What the Mid
Merchant Re

dle Market
ally Knows

by Sarah Phelps       


   IF YOU ARE A TRANSACTION PROCESSOR and you plan to visit a merchant you serve, set aside some time to introduce yourself because chances are they won't know you. First Annapolis recently conducted a survey of retail merchants with 100 to 350 locations to explore their preferences regarding transaction processors and their services. Surprisingly, while three out of four merchants knew who their acquirer was, less than half could name their transaction processor.
   In most cases, merchants associated transaction processing services with their acquirer relationship and only those with special processing needs, or an axe to grind, could name their processor. Of those who could name their processor, most could not offer comparative information across different processors. So, unless there's an unfavorable service history, processors seeking brand awareness with merchants are largely starting from scratch.
   This is not to say that there is no brand recognition whatsoever. Nearly all merchants surveyed that had a private label program (about 35% of the total) could name their processors (in most cases these merchants engaged a separate pro-cessor for their private label program) and knew at least some of the differences among them. However, few of those who knew their processor have engaged in a competitive bidding process to select a new one. The implication is that unless the merchant has an unfavorable experience, it's unlikely that they will shop around to replace you.
   One respondent, when asked about transaction processing services for his organization, lamented the inflexibility of merchant acquirers in terms of enhanced reporting and managing special report requests. The main complaint: that transaction processing services were "canned" and that asking an acquirer to accommodate a unique processing request was liking asking for tickets to opening day…impossible. However, the merchant associated this limitation with the acquirer not the processor.
   But if merchants tend not to think about your service how do you build market share? While few merchants were evaluating transaction processing per se, several were considering equipment upgrades at the point-of-sale. Approximately one third of merchants surveyed were either considering updating their point-of-sale hardware or had recently completed an upgrade. This merchant sentiment indicates that a sales campaign that associates the transaction processor with superior POS functionality really stands to gain.
   Preferences with respect to product attributes also provided useful insight into the merchant transaction processing mindset. The overwhelming number one driver of merchant transaction processing preference was price (selected as the most important criteria by 50% of respondents), with reliability and speed finishing second (20%), and third (15%).
   Preferences with respect to reporting and settlement were largely dependant on the type of retail organization. Generally these services have to be aligned with the merchant. For example, a department store will require settlement at the corporate level with reporting by location, while a franchised organization will want location level settlement and reporting.
   Transaction processors can use this information to design their sales strategy. Since most mid-sized merchants don't view transaction processing as a service that is separate from acquiring anyway, sales efforts might be more appropriately channeled through merchant acquirers or equipment manufacturers. Processors have to be careful though to make sure that the message regarding the benefits of their services, vis-ŕ-vis their competitors, is communicated carefully and clearly.


Sarah Phelps is a consultant at First Annapolis Consulting and specializes in the transaction processing, electronic banking, and card issuing practice areas. She received her M.B.A. from the Robert H. Smith School of Business at the University of Maryland.