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The problem of how to keep merchants from being wooed away by competitors has always been a serious one for acquirers, but recent changes in the industry could result in even more upward pressure on attrition rates. Here's what some acquirers are doing to keep their merchants in the fold.
Whenever the nation's largest companies change vendors, be it a giant retailer that chooses a new clothing manufacturer or a major airline that picks Airbus over Boeing for its aircraft, it makes news. Thus, when Wal-Mart Stores Inc. and United Airlines over the course of the past year switched their credit card processing business from National Processing Inc. (NPC) to the new Chase Manhattan Bank/First Data Corp. joint venture, eyebrows rose throughout the merchant-acquiring world.
Perennial Problem
The Wal-Mart and United Airlines moves clearly were a big win for Chase/First Data, though NPC insists the damage to its bottom line was minimal ("Troubled NPC Prepares for a Comeback," Card Watch, July). But in another sense, they merely shined a fleeting spotlight on a perennial problem for acquirers-merchant attrition.
Acquirers keep their attrition rates closely guarded secrets, but industry insiders and consultants estimate that turnover in merchant portfolios runs between 10% to 25% annually. With Visa and MasterCard reporting that 3.3 million locations in the United States accept their cards and taking into account the fact that many merchants have more than one location, CCM estimates that acquirers collectively have to replace at least 200,000 accounts every year just to maintain their portfolios, let alone grow.
What's more, the always-heated competition among merchant banks and independent sales organizations for merchants is getting even hotter in the wake of consolidation and the emergence of leading processor First Data as the dominant player in the acquiring industry, according to some observers. Not every acquiring executive agrees that competition is pushing attrition rates up, but others say that indeed is happening. "Uniformly, acquirers are encountering a lot more intensity," says C. Marc Abbey, a principal at First Annapolis Consulting Inc., a Linthicum, Md.-based firm that frequently advises acquirers.
Migration
Rivalry for merchants is fierce in part because national acquirers that once concentrated on price-sensitive large merchants are now eyeing smaller merchants in regional acquirers' portfolios as they...