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SOCi Partners

How Banks Can Determine the Success of Their Merchant Services Portfolio

By November 16, 2020 November 20th, 2020 No Comments

As an established bank looking down at merchant services, it can be difficult to determine how well your program is performing. In this article,  we will review the baseline expectations for a bank’s merchant services portfolio and walk through the benchmark numbers. 

1. Determine how much revenue a merchant services portfolio should generate at a minimum.

First, take a bank’s annual merchant services revenue and divide it by their bank’s asset size. If this is an agent bank that handles merchant services in house, their program’s revenue should generate a minimum of .10% of their bank’s asset size annually. If this is a referral bank that simply refers customers to a partner processor, then they should expect a minimum of .06% of their bank’s asset size annually. Is this bank’s portfolio meeting these benchmarks?

2. Calculate the current income.

Let’s first gauge whether your merchant services program is meeting that minimum amount from step 1. To do that,  take the current annual merchant services revenue and divide it by the bank’s total asset amount. In the following scenario, we have a $2B  referral bank earning $400,000 annually from merchant services:  $400,000 ÷ 2,000,000,000 = .02%. This figure is much lower than the .06%  baseline for referral banks and lowers still from the .10% baseline for agent banks.

3. Calculate the missed income.

For the bank used in the prior example, we’ll take their total assets and multiply that amount by .0006.  2,000,000,000 x .0006 = 1,200,000.  The bank in this example should expect a bare minimum of $1,200,000 in annual revenue from their merchant services program yet they’re only bringing in $400,000, barely one-third! This bank is missing out on at a  minimum of $800,000 in annual revenue, of which nearly all would fall straight to their bottom line. Unfortunately, this scenario is all too common and has led many banks to give up on tapping their potential for a  successful merchant services portfolio.

4. Create a growth plan.

Given this bank is missing out on over three-quarters of a  million dollars in residual revenue, they’ll need to devise and implement strategic growth strategies to build their portfolio to the baseline level.  Then from there, they can look to achieve more and more portfolio growth year over year. This is typically done in conjunction with payment processing experts.

5. Recognize Each Merchants Value.

Every individual merchant is important to a Bank’s bottom line. Referral banks should expect to make an average of $1,474 annually per merchant while agent banks can expect  $2,457 annually per merchant.

Is your bank meeting these benchmarks? If not, your bank is not alone.  Nearly 60% of banks in the nation have underperforming merchant services portfolios. If you’re one of these banks and you’re looking to change that  you can contact Platinum’s Business Development Director, Chris Horn at  Chris.Horn@ptpay.us 

Platinum Payments specializes in partner relationships including partnerships with referral banks. We offer world-class customer service,  calculated growth strategies, reward & loyalty programs, software integrations, seamless solutions, a wealth of combined experience, and industry-leading revenue share splits. 

This allows banks to reap the benefits of having a successful merchant services portfolio without the infrastructure, learning curve, cost, or expense. 

Christian Horn

Author Christian Horn

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