Mercator Blog

New Survey Finds That More U.S. Small Businesses Use Third-Party Card Processing Providers Than Banks
Date: July 13, 2017
Research Team
Mercator Advisory Group’s 2017 Small Business Payments and Banking Survey highlights the diversity of U.S. small businesses and the complexity of their payments and banking requirements. Small businesses with less than $5 million in revenues often support 100 or more employees, particularly in the service sector, while some with fewer than 10 employees may generate $2–5 million in annual revenues. At many financial institutions, small businesses get shuffled together with consumer segments of the customer base or remain in limbo between corporate and retail banking. And they are often relegated to second-tier status behind large, multilane retailers like Target. Yet, small businesses still rely heavily on their banking relationships and take advantage of ancillary payment providers such as independent software vendors (ISVs), independent sales organizations (ISOs), and value-added resellers (VARs) to obtain another source of payments expertise, advice, and service to meet their needs. The findings of this second annual survey suggest that small businesses’ use of any type of third-party provider of payment services now rivals their use of acquiring banks, which have traditionally been the main provider of services to merchants. So, banks need to watch out for those third-party providers by making sure they provide payment solutions tailored to business verticals and the specific needs of small businesses.

To remain competitive, small businesses need services and payment tools that resemble many used by larger companies. They look for advice and support for new payment technologies to manage their diverse sales channels, which often include physical locations with e-commerce and mobile channels. Small businesses are far from simple, despite their size. Responses to our survey from small business leaders who provide products and services in a broad range of verticals indicate that they grapple with sales and payment acceptance across a variety of physical and virtual sales channels. Their concerns demonstrate that “omnichannel” delivery is not exclusive to large merchants and service providers. As small businesses try to compete effectively, they remain desperate for financing. Cash flow management is a constant concern to keep abreast of the challenges of EMV, charge backs, fraud management, mobile payments, loyalty programs, and other emerging payment issues.
In this complex business environment, it is harder than ever to be a strong, full-service provider of payment services. There are more opportunities to cross-sell needed services to businesses beyond the cost-sensitive core service of card acceptance. But those services are increasingly technical and specialized, potentially requiring investment in new capabilities, staffing, or partnerships. Small businesses are the growth engines of our economy and well worth greater focus. This report highlights some of the common needs that transcend this diverse sector and opportunities to better serve this important market segment.

Payment Acceptance in a Complex Environment: Banks, Watch Out is the first of three reports summarizing the results of the 2017 Small Business Payments and Banking Survey, the second annual survey that Mercator Advisory Group fielded using a web-based survey of 1,600 U.S. small businesses (between $500,000 and $5 million annual sales) regarding their use of payments and banking services.