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Banks have traditionally relied on interest income from loans and deposits, but non-traditional financial services companies are providing competition for these core products. To survive long term, banks must find alternative revenue streams and recognize the demand for innovative products and services. Fortunately, one underutilized service that most banks already offer can be an efficient driver of non-interest revenue.
Merchant services has typically not been a priority for banks. However, with the shift in how consumers pay and the emergence of integrated business software and services, banks should take a fresh look at their merchant services programs. Payments can be the centerpiece of a long-term strategy for retaining existing customers, attracting new ones and generating profits from alternative sources.
Merchant services is among the few products every small business needs. 91% of consumers prefer non-cash payments (Forbes Advisor Survey, February 2023). And 36% saying they would shop elsewhere if a store did not accept credit or debit cards (Finder LLC Survey, 2023). Offering merchant acquiring services – sometimes called payment processing – has become a fundamental component of doing business.
Community banks have a distinct advantage in offering merchant services due to their close relationships with local business customers. However, if the bank does not provide a practical merchant services option that suits their small businesses or does not effectively communicate that they offer a program, the merchant will seek a competing product through a third party.
After the effort put into acquiring and building relationships with business customers, it is impractical for a bank to effectively hand their customers over to a competing financial services provider. The threat of losing business to your competitors is real. Businesses are 57% more likely to open a depository account at the bank that backs their merchant services, according to PYMNTS.com’s Elan Advisory Services. As payment software becomes more integrated with other banking and financial products, the likelihood of losing that customer increases even more.
Merchant services may not produce the eye-catching profits of other core bank products, but it presents the unique opportunity to generate revenue from just about every merchant. Also, because payment technology integrates with other banking services, it allows increased customer engagement and cross-selling opportunities. Current customers are 50% more likely to try a new product (Forbes Advisor, June 2022), and each new product makes customer retention easier. A strong merchant services program can secure existing customers and provide upsell opportunities with new customers.
Banks should seek an experienced partner with a strong history of working with community banks. The level of service provided to merchants will reflect directly back on the bank, so choosing a provider based on knowledge and service should outweigh other considerations.
To increase their client base, banks should reconnect with their existing business portfolio Banks should offer merchant services options with every new business account and engage customers in conversations about merchant services during each interaction. Just asking the question is a time-honored method for increasing sales.
With a clear vision and a strong commitment to remaining agile in this rapidly changing marketplace, community banks will continue to be the backbone of the financial system well into the future.