United States
Financial institutions have long viewed merchant services as a necessary but separate add-on or, at best, a minor source of non-interest income, but today, its strategic value runs much deeper.
We now know that when business clients process payments through your financial institution, the relationship often becomes significantly more durable. That matters in a market where commercial clients have more options than ever, from large fintech challengers to standalone processors to vertical software platforms offering embedded payments.
What payment processing does is create operational integration, daily touchpoints, and deeper financial entanglement that can make business relationships significantly stickier. For banks and credit unions focused on retention, wallet share, and long-term business growth, merchant services can be a strategic relationship anchor, not just a revenue stream.
The Retention Challenge in Business Banking
No doubt you’re already well aware that there’s an attrition problem in commercial banking. A recent Datos Insight survey found that one in five small businesses say they will probably switch their primary financial institution in the next two years, and more than 65% already go outside their financial institution to meet at least one financial need.
Unfortunately, business banking today is a sieve more than a stronghold. The reasons why this is happening are coming at you from all sides. Let’s do a quick review of the dynamics causing this problem.
Commercial relationships are under pressure
Your business clients now have more financial options than ever. Where local or regional banks once held their loyalty, they are now being wooed away by a host of modern competitors:
- fintech banks
- specialized lenders
- standalone merchant processors
- software-led embedded finance
- treasury-focused providers
The traditional assumption that businesses will naturally consolidate financial relationships with their bank is weakening.
Deposits alone don’t create deep stickiness
A checking account still matters, but operational dependency matters more. With relatively limited disruption, a business can move their deposit account to a large fintech with fancier digital bells and whistles or better pricing, but moving payment acceptance is often much more consequential.
Here are some reasons why businesses are often hesitant to switch payment-processing vendors:
- payment acceptance touches daily revenue flow
- device or software changes create friction
- staff retraining may be required
- customer checkout experiences may be affected
- integrations may need to change
All of this makes payments inherently stickier than many standalone banking products.
Payments Creates Daily Operational Embeddedness
Unlike episodic banking products, payments are part of everyday operations. Retailers accept card payments all day. Restaurants process every ticket. Healthcare practices collect patient balances daily. Service businesses invoice and accept payments constantly. And ecommerce merchants continually manage digital checkout flows.
This frequency creates habitual awareness and dependency. In other words, when you use something all the time, you tend to become attached to it.
Operational dependency increases switching friction
But the operational layer of payment processing and point-of-sale systems runs a lot deeper than familiarity. If a business changes merchant-services providers, they know they may need:
- new terminals
- software configuration changes
- gateway migration
- pricing review
- underwriting
- staff training
- accounting workflow updates
Even when newer, potentially better alternatives exist, operational disruption discourages switching. And for financial institutions with high merchant-services penetration, this is a major retention advantage.
Settlement Visibility and Speed Strengthen the Banking Relationship
Here’s another facet of the familiarity and dependency fostered by merchant services, which in turn further strengthens your banking relationship with business clients. Business owners are keenly aware of the cadences and nuances of cash flow, and they care about both data and speed.
Payment processing creates richer financial engagement
Merchant services doesn’t just process transactions. It creates data and cash-flow visibility around:
- daily revenue
- settlement timing
- funding flows
- transaction trends
- sales seasonality
- payment channel behavior
In other words, gross deposits are step one, but the additional layers of information made available to them through modern merchant services helps them plan and grow. This creates more relationship depth than deposits alone.
Faster access to funds matters
You may not fully realize to what extent businesses, especially SMBs, live and die by cash flow. According to a recent Federal Reserve Banks survey, 51% of SMBs cited uneven cash flow as a significant challenge. That means that they care deeply about:
- funding predictability
- settlement speed
- cash flow visibility
When payments settle directly into business deposit accounts at your financial institution, you become more operationally central. Treasury conversations become more relevant. And working capital opportunities become more visible.
Merchant Services Opens Cross-Sell Opportunities
The same funding data that helps business owners operate and succeed can help your bankers assess and meet client needs more fully with additional products and services.
