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2023 PSP Vertical Benchmark: Commentary on Industry Attractiveness

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2023 PSP Vertical Benchmark

Utilizing TSG’s proprietary data warehouse of over 4M merchants, the 2023 PSP Vertical Benchmark eReport lists nearly 300 merchant types and includes key metrics on volume and profitability. Follow the link to learn more about the report.

Strategic Considerations

There are numerous considerations and variables that must be taken into account when developing a vertical-specific strategy for a PSP (Payment Service Provider). Each PSP’s priorities, strengths, and weaknesses vary widely based on an ever-increasing list of factors.

While this report takes the step to identify the attractiveness of verticals measured on total volume growth and profitability to the PSP (merchant acquirer) in each vertical, the quantitatively assessed most attractive verticals may not make sense for a payment provider’s overall strategy. As an example, the MCC 5967 (Direct Marketing – Inbound Teleservices Merchant, Incl. Adult Content) is rated the “most attractive” vertical weighting volume growth and net revenue to the acquirer equally in this year’s version of the report, but unless an acquirer or payment provider has the existing internal infrastructure and support staff necessary to support this niche vertical with its very specific needs, focusing on these merchants would make little sense and an investment to build that needed support structure from scratch would more than likely exceed the profitability that would be achieved selecting that vertical.

Key Findings from the eReport

  • “High achievers” represented in this year’s analysis are observed to be incredibly diverse, with notable attractive MCCs found across multiple dissimilar industry classifications. Parking Lots, Amusement Parks, Lodging, Streaming Services, HVAC Contractors, and Utilities are examples of verticals within the top 25 of attractiveness, but with dissimilar industry characteristics binding them together. What these disparate verticals have in common is a high annual volume per merchant metric with positive YoY volume growth. Even if a merchant generates little net revenue to the acquirer in a single transaction, the high volume of transactions within several of these verticals adds up to greater aggregate revenue than other verticals with fewer, higher-priced annual transactions.
  • Motion Picture Theatres achieved some of the highest annual total volume growth in TSG’s prior 2022 PSP Vertical Benchmark as the post-pandemic economic recovery was in full swing, growing payment volume over 225% from December 2020 to December 2021. However, in this 2023 iteration of the analysis measuring metrics as of June 2023 (Trailing-12 Months), Motion Picture Theatres annual average processing volume declined 9.4%, indicating a deceleration from post-pandemic economic recovery rates. 
  • A recurring theme within “less favorable” verticals in the analysis period were durable goods MCCs with higher average tickets and declining annual processing volumes. The average tickets of these were consistently in the high triple digits. Truck & Utility Trailer Rentals, Electronics Repair Shops, telecommunication equipment, and roofing/siding/sheet metal work contractors are some of the verticals that reported double-digit percentage volume decreases from June 2022 to June 2023.
  • Verticals with the highest Annual Net Revenue to the acquirer (per merchant) are considered higher risk (MCCs 5967, 6051, 7273, and 7012, all within the top ten). However, the nine verticals with the lowest Annual Net Revenue to the acquirer were within Personal Services. Massage Parlors, Beauty & Barber Shops, and Tailors are some examples of merchant groups with lower average annual volumes and average net revenue per merchant.
  • Repair & Maintenance services across industry groups performed poorly. Electronic repair, furniture reupholstery, appliance repair, upholstery cleaning, restoration services, tire retreading/repair, and watch/jewelry repair all had unfavorable attractiveness scores when Annual Net Revenue per Merchant and Total Volume Growth are weighted equally.
  • Of the 63 verticals categorized within the Retail industry (+24% of all MCCs represented within the PSP Vertical Benchmark), only seven were in the upper quartile of attractiveness and, of these seven sub-retail verticals, none achieved an Annual Net Revenue per merchant rank in the top 20 of verticals. While stability and industry risk profile are not factored into the calculation for attractiveness, the report shows that the majority of retail verticals were less profitable to the acquirer compared to other industry groups. Perhaps more alarming, only 3 of the 63 Retail classified MCCs achieved a Total Volume Growth % in the top 20 of MCCs (Shoe Stores, Family Clothing Stores, and Hearing Aid Sale Service and Supply Stores).
  • MCC 6211, encompassing Security Brokers/Dealers, experienced a notable YoY decline in processing volume, falling 37.5%, a stark contrast from the 28.6% YoY increase in TSG’s prior 2022 PSP Vertical Benchmark analyzing December 2021 TTM performance. This is likely a symptom of current economic conditions, volatility, and uncertainty in financial markets, resulting in less institutional retail trading volume.

Data Source

The data in this report is sourced from TSG’s proprietary Acquiring Industry Metrics (AIM) platform comprised of over 4 million card-accepting merchants. Learn more about AIM. AIM subscriber? Login here.