Banks Not Focused on Merchant Acquiring Are Giving Their Business Customers to Fintechs

Many banks have stayed away from offering merchant acquiring services to their business customers because it’s a low-margin business with deep technology requirements. For business customers, however, card payments from their customers represent the majority of their cash flow and are an integral part of their financial services needs. Non-bank merchant services providers are rapidly advancing into banking as a service and working hard to own the primary financial services relationship with banks’ customers. Merchant acquiring is not just about the product and associated revenue; it’s a key strategic lever for banks to stay at the center of their relationships with business customers. 

Javelin explores specific strategies that banks and credit unions can use to be the merchant services provider of choice for business customers. Banks have inherent advantages that fintechs are working hard to overcome, and banks can protect them by applying focused effort. Merchant acquiring may be a low-margin product, but the value of bundling the service in a product stack drives key loyalty metrics that go beyond product revenue. 

Key questions discussed in this report:

• How can banks best meet the needs of merchants?
• Can a bank use merchant services to create a defensible competitive advantage?
• Do merchants still value bank relationships?

Companies Mentioned:

Affirm, Clover, Early Warning Services, Fiserv, Linga, Mastercard, Nubank, PayPal, PNC, Pollinate, Revolut, Truist, Upstart, Visa, Zelle