Make micro-merchants profitable with straight-through processing

November 28, 2013

Micro-merchants are the fastest growing market segment in electronic payments. They are estimated to grow to 20% of the total market, but acquirers are having trouble serving micro-merchants profitably. Because micro-merchants process relatively small amounts, the customer acquisition and boarding costs of each new merchant make them unprofitable. This has kept the majors out, and has lead to the success of micro-merchant processors with lower cost-bases like Square and Intuit. estimates that processors need to bring costs down to $50 – $100 per micro-merchant to be profitable. Most acquiring leaders don’t yet have a competitive offer for the micro-merchant market. To develop one they need a low cost channel to acquire and board new customers. They need straight-through processing.

Profitably serving the micro-merchant sector requires the development of an automated straight-through boarding process. Straight-through boarding automates the collection, adjudication, and fulfillment of low-risk merchant accounts.

Merchants start with a self-service online application. Their identity is verified through automated services like Ideology and their credit is checked automatically using services like Equifax. If their volumes, industry, and delivery timeframes fit a low-risk profile, their application is approved and set up automatically. If the merchant fails ID verification, has poor credit, or has a high-risk profile, their application is sent to the underwriting team for review.

Straight-through processing reduces the cost of boarding a new customer by hundreds, sometimes thousands, of dollars and up to 80% of new accounts can be processed without the need for any employee involvement.

The micro-merchant market segment is the biggest untapped market in electronic payments. It offers a huge opportunity to acquirers who can bring their cost to acquire and board merchants down enough. Straight-through processing can deliver that cost reduction.

If you want to bring your cost to acquire customers down you can learn how by reading our eBook: The Executive’s Guide to Customer Onboarding in a Digital Age.