Linthicum, Maryland: In recently completed research, First Annapolis examined key performance statistics for 17 acquirers (also know as ‘merchant processors’ – intermediaries that process card-based payments for merchants). These acquirers collectively process well over half of the card based payments performed in the U.S. and are broadly representative of the industry at large. The results of the research paint a picture of broad economic pressure on main street merchants.
The research isolates small and mid-sized merchants, and these acquirers reported same store growth regarding the merchants for which they process deteriorating from the modest growth of 1.5% in 2008 to material decline of 4.9% May year-to-date 2009. Three of the individual acquirers reported same store growth declines of over 10%. To put this into perspective, card based payments have never registered same store growth declines over all, even in past recessions, due to the secular trend of payment volume migrating from legacy payment forms (cash and checks) to card based payment forms.
Likewise, acquirers are reporting nearly a 100% increase in their loss rates do to business failure of primarily small and mid-sized merchants. Loss levels in acquiring are nowhere near the levels of lending businesses, but nevertheless, acquiring losses are a broad indicator of the health of the card-accepting business community – losses in this context result from merchants not being able to meet their obligations arising from card based payments. Losses rose from 0.92 basis points of the dollar value of payment card transactions (e.g., a basis point is one one-hundredth of a percentage point) in 2008 to 1.73 basis points May year-to-date 2009.
“These research outcomes are signs of great performance pressure on acquirers, but also are highly symptomatic of tough times for small and mid-sized merchants,” noted Nicole Schrader, the Senior Consultant who managed the research.
“The pressure on major merchants is well documented in the business press, but this research highlights the degree to which main street merchants have also been impacted by the broad economic crisis,” commented First Annapolis Managing Partner, Marc Abbey.
First Annapolis is a management consulting and M&A advisory firm with a focus on the financial services industry and a specialty in payment-related products, services, and delivery. Our clients include financial institutions, payment networks, service providers, retailers, airlines, hotels, affinity groups, manufacturers, trade associations, and government agencies. We offer a full range of services including strategy development, program diagnostics, portfolio/risk management, and
performance benchmarking. First Annapolis also offers a suite of specialized M&A advisory services that complement our consulting practice. Marc Abbey can be reached at 410-855-8521 or Marc.Abbey@firstannapolis.com. Nicole Schrader can be contacted at 410-855-8557 or Nicole.Schrader@firstannapolis.com.
