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Three Critical Actions Banks Need to Take in Order to Compete in the Merchant Services Game

None of us could have predicted the impact of COVID-19. Over 100,000 small businesses have closed permanently due to the pandemic1, which is 35% more than in the 2008 financial crisis. And yet we have seen online sales increase nearly 30% year over year2.

As we slowly come out of COVID-19, we believe we will start to see new businesses emerge and new channels thrive bringing significant opportunity for banks. Merchant services is a sticky product  (merchants with acquiring stay 2.5-3x longer and their checking account balances are 5x higher with banks than those merchants that don’t have acquiring). Unfortunately, most banks outsource the merchant experience to a third party processor and don’t own the merchant experience.

Here are three actions banks should take now to prepare for this market opportunity:

  1. Know Your Base and Engage

    Our experience is that less than 8% of your current business clients also have processing with you. In fact, we see close to 30% of businesses process with a FinTech such as Square or PayPal at a higher rate then you likely offer.

    Look at it this way – if each new client represents up to $1,200-$2,000 of annual revenue per year for your bank, imagine if you increase your merchant customer base by just 10%. That translates into hundreds of thousands or even millions of transaction revenue dollars. Just because merchant services are only a small percentage of your payments revenue today does not mean it needs to be the same in the future. Know your base, create the offering for those clients, and engage in their preferred channels.

  2. Own the Experience

    Over 90% of the top 100 banks that offer processing outsource to an acquirer or ISO. This means for a client to buy merchant services from a bank, they need to refer to that third party. We believe banks need to create an experience that spans across all digital channels, branches, call centers and sales reps to ensure a simple, personalized experience.

    When it comes to servicing, banks typically have customers log in to 4 different systems to see transactions, report cash flow or dispute a charge. With this, the customer is leaving the bank’s site and removes the stickiness from the overall relationship. Why is this okay for payments (the lifeline of any business) but not for any other product? Businesses that are engaged with merchant services stay with their bank 2.5 times more than those without. Bring back the merchant experience.

  3. Don’t Wait

    We believe old and new entrepreneurs will emerge. Small businesses that are struggling due to COVID-19 are begging for new, innovative, and cost-effective solutions and banks have the opportunity to become their trusted partner. Invest, build, and transform now as we expect to see an uptick in demand for innovative payment solutions.

    Regardless if you choose to explore these opportunities with XUP or build internally, we highly recommend developing an ecosystem that is fast to market.

    Now is the time to compete and take back the merchant experience.


    1. The Washington Post, 2020
    2. Common Thread Collective, 2020

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