Payments reveals business needs deposit data may miss
Payment transaction data can reveal a business’s growth trajectory, seasonality, channel mix evolution, and working capital pressure. This in turn creates legitimate, well-timed opportunities for your bankers to offer:
- treasury management
- lending
- equipment financing
- payroll
- expense management
- business cards
- fraud tools
If a client has an immediate need, you’re not selling, you’re solving.
The more products a business uses, the harder it is to leave
Relationship-banking wisdom says that multiproduct clients churn less. The data backs this up.
Merchant services is especially valuable because it creates that recurring operational dependency we were talking about, not just contractual overlap. According to an Accenture Fiserv study, merchant-account holders contribute 2.6 times more revenue than business-account holders who don’t use your merchant services. And merchant account holders are cross-sold 41% more banking products than business-account holders who don’t use your merchant services.
The Competitive Risk of Letting Payments Live Elsewhere
Does it really matter if your business clients use a payment-processing vendor outside your financial institution? The answer is a resounding Yes!
Perhaps the most insidious threat comes from the large fintechs like Stripe, Square, and PayPal, which are disintermediating financial institutions by meeting a business’s merchant-services needs then offering a host of additional, convenient capabilities, including:
- operating accounts
- lending relationships
- software dependence
- employee management
- inventory control
- treasury services
- long-term business loyalty
- data analytics and marketing
They start by providing payments, then they capture treasury services followed by lending, issuing, money movement, and financial operating systems. And merchant services is the doorway to everything.
If another provider owns payments, they own the relationship momentum
When standalone processors and fintechs capture a client’s merchant services, they gain daily merchant engagement, operational trust, payments data visibility, and upsell opportunities. In other words, they gain all the relationship benefits and opportunities we’ve been discussing.
This creates risk for you. Your institution becomes the background utility while another provider becomes the active business partner.
Embedded finance changes expectations
Many software platforms now embed and bundle:
- payments
- invoicing
- lending
- banking-like services
If you don’t offer competitive merchant services, your commercial clients may well consolidate elsewhere.
Merchant Experience Still Determines Retention
It’s also essential to keep in mind that just any merchant-services program will not necessarily solve your retention problem. In fact, it can exacerbate your retention problem. That’s because bad merchant services can weaken, not strengthen, relationships.
Stickiness only works when the merchant-services experience is strong and client satisfaction is high. Here are some common merchant-services pain points that drive churn instead of alleviating it:
- confusing pricing
- poor support
- onboarding friction
- unreliable funding
- outdated hardware
- poor integration options
The takeaway is that weak merchant services can damage the broader relationship with your financial institution.
What Financial Institutions Should Prioritize
So how do you approach evaluating and improving your merchant-services program? We suggest these priorities.
Treat merchant services as a relationship strategy
While merchant services can and should drive deposits and generate non-interest income, its most powerful value is as a relationship strategy.
Be sure that together with your merchant-services partner you are offering:
- modern payments acceptance options
- transparent pricing
- fast onboarding
- strong support
- integrated reporting
- banker enablement
- proactive acquisition support
Each of these program components must be excellent and modern. If any area is weak, this creates a vulnerability point that you cannot afford.
Choose your merchant-services partner with care
Of course, your financial institution needs an industry-leading merchant-services partner in order to provide your clients and bankers with the products, services, and tools they need. A legacy payment-processing vendor is no longer enough.
As you’re evaluating your current merchant-services program, ask the following questions:
- Do they help acquire merchants?
- Can they support multiple business types?
- Is onboarding fast?
- Is reporting strong?
- Is compliance well managed?
- Will the banker experience be rewarding and easy?
We also invite you to download this Merchant-Services Provider Evaluation Checklist. It provides a quick way to assess and score your current vendor as well as reveal weak points and opportunities.
The Stickiest Business Relationships Process Payments with You
Merchant services isn’t just another commercial product. It’s a relationship tool and growth driver that creates operational dependency, recurring engagement, richer visibility, and stronger cross-sell opportunities. It’s the glue that turns the client-retention sieve into the stronghold you need it to be.
For financial institutions competing to retain and grow business relationships, that makes payments strategically powerful. Because businesses that process payments through their financial institution often are not simply generating fee income. They’re becoming harder to lose.
To learn more about leveraging and enhancing your merchant-services partnership, connect with Bob Balogh by selecting Get started.