Customer onboarding can help payment processors build a competitive advantage [3 of 4]

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March 12, 2013

Getting merchants to switch payment processing providers is not an easy task. Business owners today are more tech-savvy and well-informed than ever before, and they need to be convinced that switching will create value for their business. A good sales pitch is not enough. With new internet applications like CardFellow at their finger tips, and with the current trend of micro-merchant payment processors displaying flat rates on their website, they can easily find out the rates offered by different banks. Competing on rates is risky because it hurts profitability and may lead to a margin-slimming price war. So how can banks attract new merchants without lowering their rates?

Customer onboarding can help develop a competitive advantage

It’s simple: they provide a better customer experience. But that’s easier said than done. So how can payment processors deliver a better customer experience? They develop better business processes. Payment processors that have better business processes can conduct business faster than their competitors and offer their customers a better experience at a lower cost. In other words, they’ve developed a competitive advantage.

A clear opportunity to improve customer experience is to automate the customer onboarding process because it’s the first experience a new customer has as a customer. Onboarding is a crucial part of a customers’ experience because it sets their impression for the future. It reaffirms the choice they made to switch is the correct one, and frames future interactions favorably. A negative onboarding experience creates the opposite. It makes the customer question why she went through the hassles of switching in the first place, and risks losing the customer by the time the trial period ends. This situation is even more important when attempting to upsell current customers. If you’re onboarding process wasn’t pleasant the first time, they will think about a competitor for their next account. A better customer onboarding process decreases a customer’s likelihood of switching to a competitor.

Let’s take a look at Square, the payment processor that we think has the best customer experience in client onboarding. Square charges much higher transaction rate than their competition. Their rate is 2.75%, whereas the industry standard is around 1.75%. But this three-year-old company rocketed to processing $10 billion in transaction annually. Part of the allure of Square is that they have a simple, fast onboarding process. Their onboarding process involves a quick registration form on their website that takes approximately fifteen minutes. Onboarding at most leading processors typically required five pages of paper or PDF forms, and takes five days to complete. Square has a much easier time convincing merchants to try their services with such a quick and simple onboarding process.

Payment processors must recognize the necessity for creating a better customer onboarding process today. Merchants’ expectations for client onboarding quickly follow the industry best practice. Square raised the bar in what client onboarding should look like. Banks that react quickly can gain a competitive advantage over those who lag behind.

This post is the third of a four part series on how Square is disrupting the payment processing industry. Using innovative business processes they provide a better customer experience to their customers at a lower cost than their competitors. We’ll discuss our thoughts on what makes Square different, how Square has achieved success, and what payment processors, acquirers, and super ISOs can do about it.