Why your merchant banking customers may leave you for a competitor

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September 9, 2013

The legendary ad man Jay Chiat once said, “You start losing a client the moment you get it.” Something similar could be said about the banking industry. If you are an executive at a financial institution, increasing your customer retention rate is likely one of your top priorities. Studies have shown that increasing merchant banking customer loyalty by even a small margin can lead to a significantly improved bottom line for credit card processors because acquiring a new customer is so much more expensive than maintaining an old one. This post will help you understand some of the key reasons your customers may want to leave you for a competitor, and what you can do to convince them otherwise.

Reason 1 merchant banking customers leave: Rates

The prevailing reason for customers to leave is uncompetitive rates. Merchant credit card processing fees are a significant cost for many small businesses. Businesses that are charged 1 to 2 percent over the interchange rate are prime targets for competitors.

Let’s look at a concrete example; in a series of New York Times blog posts, one small business owner outlined his reasons for leaving his existing merchant card processor, and explained his journey to signing with a new one. From a short phone call from a competing merchant card processor, the author realized how obvious it was that he could cut costs by switching. What this shows is that in this tough economic climate, lucrative margins are no longer sustainable as competitors drive margins down and steal clients away.

To combat this danger, take initiatives to identify at-risk clients, such as those long-time clients who are paying higher margins than your average client pool. Introducing a rate match program for them will give you a strong defense when competitors knock on their door.

Reason 2 merchant banking customers leave: Customer service

The second most common reason for businesses to leave is poor customer service. For businesses that are operating with tight cash flow, they cannot afford to lose revenue due to their payment processor. When problems arise, they need to be dealt with swiftly. One bad experience could ruin a business and/or spoil the relationship forever.

The customer reviews of various merchant services institutions on the Better Business Bureau website offer great insight into the key areas that customers are unsatisfied with. For example, many businesses have stopped using merchant aggregators such as Paypal and Square due to their poor customer support. Delayed payment deposit, withheld transactions, and slow response to customer support inquiries are some of the most commonly cited complaints. Along with the complaints, many business owners state that they will never do business with these merchant services again, and warn others to not trust them.

The best way to ensure that your clients have positive experiences is to constantly improve business processes. Efficient business processes not only prevent problems from occurring, and but also fix problems quickly when they do arise.

Reason to leave 3: Account consolidation

Another reason why your customer may leave you is to consolidate accounts from multiple banks. If your clients use several different banks to meet their needs, then there is an opportunity for cross-selling across your product suite. Your bank needs to actively identify clients with cross-sell potential because your competitors are doing the same. The best time to identify cross-sell potential is immediately after customer onboarding. Studies have shown that new clients are much more receptive to cross-selling during the first month of using a new bank. Therefore, the best way to avoid losing customers to account consolidation is to implement smart business processes to recognize cross-sell opportunities early in a customer’s life cycle. Implementing single customer view can be an important step to achieving cross-sell efficiency, along with automated onboarding processes that leverage technology to accept and process applications digitally, providing customer data in digital format from the inception of the account.

There is no single solution to increase your customer retention rate. Utilizing a multi-faceted defense strategy will help protect your clients from competitors. Consider each of the three reasons customers switch processors, and look to aggressive rate programs, better business processes and automated, digital methods of onboarding new customers and identifying cross-sell opportunities to lift your competitiveness.