Merchant Relationships



by Barry Davis

   First Annapolis Consulting recently assisted several acquirers in analyzing their merchant attrition experience and in developing retention tactics to help optimize portfolio profitability. A common question that was asked by several portfolio managers was "How much service should we provide to our merchants?" To help answer this question, we called upon eight leading acquirers and asked how they managed merchant relationships. Our interviews focused on three key questions:

  • How do you define a national merchant, a regional merchant, and a small "mom & pop" merchant?
  • How do you manage these types of merchants?
  • For each type of merchant, how many merchant accounts does a relationship manager handle?

   Although most readers of this publication focus on the small merchant market, several ISOs are now serving regional, and in some cases, national merchants.


   Merchant segments were defined by the annual purchase or transaction volume of the merchants. Responses for what amount of purchase volume defined a small merchant ranged from $200,000 to any merchant conducting less than $10 million in annual volume. The average was $7 million. Regional size merchant responses ranged from any merchant conducting between $200,000 and $200 million in volume with the average being $115 million. National merchants were defined as any merchant conducting more than $115 million in volume.
   Relationship Management. All acquirers stated that small merchants are handled by a customer service call center and that no individual representative is dedicated to handle specific small merchants. The ratio of customer service reps to merchants averaged 1 to 1,300 with a range of 200 to 6,000 merchants per individual customer service rep. Six of the eight acquirers utilize a dedicated representative for regional merchants. The span of control for a single relationship manager ranged from 15 to 900 merchants with the average being 42 merchants. All eight acquirers used a dedicated relationship manager for their national merchants and the span of control per each manager ranged from one to 35 merchants.
   Management Structure: All acquirers mentioned that they utilized a one, or in some cases, multiple call-in customer service center to handle small merchants. For regional merchants, relationship managers are typically assigned geographic territories and they handle all the mid-size merchants in that territory. For national merchants, where one-on-one attention is critical, account managers were either assigned to national merchants in their assigned region, or the account manager was responsible for national merchants in a specific industry (vertical structure) such as hotels, restaurants, or airlines. In two situations, the acquirers utilized a combination of both regional and vertical relationship management structures.
   Lessons Learned on Managing Small Merchants. The goal of the study was to provide our clients with a sense of how to structure their account management team efficiently so as to minimize merchant attrition without overstaffing the relationship management team. First Annapolis' utilized its internal database of over 350,000 merchants (mostly small merchants with under $1 million in annual purchase volume), representing actual data from numerous acquirers and ISOs. This information allowed us to calculate that most acquirers lose 20% to 25% of their small merchants (less than $200,000 in purchase volume) each year. It was interesting to note that the acquirer that utilized the lowest ratio of customer service reps (CSRs) to merchants (1:6,000), experienced a small merchant attrition rate of 22% (par for the industry). This situation led us to believe that "more is not always better" and that CSR productivity levels really matter in managing small merchants. In this particular example, some keys to success included:

  • Customer service was run in-house to provide more customized control
  • Frequent and timely management reporting to identify problem merchants and act proactively
  • CSRs were empowered with tools to adjust pricing immediately while maintaining profitability
  • Attractive compensation package to help reduce CSR turnover
  • Cross-training and career path program for CSRs to also improve CSR retention.

   With small merchant attrition being so critical to an acquirer's profitability, the timing has never been better to re-evaluate small merchant relationship management.