Serving the Smaller Merchant: Making Payments Work

by Lorena Harris 0

Today’s small and mid-sized merchants want to offer high-tech payments options, and are seeking solutions from a confusing array of payments providers.

Unlike large retail chains, smaller merchants typically don’t have extensive resources to devote to new processes and technologies. But they still have to compete with those larger retailers to attract consumers—and today, that means serving customers in the channels of their choice.

Recent Vantiv/Mercator research found that a majority of small- and medium-sized merchants are adjusting to that reality and now operate in two or more channels. Eighty-four percent of the survey respondents said that they use online sales channels, and 76% said that they have physical store locations. Many reported having phone, mail order, and sales-representative channels as well. In addition, 69% said that they expect their company’s interest in omnicommerce—the ability to provide consistent service across channels— to grow in the next two years.

With the need for integrated electronic channels, smaller merchants are naturally becoming more focused on technologies for payments and for serving customers. For example, about two-thirds now use POS tablets in their operations. The merchants see these as a flexible entry point into the world of omnicommerce, and about 8 out of 10 said they value tablet functions such as online ordering and inventory. But they also see tablets as a cost-effective technology that can help them operate their businesses efficiently, with functions such as time-and attendance tracking and daily reporting.

In essence, technology is playing a growing role for these merchants. But they are not always certain of their ability to leverage that technology, and they worry that they will have trouble keeping up as large retailers roll out mobile payments and other new offerings. Many are also having difficulty providing a seamless online experience: About half of the consumers cite problems such as inconsistent look-and-feel across channels and devices or lack of one-click checkout. Overall, these merchants are likely to be looking for more technology-oriented help from outside providers.

Currently, banks and independent sales organizations (ISOs) have fairly strong relationships with their smaller merchant clients, and 72% of the merchants said that it is fairly difficult to switch providers. But banks and ISOs operate in a fragmented field that includes terminal providers, gateways, value-added resellers and independent software vendors, and the growing emphasis on technology is opening the door to more competition. Already, 76% of the merchants use at least one provider that is not a bank or an ISO. And as technology-related functions become a more important part of the value proposition, merchants may look beyond their traditional providers for help.

To succeed in the coming years, banks and ISOs will need to expand their portfolios to encompass more technology-related offerings. For many, this will require the acquisition of new skills and, typically, collaboration with partners. Merchants are likely to be interested in everything from mobile rewards and couponing to omnicommerce capabilities and customer analytics. They are also likely to be open to a broader range of services that help them, for example, set up new systems and support ongoing operations with maintenance, fraud monitoring and encryption, real-time transaction data reporting, and so forth.

With an expanded repertoire, banks and ISOs can drive more revenue. But they will also be in position to move beyond commodity-like products and services and become consultative partners that help merchants use technology to run their businesses and deliver a good customer experience across channels. They will be able to get closer to merchants and, by doing so, hold their own in an increasingly competitive environment.

Source: Vantiv Insights Series Research 2012-14, conducted in partnership with Mercator Advisory Services.

Lorena Harris is vice president of corporate marketing at Vantiv, where she leads the Vantiv Insights Research program. For more insights, visit vantiv.com/research.

For more information, download Vantiv’s white paper, Serving the SMB Market: Making Payments Work, or view the Serving the SMB Market Infographic.

Vantiv is a leading integrated provider of payment processing strategies and advanced technology solutions for businesses and financial institutions. For 40 years, our team of committed professionals has made us one of the most trusted and respected organizations in the payment processing industry. We’ve driven many of the changes that prompted the shift from cash to electronic payments, and that innovative spirit continues to be our strength. We’re innovators, thought leaders, boundary pushers. Vantiv is changing the face of payments.