New Survey Finds That More U.S. Small Businesses Use Third-Party Card Processing Providers Than Banks

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Latest report from Mercator Advisory Group’s annual U.S. Small Business Survey series.

One of the 39 exhibits included in this report

With the wide range of services offered, merchants are looking beyond banks for card processing services, often finding alternative suppliers of expertise and services that address their increasingly complex and specialized payments acceptance needs.

Mercator Advisory Group’s most recent Insight Summary Report,Payment Acceptance in a Complex Environment: Banks, Watch Out, based on the company’s annual Small Business Payments and Banking Survey for 2017, reveals that 59% of card-accepting merchants in the United States use acquiring or merchant banks for their payment processing services. Acquiring banks collectively are a clear leader compared to the next most common types of provider—a point-of-sale terminal provider (used by 35% of respondents) and PayPal (used by 30%). But, when the responses are aggregated, more merchants surveyed use any type of third-party card processor (76%) than use a merchant bank for payment processing services.

The survey findings show that small businesses have complex needs and take advantage of many of the same payment services required by larger merchants, such as mobile apps for couponing and receipting or mobile wallets for e-commerce. Many third-party providers offer smaller merchants ancillary services they need aside from core processing services. Respondents who claim their small businesses use merchant acquiring banks are more likely than those who use third-party providers to consider the acquiring bank their primary bank. However, that could change if banks don’t keep abreast of small business needs and concerns.

Payment Acceptance in a Complex Environment: Banks, Watch Out is the first of three reports summarizing the results of the 2017 Small Business Payments and Banking Survey, the second annual survey that Mercator Advisory Group fielded using a web-based survey of 1,600 U.S. small businesses (between $500,000 and $5 million annual sales) regarding their use of payments and banking services.

The survey contained questions on today’s business sentiment, payment acceptance services, business-to-business (B2B) payments, and banking depository and loan services. Forthcoming companion reports summarize the survey’s findings on business-to-business payments and business banking services. A copy of the survey questionnaire, developed by Mercator Advisory Group in consultation with our clients, can be found in the report’s appendix.

“Small businesses are more complicated and diverse than you may imagine as they try to compete with larger businesses for consumers’ attention,” notes the author of this report, Karen Augustine, Senior Manager, Primary Data Services at Mercator Advisory Group. “With the wide range of services offered, merchants are looking beyond their banks for card processing services, often finding alternative suppliers of expertise and services that address their increasingly complex and specialized payments acceptance needs.”

Highlights of this Insight Summary Report include:

  • U.S. small businesses’ most common sales channels by sales volume
  • The most common methods of payment accepted by sales volume
  • Types of merchant services used by type of provider
  • Rate of switching primary card processing providers and reasons for doing so
  • Extent of adoption of omnichannel strategies
  • Acceptance of mobile payments, virtual terminals, merchants’ own gift cards, and other emerging payment types
  • Prevalence of “steering” of customers to preferred payments
  • Extent of use of acquiring/merchant banks
  • Most common pain points
  • Prevalence of on-site ATMs, either owned or hosted

This report contains 67 pages and 39 exhibits.

Companies mentioned are: Visa, Mastercard, Discover, American Express, PayPal, Square

Subscribers to Mercator Advisory Group’s 2017 Small Business Payments and Banking Survey have access to these reports as well as survey crosstabs, PowerPoint slides of the report exhibits, and the option of requesting custom queries from the survey data.

For more information and media inquiries, please call Mercator Advisory Group's main line: 1-781-419-1700, or send email to media(at)mercatoradvisorygroup.com.

For free industry news, opinions, research, company information and more, visit us at http://www.PaymentsJournal.com.

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About Mercator Advisory Group
Mercator Advisory Group is the leading independent research and advisory services firm exclusively focused on the payments and banking industries. We deliver pragmatic and timely research and advice designed to help our clients uncover the most lucrative opportunities to maximize revenue growth and contain costs. Our clients range from the world's largest payment issuers, acquirers, processors, merchants and associations to leading technology providers and investors. Mercator Advisory Group is also the publisher of the online payments and banking news and information portal PaymentsJournal.com.

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Karen Yetter
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