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April 14, 2021TSG Press

Growing Merchant Portfolio Value – Strategies to Improve Growth Factors

Each spring, new gardens are planted, lawns are cleared, and planning for healthy growth is at the forefront. Whether it be a single plant, a whole garden, or decorative landscaping, the success of each plant is predicated on its environment and care. The right mixture of soil nutrients, watering times, sunlight, and care influence a plant’s overall health and resultant growth.

Like the environmental conditions and care of a garden, a merchant portfolio’s growth and value can be accelerated under the right conditions. Future value of a portfolio is predicated upon growth factors. Each phase of the merchant lifecycle (New, Retained, and Attrited) should have specific strategies in place to nurture and improve growth factors. TSG provides its Acquiring Industry Metrics (AIM) platform to assist clients with their strategies in nurturing portfolio growth factors. When growth factors improve, there is an exponential increase in value. So what are the growth factors for each stage of the merchant lifecycle?

The soil is the foundation for a plants’ growth. The proper nutrients and chemical makeup provide the foundation for successful growth. Ultimately, the foundation will drive and influence the performance of the other growth factors. In this example, the New Merchant strategy of portfolio management influences the Retained and Attrited growth factors. New Merchant growth factors include:

  • New Merchant revenue rates
  • New Merchant account size

There are multiple strategies that can improve New Merchant growth factors:                        

  • Targeting industry verticals with higher than expected revenue rates
    • An example would be verticals with lower, more attractive interchange programs
  • Implementing a specific pricing strategy by market segment to optimize New Merchant revenue rates
  • Adding or expanding sales channels to achieve higher growth from New Merchants
  • Adding Integrated Service partners achieving stronger retention rates
  • Adding competitive offerings such as value-added services or integrated solutions
  • Targeting higher growth verticals resulting in larger account sizes

Improving New Merchant growth factors, by implementing focused strategies, drives higher growth and value while influencing the success of the next two phases in the merchant lifecycle: Retained and Attrited Merchants.

The optimal amount of water and sunlight provide vegetation an environment for accelerated growth during a critical growth stage. Within a merchant portfolio, improving Retained Merchant growth factors represent an optimal watering and sunlight strategy. Retained Merchant growth factors include:

  • Retained Merchant account size growth
  • Retained Merchant revenue rates

Strategies to improve Retained Merchant growth factors include:

  • Strategic pricing initiatives
    • Increase revenue from upselling value-added services after a merchant is boarded
  • Targeted pricing actions including pricing optimization and underwater (negative revenue) merchant analysis
  • Uniform pricing actions may negatively impact Attrited Merchant growth factors
  • Interchange management
  • Tracking and modifying merchant pricing based on biannual card brand regulatory updates

Retained Merchant growth strategies, much like appropriate amounts of water and sunlight, accelerate portfolio growth and value. Like New Merchant strategies, Retained Merchant strategies such as balancing price versus offering, influence the next phase of the merchant lifecycle – Attrited Merchants.

Attentiveness and care are required to maintain a plant’s health and growth. Although seemingly easy, constantly attending to a garden after initial growth is paramount to maintaining high performance. Attrited Merchant growth factors focus on retention. By limiting account attrition, the impact of the New and Retained growth factors experience less offset. The Attrited Merchant growth factors include:

  • Limiting attrition
  • Improving retention

Strategies to improve Attrited Merchant growth factors include:

  • Retention programs, and retention teams, involving merchant outreach
  • Identifying at-risk merchant through predictive attrition
  • Strategic and selective pricing initiatives
    • Pricing Optimization is a Retained Merchant growth factor strategy, but accomplishing it in a targeted manner may reduce attrition from specific pricing initiatives
    • Avoid universal price increases
  • Integrated solution for greater retention
    • Also found in the New and Retained Merchant strategies, additional value-added services are not only an opportunity to increase revenue but to facilitate higher retention as well

A successful garden depends on the right mixture of soil nutrients, watering times, sunlight, and attentiveness. A merchant portfolio’s success and value are predicated upon growth factors. Improving portfolio growth through specific growth factor strategies cultivated for each phase of a merchant’s lifecycle results in higher value. Reviewing and implementing specific strategies should be the focus of any merchant portfolio manager. How is your portfolio growing?

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