can’t afford to sustain that level of growth forever, and back off.
I’m going to suggest a different approach: start with the merchant onboarding process. More specifically, start by implementing an onboarding automation platform.
Merchant acquirers need to grow, and need to scale. I would propose 5 reasons why onboarding automation software is the silver bullet for growth.
1) It Allows You to Scale
Whether you realise it or not, onboarding is the single biggest bottleneck in your sales process. Hiring more underwriters and administrative staff to process the additional merchant applications is not sustainable.
Your organisation may be able to increase revenue with sales and product initiatives, but you will constantly struggle to keep costs down without removing the bottleneck of onboarding.
2) It Can Double Your Sales Output
If your sales team had the capability to onboard a merchant on the spot, from a mobile device, would they sell more? The answer is, probably.
If your sales team had to deal with 95% less administration, waiting, and back-office phone calls, and if merchant defection in the onboarding process was slashed in half, would they sell more? The answer is, definitely.
And yes, this type of onboarding is a reality for some acquirers.
3) It Optimises Underwriting
In your underwriting process, if you don't have a scientific understanding of who exactly is passed, who is failed, and who is passed on for further inspection, you are leaving money on the table.
Let's say your underwriting team has a clear Statement of Intent (which is more than most underwriting teams). Do you have insight into what percentage of applications fall within your target range? If the percentage is suspiciously high, your sales team isn't being aggressive enough. If the percentage is too low, either your sales team is targeting the wrong demographic, or underwriting is using too many (overlapping) scoring factors, causing the merchant risk score to be artificially high.
None of this is the fault of the underwriting team, or the sales team, but of the onboarding system itself. Arming your underwriting team with good data and pre-defined data sources will make a world of difference in making sure the right merchants get passed, and the right merchants get failed.
4) It Increases Merchant Referrals
When something is very good, people tell each other about it. This is the secret of hole-in-the-wall restaurants that all the locals love.
In the merchant world, very little matters except that you made it easy for them (and of course, cost). This has been the story of Square for many merchants. They were able to create an account on their iPad in a matter of minutes, and texted their friends to tell them about it.
You probably can't compete with Square's prices, but you can easily recreate a similar onboarding experience, with an onboarding automation platform.
Create a fast, intuitive, digital onboarding experience for merchants (without compromising on underwriting standards), and the referrals will start to come in. It's inevitable.
5) Merchant Expectations Are High
You may not see Square as the competition. In truth, they aren't a direct competitor to every merchant acquirer. But they are an indirect competitor. They have fundamentally changed merchant expectations as to how fast, convenient, and digital the merchant onboarding process can be.
When a more established acquirer tries to sell them on an onboarding process that will take days, not minutes/hours, their main reference point is Square. "My friend got signed up with Square in one day. Why can't I do that with you?" There is no real satisfactory answer to that question, since merchants don't care about the inner-workings of compliance or legacy systems.
Today, a fast, digital onboarding process is table stakes for a merchant acquirer.
Onboarding automation systems aren't a nice-to-have in a Pac-Man, fintech world. Competition is fierce, margins are getting compressed, merchant expectations are high, and the available technology is too good to not automate the merchant onboarding process with onboarding automation software.
By Mike Gardner, CEO, Agreement Express.