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Value-Add to Must-Have: What Businesses Need From Their Payments Company

*This article was updated 1/4/2023 to reflect the most up-to-date and accurate data.

Integrated merchant attrition rates are 4.9% more favorable than non-integrated merchants

Managing a business comes with a myriad of responsibilities. What may be a challenge for some, may come with ease for another. Fortunately, there is a complementary set of tools and services that assist with business management pain points. Software as a Service (SaaS) solutions are designed to provide value to a business through management tools. Individually, these tools provide value, but a cohesive interface that allows for a one-stop-shop for business owners is paramount. One feature of integrated software is the ability to accept in-store and eCommerce electronic payments. What was once a sole requirement to increase revenue, card acceptance is now just one value-added feature of integrated business management solutions.

Streamlined business management and operations is the future as Software and Technology evolve alongside consumer habits, behaviors, and preferences. Some benefits provided to a business operator include efficiencies, time saved, a holistic business view, and financial and operational management. According to Cisco’s Global Cloud Index, 86% of global companies will run almost entirely on SaaS by 2023.  With that level of adoption, integrated software went from simply a potential Value-Add for merchant acquirers to a Must Have.

While certain features are applicable across integrated solutions, some are more vertically specific. There are two types of SaaS models as it relates to integrated solutions: Horizontal and Vertical.

Horizontal Solutions:

Horizontal solutions deliver a broad service that covers a wide breadth of industries.  These industry-agnostic solutions tend to be more mature and cater to business needs that are shared by multiple industries. A legacy, horizontal SaaS is QuickBooks which focuses on accounting solutions applicable to all businesses.

Vertical Solutions:

Vertical solutions deliver specific solutions targeted to a particular industry.  These industry-specific solutions tend to be less mature and vertically tailored. Vertical solutions are purpose-built, full-featured solutions for industry niches that address specific industry pain points. This level of functional specificity narrows the size of the potential market. An example vertical SaaS is Cerner which focuses on healthcare.

SaaS is the future of business management which has direct, positive impacts to payment providers who can offer integrated solutions along with payments (or vice versa). Integrated merchants (SaaS+Merchant Services) perform favorably within merchant portfolios.

Stickier Relationships
Integrated merchant attrition rates are 4.9% more favorable than non-integrated merchants when comparing annual volume attrition

Larger Merchants
Integrated merchants, with an average annual credit/debit card spend of $536K are 20% larger than non-integrated merchants

Greater Revenue to the Acquirer
Due to additional perceived value-added solutions, acquirer revenue rates are 36 BPS higher than non-integrated merchants which adds an additional level of financial attractiveness

The above statistics are sourced by TSG’s AIM platform. AIM is the most trusted, timely and largest platform for merchant acquiring data. Populated with nearly 50% of the credit card-accepting businesses in the US, the proprietary platform provides simple dashboards for executives as well as big data output for analysts.

Integrated solutions are the future of how operators will manage their business. Merchant services and card acceptance is just one of the tools a business needs, but like other tools, payments needs to be cohesive and streamlined within a SaaS solution. Integrated solutions can be industry-agnostic (Horizontal) or industry-specific (Vertical).  Both represent a one-to-many opportunity for acquirers. Other benefits include stickier relationships with larger, higher revenue merchants. Acquirers can partner with or acquire ISVs as part of their go-to-market, acquisition strategies.  Each strategy, monetize or acquire, has different revenue and investment (internal operational cost or acquisition cost) implications. Traditional acquires that do not have an integrated offering will be left behind in the ever-evolving payments space. What is your strategy to be a Must-Have for businesses?

Let’s discuss how AIM can support and develop your strategy.

By Josh Istas, Senior Director of Analytics