For both merchant acquirers and processors, revenue growth will continue to be a primary challenge over the next several years. Transaction driven sales growth has decelerated and now stands at an annual growth rate of about 8 percent per year as compared to the 10 to 15 percent volume growth levels experienced over the over the past two decades. In addition, intensified competition for merchant relationships by new aggregator-type entrants, who view payments as merely an adjacent revenue stream, will continue to accelerate margin compression.
As a result, industry revenues from acquiring and processing merchant payments are expected to squeeze out only 2 to 3 percent growth over the next three to five years. Likewise, increased competition will continue to drive an accelerated decline in transaction-based processing margins to a negative 6 to 8 percent CAGR, according to a recent McKinsey and Company report.
It is important to note that most margin compression will continue to be experienced largely among the small and medium-size segments. In general, the new acquiring competitors will pose less threat to large merchant processing relationships in the years ahead.
Thus, merchant processing margins will likely continue on a declining “diet” for the next few years.
According to McKinsey and Company, to succeed in this rapidly changing market, payments players must examine the impact of these trends on their business and make clear decisions about where and how they will compete along the value chain. As economic and regulatory forces compress margins, ways to improve more immediate revenue growth is expanding the breadth of noncredit products offered to merchant customers.
To reverse the revenue diet and “fatten up” MID margins, National Benefit Programs (NBP) offers a 60-day “weight gain” program.
Within sixty days or less, NBP can add nearly $8 net revenue per MID per month. For 10K MIDs, that’s $950,000 annually.
Do the math, and you’ll see that NBP provides an effective antidote for today’s margin compression.
Written by Sonny Wooten