Hidden deposits: The untapped potential of merchant services

Financial institutions today are continuously seeking innovative avenues for growth and sustainability. One often overlooked opportunity lies in merchant services. By nature, it’s a program that’s seen as complicated both internally and externally, but by understanding and leveraging the relationship between merchant services and deposit growth, financial institutions can tap into a pool of opportunities.

Merchant services and its impact on deposit growth

Merchant services are crucial products that can bring value to both the bank and the business client. However, it’s important to view your merchant program through a lens that extends beyond merely selling. For merchant services to have an impact on deposit growth, it's all about developing deep, multi-faceted relationships with your business clients. Establishing primacy – becoming the primary bank for a client – hinges on them viewing you as a trusted advisor.

Each client is different, and each has circumstantial needs, which is why offering tailored solutions is better for encouraging primacy. Merchant accounts are already at risk for attrition, and treating these accounts like they’re in a vacuum will only increase attrition rates. Instead, financial institutions are more likely to find success with tailored solutions that holistically solve client problems – this means considering various factors and structuring proposals that include competitive pricing and incentives for deposits based on the individual qualities of that client.

The role of technology in merchant services

Advancements in technology have significantly enhanced the ability of merchant services to drive deposit growth. Additionally, by not offering or educating on these solutions, your business clients are more likely to go to a non-bank solution for their point-of-sale or analytic needs. Technology has driven major change in merchant services even within the past five years. Some key factors of this include:

• Diverse solutions. Banks can now offer solutions tailored to a wide range of industries and verticals, meeting specific business needs and positioning the bank as a comprehensive solution provider.
• Robust reporting. Providing merchants with intuitive, robust platforms for data analysis helps them understand their customer base better. For banks, leveraging this data improves customer understanding and deepens relationships.
• Solving client problems. Banks must stay updated on technological solutions to prevent clients from turning to non-bank alternatives. Being proactive in solving clients' problems strengthens the advisor relationship and retains deposits.

Strategies for optimizing and leveraging merchant services

Merchant service program face challenges such as complexity and competition for attention within banks. Simplifying product discussions and having advocates at senior levels are vital to getting the most from this program. Explore these best practices to help your bank overcome challenges and seize opportunities as they arise:

1. Identify gaps

Review your business portfolio and identify customers who don't have merchant services with the bank but should, based on the type of business they have. Consider a restaurant client, for example. Let’s say card revenue accounts for ninety-five percent of their revenue, with those funds going into a catch-all operations account for incoming revenue. If you as their bank only manage where the client’s money is going, not where it’s coming from, that’s an opportunity to offer a merchant account. When you identify such gaps, it helps target potential clients for conversion to prime accounts, bringing additional deposits.

2. Leverage data

Understanding revenue streams and customer behavior through data analysis can help financial institutions deepen relationships and drive deposits.

3. Champion the program

As earlier noted, merchant programs can be complicated, resulting in limited interested internally and thus, limited investment. For your merchant program to realize value, bankers should be advocating for the program, highlighting the volume driven to grow deposits rather than just residual income. Educating your executives and commercial lenders about the value of merchant services can garner internal support, boosting the success of your program.

It's also a good idea to establish individuals who can champion the program. Having subject matter experts (SMEs) who understand your merchant solutions thoroughly can aid in internal training, customer onboarding and even internal advocacy efforts.

4. Simplify product conversations

Make the topic of merchant services less daunting for frontline staff by offering training and resources that simplifies the referral process. Tailored education based on roles ensures staff can effectively introduce merchant services to clients. For example, new tellers could be educated on merchant services from a high level, whereas retail bankers would participate in a more advanced training program.

For help simplifying these conversations, lean on your payment processing provider and ask them for advice on the best way to position partnered solutions.

5. Build and nurture holistic relationships

Externally, there's this perception that merchant services are commoditized, acting as more of a transactional piece of how businesses operate. This perception may be shaped by how competitive this space is, and so, treating merchant clients as more than transactional encourages them to think of you as a trusted advisor. Nurturing these relationships and holding onto deposits means having ongoing conversations with your business clients about their needs. They often don’t have visibility into what their bank can provide for them in terms of merchant services. While they may trust you for other needs such as loans or cash management solutions, their bank may not be the first thing that comes to mind when they think merchant services. Spending resources to aggregate profitability across the relationship helps build trust and reduce attrition rates.

6. Target audiences and specialize solutions

Price sensitivity is another piece of the puzzle. Businesses don’t want to pay top dollar for a one-size-fits-all solution, but they will be more likely to pay extra for a solution that’s incredibly tailored to their needs. That service piece is crucial and should be how conversations with clients start.

Financial institutions can unlock opportunities when they target specific business segments. If your bank is a new entrant into the merchant space, or you have a limited program, find and market the solution that makes sense for your situation, then become the best at. Your institution can’t be everything to everybody. Instead, target areas, industries, sectors, company sizes, solution types – whatever your focus is, and deliver comprehensive tailored solutions. Home in on what you’re good at, then partner with technology providers that complement your strengths.

Partnering with payment processors

A close, collaborative relationship with your payment processing partner is crucial to the success of your merchant program. Managing the future product needs of merchants is a challenge, as their needs are rapidly changing. If you and your payment processing partner aren’t aligned on the common goal, you can end up on divergent paths, which is something that most banks can’t afford. Financial institutions that align on common goals with their partners will be better at adhering to a roadmap towards success.

Your payment processing partner can also help establish SMEs in your organization, or they themselves can act as an expert. Collaborate with them so you can plan for and address potential questions and concerns your merchants may throw at you.

A good payment processing partner should also allow flexibility in decision making. You know your customers best and are the better advocate for what they need. A balance of responsibility between the bank and the payment partner will drive success and deliver the best solutions to solve the rapidly changing needs of merchants.

Merchant services hold significant untapped potential for driving deposit growth in financial institutions. By adopting a holistic, data-driven approach, fostering internal advocacy, leveraging technology and partnering effectively with payment processors, banks can transform their merchant services strategy into a powerful growth engine.

Note: This blog was informed by a panel of the same name that was held during Deluxe Exchange 2024.