As the economy has deteriorated, I have seen a noticeable increase in acquirers, ISOs and processors assessing new fees and programs on their merchant bases. Various compliance, insurance, help-desk, merchant-club and service fees are starting to pop up on merchants' statements more and more often. Many acquirers are seeing revenue diminish as same store volumes decline and attrition grows due to economic factors. In addition, there are fewer new merchant start-ups to replace business closures and shrinking volumes. Many experts expect this trend to continue through 2009. To combat the bottom-line effects of this economic down-turn, many acquirers are looking to their existing clients — the ones still in business - and adding new fees and/or opt-out programs in an attempt to increase revenues.
   I very much understand the need to show revenue and income growth to investors, analysts, bankers, board members and even management as I am responsible to these same parties and have my own revenue goals to meet. But what price are we willing to pay on our long-term strategy and portfolio in order to hit a certain revenue number in a given year?
   As we all know, merchants don't like added fees and increased costs. As acquirers, we are well aware of this as we are generally the bearer of "bad news" every April and October when the Networks increase their interchange rates. Often this results in increased attrition by bringing the cost of acceptance to the forefront of the merchant's mind, causing the merchant to go out and shop rates. By adding a new fee or forced program, and in this case one that another acquirer may not have, how many more merchants will go shopping? How many more will leave? How many referral partners will leave? How will it affect your reputation and long-term opportunities? Besides the simple, long-term financial effects, I would argue there are other factors that also need to be considered.
   The chart below illustrates the potential financial impact of a fee or forced program. For example, say you think your business is worth 36X your monthly revenue stream (the enterprise value of some acquirers is as much as 60X). Your monthly revenue per merchant is $80, and you decide to assess a $69 compliance fee. In this scenario, an attrition rate any higher than 2.4% will negatively impact the value of your business:

   During the current year, this acquirer will most likely generate greater revenues and profits by charging the compliance fee than by not because of the in-year revenue impact. However, if attrition grew by an additional 2.5% or more, the long-term or "sale value" of the business would be negatively impacted. There are other costs associated with adding fees and forced programs as well. Generally, there is an impact on the call-center as call volume will spike when fees are added. Long hold times for all clients—even those not impacted by fees—often create unhappy customers that leave for better service providers. In addition, it can have a negative impact on referral partners. Agent banks, trade associations, VARs and so on are often unhappy when acquirers raise fees because bankcard processing is a value-added service they offer and they don't want to jeopardize their core service offerings. Lastly, merchants and industry people do talk and negative publicity and rumors of company financial issues are not conducive to growing your business.
   There is definitely pressure on all of us to hit our numbers and we are clearly seeing revenue diminish as volumes drop, merchants leave and new accounts are harder to come by. But, in a year where it will be challenging to hold on to your position in the market and keep merchants, you might want to do everything in your power possible to keep your clients happy, not force programs and fees on their already strapped businesses and to mitigate attrition.

Greg Cohen is President of Moneris Solutions U.S., and manages all U.S. initiatives and operations for the company.
Mr. Cohen can be contacted at 847-240-6623 or via email at greg.cohen@moneris.com.