Three Key Ways They Spell Trouble for ISVs
***Updated April 21, 2022***
The country’s largest electronic payments industry analytics and consulting firm, The Strawhecker Group, recently published its Transaction Watch newsletter. It reports 37 collective deals in the payments industry in the first quarter of 2022. Some of the key deals involved players such as:
Mergers and acquisitions within the payments industry have been on the uptick for the past few years. Below is an article we published back in November 2019. We raised some red flags ISVs and their integrated payments customers were experiencing at the time. Here we are, two and half years later, and those red flags are still here – in fact, they are growing.
In a nutshell, customers of payment providers involved in M&A activity have seen their service decline and their prices rise. As a result, their satisfaction with their software provider starts to slide as well. That can spell trouble for you as your customers seek alternatives.
The original article from 2019 appears below.
Recent mergers and acquisitions within the payment industry have significantly shrunk the provider landscape and created some mammoth-sized companies. In 2019 alone three of the top 10 deals tracked by NY-based investment bank, Berkery Noyes Securities LLC involved payment processing firms. The value of these deals was a whopping $91 billion.
Examples of payment companies involved in mega-mergers and acquisitions include:
- Fidelity National Information Services (FIS)
- First Data
- Heartland Payment Systems
- Global Payments
What that means to you, if one of your payment providers has been a part of one of these mega-mergers, remains to be seen. However, if the recent past is any indication, you and your customers may be in for a bumpy ride. It may not always be an immediate change, but it’ll likely be in the not-so-distant future.
Consider that many of these companies have told Wall Street they are going to see increases in revenue and decreases in cost. Where is the new revenue coming from? Perhaps, rate increases? And, how about cost-savings? Lay-offs and reduction of services would be a logical starting point. Neither is good for you or your customers.
We’ve had scores of conversations with software providers whose payment processor had recently merged or been acquired. You need to be aware of a few key issues that consistently surfaced during those discussions so you can safeguard yourself and your merchant customers from the same plight.
1. Familiarity Went Out the Window
Many software providers we’ve spoken with have shared stories about service outages and then suddenly finding that there was no one around who was familiar with them or their set-up. People they had worked with pre-merger were nowhere to be found post-merger.
If you’ve been through any kind of merger or acquisition, you know this scenario all too well. There is almost always a reduction in headcount, and sitting on the client side of the fence, you will find yourself having to explain your set-up and your environment to people who are completely unfamiliar.
2. Service Took a Nose Dive
It may only take a few months or it may take more than a year, but customers of consolidated companies often see a decline in their service levels. This is bad for you and bad for your merchant customers that rely on responsive service to keep their payment program smooth and seamless.
In these mega-mergers, the proverbial pond becomes so large, that unless you or your customer is a fish that is just as large, your issues drop pretty far down on the priority list. The “big guys” tend to give the most attention to customers that drive the most revenue. If that’s not you or any of your customers, both of you may be out of luck.
3. Fees Jumped
While this directly impacts your merchant customers, it also brings serious implications for you as well. Without prior notification, basis points often increased and other charges such as “Non-Qual Sales Disc” and “Non-Compliance Fees” started to appear on invoices. One particular merchant saw his basis points jump from 20 to 103 after his payment company merged with another. This was no insignificant or painless increase as his transaction volume was over two million dollars.
Few things will raise a customer’s ire as much as being overcharged for something. This is an important point because if you provided this mega-merged processor to the relationship, then your customers will directly associate the added charges with your software platform. Guilt by association may not be fair, but it is real, and it can hurt your business.
What can you do?
If you see one of your payment partners on the merger list, you’re going to want to be proactive and do these two things:
1. Prepare for the fact that you may need to replace this payment partner relationship.
Start exploring other integrated payment providers so you’re ready if and when you must make a change. Start by looking at providers with transparent pricing, high-touch service, and a customer retention rate that is in the 90% range, at a minimum. Here’s a list of what to look for in a good payment partner.
2. Contact your customers who are using a processor that has been involved in a recent mega-merger.
Ask them to check their invoices to compare to last year’s – just to make sure there has been no rate creep or added fees. Also poll them to see if there have been any declines in service and to gauge their overall satisfaction with their mega-company provider. If all is fine, that’s great. If all is not fine, you need to know it. Either way, your customers will appreciate your looking out for their best interests.
This article was originally published November 7, 2019. It has been updated to account for more recent information.