For all the talk about financial-technology firms and non-bank processors encroaching on banks’ turf, acquiring banks still outdo the upstarts when it comes to having satisfied merchant customers, according to J.D. Power’s first in-depth study of the merchant-acquiring industry.
The online study of 3,500 small businesses nationwide last October and November also found that merchant acquirers’ efforts to steer the conversation away from price apparently haven’t worked. Cost of service was the most important of four factors influencing customer choice, satisfaction, and loyalty, according to J.D. Power. The other three factors in descending order were service interactions, the processing service itself, and equipment and technology.
The research firm best known for its studies of consumer satisfaction with businesses looked at merchant customers of 19 banks and processors in the acquiring space, then sorted the providers into four groups. They consisted of bank acquirers (BB&T, Capital One, and Chase); bank joint ventures with First Data Corp. (Bank of America, Citibank, PNC, and Wells Fargo); fintechs (Intuit, PayPal, Square, and Visa through its CyberSource and Authorize.Net units); and scale processors (Elavon, First American Payment Systems, First Data, Fidelity National Information Services [FIS], Global Payments/Heartland, North American Bancard, Total System Services [TSYS], and Worldpay/Vantiv).
Using a zero to 1,000-point scale typical of J.D. Power rankings, the bank acquirers scored 863 in overall satisfaction followed by 847 for the bank/First Data joint ventures, fintechs at 843, and scale processors at 806.
Banks lead because of relationships, according to Paul McAdam, senior director of banking intelligence at Costa Mesa, Calif.-based J.D. Power. The proportions of small businesses that use other services from their merchant-services provider vary greatly: 97% for large banks, 75% for fintechs, and 52% for scale processors.
“What we found in the study is banks have deeper relationships,” McAdam tells Digital Transactions News. Many merchants “have account managers assigned to them; they’re more likely to receive proactive communication.”
The findings, however, reflect some of the nuances of the highly nuanced acquiring industry. For example, J.D. Power considers BB&T and Capital One to be bank acquirers even though they provide merchant services through third-party processors: TSYS and Worldpay/Vantiv, respectively. But it was the bank brands that stuck in their merchants’ minds, McAdam says. And Elavon, although a subsidiary of U.S. Bancorp, is considered a scale processor, not a bank acquirer, because it has a national footprint beyond U.S. Bancorp’s large but sub-national branch network.
The study also found that e-commerce merchants were much happier than brick-and-mortar merchants with their payment providers—scoring 849 in satisfaction as a group versus 809 for the point-of-sale merchants. “A lot of this goes back to cost of service,” McAdam says, noting that e-commerce merchants are “more satisfied with their ability to manage payment costs. We just saw that the e-commerce merchants had a much better understanding of the costs and were much more active in using the technology.”
In contrast, many card-present merchants, especially the smallest ones, are “still using your basic reader” and are less savvy about pricing, he says.
Fintechs, meanwhile “are closing the lead” with banks in merchant satisfaction, according to McAdam. “They have low rates of customer problems, that helps them a lot,” he says, adding that their merchants tend to be satisfied with the technology provided and the processing services, including speed of merchant funding. “That positions them well,” he says.
For purposes of the study, J.D. Power defined a small business as one with $50,000 to $20 million in annual sales. McAdam says J.D. Power plans to do a similar study within a year and issue rankings by provider.